Gaule: Give a brief description of the purpose of your open innovation programme, when it was formed and how the investment process occurs.
Wünsch: Corporate venturing for BASF is one of the many tools within the group addressing and exploring the rapidly changing technology environment, emphasising emerging technology fields.
BASF Venture Capital (BVC) was established in 2001 to take minority stakes in technology start-up companies active in areas of strategic interest to the BASF Group (material sciences and chemistry). The strategic objective of such investments is to open a new window on technology and facilitate an intense exchange of know-how between BASF and the respective portfolio company.
While BASF explores technology areas developed outside its in-house competencies, BASF supports ventures with co-development expertise, the scaling of engineering jobs, improvement of marketing strategies and the opening of sales channels along its global network for the benefit of the venture portfolio company. Usually joint development agreements are put in place to cover all the legal aspects and provide a solid framework for cooperation to the benefit of both parties.
To identify strategically relevant ventures, BVC aligns its technology charter with the innovation targets of BASF’s individual research and development (R&D) or business units. Only technology ventures showing a high overlap with the innovation landscape of a business or R&D unit will be considered for due diligence.
Typically, BVC will receive endorsement from a BASF unit to pursue an investment opportunity and the BASF unit will allocate scientific expertise to BVC’s due-diligence team.
Alongside the strategic objective, BVC pursues financial target returns comparable to those of other venture capital funds. Only if both objectives – strategic and financial – are compatible will BVC take an equity position in the venture. In its venture portfolio, BVC typically holds either a board seat or has at least observer rights.
Gaule: What are the model’s strengths and challenges?
Wünsch: Applying this outside-in venture model, BVC can leverage its extensive know-how and research "Verbund" (composite process) which is our network of R&D experts, both within BASF and with partner institutions, for the benefit of both the portfolio company and itself, thus increasing its chance of early success and creating value for all parties involved.
As BVC invests in technology alongside the technology platform of the BASF Group as well as its growth clusters – industrial and green biotech, energy management, nanotechnology and raw material change – the BASF Group’s overall strategy is always reflected whenever an investment is made. As the respective business or research department is typically involved, an intense cooperation is fostered between the start-up and the group.
Nevertheless, conflicts of interest may occur between financial and technological targets, when a potential investment makes sense from a technological and strategic perspective but attractive financial returns are not likely enough or the business model is not sound.
Gaule: Give a brief overview of the people in the team and the partners you work with.
Wünsch: BVC has a team with a very mixed background and culture. From an educational point of view, BVC has scientists (chemists, biochemists, physicians and so on) as well as economists and financial managers. BVC’s Tokyo, Japan, Hong Kong and China offices are run by native investment managers. The US office in California is operated by a German and an Indian investment professional.
In order to accomplish strategic as well as financial objectives, members of the BVC team have a BASF Group background (internal hires) as well as a venture capital background (external hires).
BVC has no preference on syndicate partners, but conduct due diligence on potential syndicate partners and venture capital funds that are invested.
Gaule: What has been your most interesting recent deal?
Wünsch: Which of your kids do you like most? All stages of our ventures initially have an exciting angle, especially as they are new, and we have to find out how to support them and where to leverage our expertise.
But even investments that have grown and become mature are interesting as the discussions are at a different business stage. It is also about taking out the risks at certain levels of a venture, and this part is challenging, but fun too.
Even in the event of a venture going wrong, we learn a great deal and hopefully leverage this learning for the benefit of other portfolio companies.
And because we also have financial objectives, BVC supports all its portfolio companies, even if sometimes the strategic fit might have changed over time.
Gaule: What is your view on the current market conditions for starting a new venture?
Wünsch: The challenges we see in most markets are for the "seed segment". After the financial crisis, many venture capital funds left the seed segment due to lack of performance or length of investment horizon. Only a few have survived and prosper. Most of the seed sector financing has been turned over to governmental investment vehicles in recent years.
My strong recommendation for a new venture would be to launch only when there is a solid technology case and the entrepreneur finds a financial vehicle with deep pockets to elevate the technology to a resilient proof-of-concept stage.
However, disruptive and game-changing ventures still find sufficient funds for development and growth.
Gaule: What do you do to relax when you are not supporting the building of ventures?
Wünsch: The venture business is time-consuming but worth every minute. Rather than relaxing, I seek activities outside business ventures – more on the adventure side of life.
With my three boys (aged 15, 13 and 10) I enjoy canyoning, sailing, climbing, biking and so on. My wife likes outdoor activities too, so she is typically part of the group. On the slower side, we enjoy a good dinner, a laugh at a comedy show or reading books by the fireplace.
You can hear the full interview as an audio download from Global Corporate Venturing or from www.corven.com/ corven-networks.
Wünsch will be a speaker at the Corporate Venturing Workshop on October 26 in London – see page 18.
To contact Andrew Gaule and for future interview ideas email andrew.gaule@corven.com and jmawson@globalcorporateventuring. com