If you want to be the “most profitable and respected science-driven chemical company in the world” then managing the innovation pipeline from internal and external sources becomes a critical challenge.
US-based chemicals company Dow is looking to address this by allying a $1.65bn research and development (R&D) investment programme for last year with a corporate venturing unit to help manage the technology and business opportunities it sees (click for chart and here to hear webinar).
Run by Monty Bayer, corporate vice-president of new business development and ventures, Dow Corporate Venturing covers three areas: venture capital, to invest in private companies with high-growth potential where Dow can be a strategic investor; ventures and business development to cultivate the internal innovation pipeline from the R&D; and licensing to help transfer intellectual assets and technology inside and outside of Dow.
Dow Corporate Venturing was effectively formed three to four years ago by pulling together the Dow Venture Capital investment unit with the Dow Ventures and Business Development group that was incubating future businesses from a combination of licensing, equity investing and R&D.
In the fifth Global Corporate Venturing webinar series, hosted by the US-based National Council of Entrepreneurial Tech Transfer (NCET2), Dow Chemical laid out how it was looking to work with universities and research institutes to provide proof-of-concept funding and support to start-ups and revenue-generating businesses.
In their webinar presentation, Kevin McElgunn, investment director Dow Venture Capital, and Douglas White, director of new business development at Dow Ventures and Business Development, said a “rich idea space occurs at the intersection of technology innovation and commercialisation”.
White said: “Corporate venturing captures the breadth of opportunity we can see and cover. In R&D there are 70 to 90 programmes for product development in the early stages, whether our own ideas or collaborations with external people at government laboratories, universities, start-ups or in other organisations. We review business plans and scope market size and potential.”
White has a global role for his technical scouting team with six others looking at specificregions, including Steve Hahn on the west coast of the US, Patricia Ansems Bancroft on the gulf coast, Joost Waeterloos in Europe and Luke Du in the Pacific region.
White said Dow was looking for opportunities with a “clear value proposition and compelling disruptive technology” that had “sufficient and business-friendly” intellectual property and an advisory board of independent experts and a plan for to scale using milestones.
He said the area most external people with ideas could usefully work on was their “hypothesis of a value-added product at a low cost”.
Last year, a third of Dow’s sales came from products in specialty chemicals, advanced materials, agricultural sciences and plastic businesses introduced in the previous five years.
Dow’s innovation strategy meant it looking at business ideas across four so-called megatrends – agriculture, to protect crops and develop seeds for different diets; energy, including clean-tech, as solar and wind power sources are expected to grow by double digits, and energy storage devices; consumer and lifestyle solutions, especially in emerging markets and as electronic devices grow by double digits; and transportation and infrastructure, as populations renew ageing infrastructure and seek sustainable water supplies.
McElgunn said water purification was a good example of an area that the team was looking at as it crossed a number of Dow’s business units.
Dow Venture Capital has backed Clean Filtration Technologies as a water treatment company and Waterhealth to introduce different business models to provide safe and affordable water to the underserved.
He said wind power was another investment area that cross multiple nodes at Dow, including resins that coat blades to reduce drag, composites to make them lighter and motor rotors to allow blades to be longer than 80 metres.
Dow Venture Capital was set up in 1993 but has shifted from a financial focus to back entrepreneurs where it saw a good opportunity to more strategic aims to accelerate growth at Dow and for all stakeholders.
Bayer now reports to Dow’s chief technology officer rather than chief financial officer. McElgunn said the “ideal deal” was one where Dow can add value to the entrepreneur for “mutual value creation”.
He added that he and the three other investment managers – Mike Rehberg, Mark Felix and Richard Fuentes – looked for “solid teams with defensible, compelling technologies and credible business models across all stages of development, from seed to late-stage”.
Dow said it took an active role in leading deals but tried to keep the cumulative investment below $25m unless the strategic impetus was “sufficiently attractive”.
The strategic orientation means Dow is increasingly interested in buying its portfolio companies if they fit, including ACQ Blades.
However, McElgunn said when it came to an exit Dow Venture Capital was focused on finding “the relationship that will increase by the most value the ongoing partner-ship between the entrepreneur and Dow business unit”.