You can always tell the return to work of people from their holidays as the news flow picks up covering the spectrum from shocking through to really interesting.
The shock was the scale of debts – $783.8m – run up by failed clean-tech company Solyndra and the likely fall-out given the unprecedented levels of US government support including a $535m loan.
There is also an element of hubris, according to insiders, about the tale given Solyndra’s rejection of a minimum pricing offer from a large utility and promise of investment and help in building a factory.
That Solyndra had primarily financial investors as its backers – Virgin Green, which invests on behalf of "leading branded venture capital organisation" Virgin was the sole corporate venturer – meant such hubris was always likely to be followed by its nemesis, in this case a Chapter 11 bankruptcy and a wiping out of unsecured creditors. When even China-based solar panel producers were quietly looking to corporate venturing as a way into higher-value products, those in higher-cost regions would probably also be suffering.
In clean-tech, having the establishment, whether perceived as dinosaurs or not, onside is always useful. Often in the deals there are double technological risks (whether the kit works in the laboratory and then can scale up) as well as uncertainty on pricing and quixotic levels of government subsidy.
Solyndra’s collapse, therefore, is likely to lead to less heed paid to special pleading by VCs in future and a further shift to corporate venturing as a necessity rather than nice-to-have in most parts of the sector. (More will be discussed in the October issue of Global Corporate Venturing, which has clean-tech and natural resources as its main feature and Solyndra as a case study – please let me know your views on background.)
The other really interesting bit of news was Jens Eckstein leaving highly-regarded venture capital firm TVM Capital to go to drugs company GlaxoSmithKline’s (GSK) corporate venturing unit, SR One.
Eckstein will next month replace Christoph Westphal as head of SR One, although the latter will stay on until the end of the year as a transition before concentrating more on his own VC firm Longwood Founders Fund. GSK is also an investor in Longwood and given Eckstein had been the board observer at Sirtris Pharmaceuticals, which GSK bought from Westphal, TVM and others in 2008 for $720m, the links will remain close between all parties, who happen to be based in Boston, US.
What the move means for VC firms was eloquently laid out by TVM’s managing partner, Helmut Schühsler, who said by email: "Not many things are as dead in the eyes of limited partners as life science VC. VC in general is having a very hard time. [Returns] are still not good enough compared to other alternative asset classes. There is no law of nature that makes people invest in VC … they do it if they believe they will earn better returns than elsewhere … and this is currently missing.
"With a lack of IPOs for reasonably early stage companies, the VC community has to take more and more of the Phase II and Phase III development risk. Not a good development for us but this is where the problem is: pharma development is a big boys game.
"My prediction: the corporate venturing side will slowly take over! This is where you come in 🙂 or we have to find new models to do VC. There is some out there already, and more will come. An industry in transition…."
So, for two of the three big areas of venture investment, the attitude among the big VCs is corporate venturing is on the rise. The question is whether most of the VCs will accommodate this shift in the balance of power or, like many a small business using a model that has difficulty in scaling up and maintaining a competitive edge once others have learned its tricks, will they be crushed by groups able to bring other synergies to bear?
Hopefully, it will be the former but given the unbelievable levels of arrogance by most poorly-performing VCs too used to living a nice lifestyle on management fees and being feted by first-time entrepreneurs this is a dim hope. If the past week hasn’t woken them up, nothing will, while corporations can learn the lessons in their troubles and remember humility and the need to help others to maintain an effective ecosystem for all to do well in.