British American Tobacco (BAT), a UK-headquartered provider of tobacco products, has unveiled its corporate venturing arm, BTomorrow Ventures.
The company started to recruit people to work at its corporate venture capital (CVC) unit towards the end of 2019 before completing its first investment in June 2020.
Following 12 months of investment and preparation, Lisa Smith, the head of BTomorrow Ventures spoke to Global Corporate Venturing about what the unit has been up to behind the scenes, ahead of its official launch this month.
Smith said: “Our corporate is undergoing a massive transformation and having a CVC unit that drives investment is one of the key foundational pillars of helping accelerate that transformation.”
BAT’s corporate investment unit is aiming to reduce the health impact of its business by offering a greater choice of enjoyable and less risky products for adult consumers. After more than a century in the tobacco and cigarette industry, BAT is adapting to consumers’ interests in topics such as health and sustainability by looking at the on-the-go wellbeing and stimulation sectors.
“As you can imagine, we are starting from scratch and so we have got to build that investment ecosystem out entirely,” Smith added.
BTomorrow Ventures is investing from its first venture fund. On a global scale, the unit will invest from the seed to series A stage but will also seed large and medium-sized deals through a separate vehicle. In addition, it plans to raise a second venture fund in the near future to avoid interrupting its investment activities.
BTomorrow Ventures is looking at startups that answers questions such as “how do you improve concentration?” or “how do you offset the energy slump of the afternoon?”
“We are looking for people that have a consumer facing product that delivers real functional benefits in this on-the-go wellbeing and stimulation space, and it is as broad as that,” Smith said.
“We are exploring the space and we are using our investment capability to build knowledge [of that space] in the broadest way possible.”
Smith said the unit recently closed an investment in a UK-based company that has a portfolio of functional chewing gum products.
The unit has completed more than 12 investments to date in less than a year across the globe.
More recently in March 2021, BAT made a $176m strategic investment in Organigram, a Canada-based producer of cannabis products.
BTomorrow Ventures has also had to adjust to new business practices during a time of significant disruption caused by the covid-19 pandemic.
Smith said: “All of our investments have been done virtually and we have not met any of our management teams, we really look forward to meeting them in person.”
“That is kind of strange as an old school investor. When I was at Unilever Ventures, we obviously met everyone, looked [them] in the eye and shook their hands. Now we are waving through a screen, so it is a very different world.”
Smith added her team also had to be recruited virtually while they were in stealth mode.
In reaction to the covid-linked disruption, companies have had to quickly pivot their business models and embark on new commerce routes, Smith said.
“It has really separated out the quality of the management teams, so I think you were left with a very robust set of investments.”
Smith said she loves the corporate venturing space because if you get the David and Goliath relationship right and leverage the corporate in the
right way, you can help innovators and founders. “When you get it right, it is just magic, but it is really, really hard.”
Smith has had a long and illustrious career both inside and out of the corporate venturing arena.
She was a chief engineer at consumer goods producer Unilever from 1996 to 2000, before joining consulting firm McKinsey in 2004.
It was at McKinsey that she began to incorporate her passion about healthcare into her day job.
Smith helped found the world’s first Aids treatment centre in
South Africa, spurred on by a number of deaths at the factory she worked at.
“It was very close to the heart to try and help get treatments to people really quickly. That then led into using McKinsey to switch into the healthcare space.”
Smith worked at McKinsey for a few years before returning to the investment space by joining Unilever’s corporate venturing arm, Unilever Ventures, in 2006.
She has a significant interest in sustainability issues and serves as a senior associate at the Cambridge Institute for Sustainability Leadership at University of Cambridge.