The Unilever innovation and venturing process spans research and development (R&D), open innovation, a new businesses unit, direct investments and investing with independent venture capital firms, such as Physic Ventures, where Unilever is a cornerstone limited partner. Andrew Gaule, founder of the Corven Corporate Venturing Network, puts questions first to William Rosenzweig, managing director of Physic Ventures, which has Unilever as a cornerstone investor, then to Jon Hague, vice-president of open innovation at Unilever. Gaule’s Question Time’s June 2011 interview was with Martin Grieve, managing director of Unilever Corporate Ventures.
Gaule: Can you please give us a brief description of your background?
William Rosenzweig, managing director of Physic Ventures: I have been an investor for roughly the past 12 years, focused on early-stage venture capital, helping entrepreneurs turn ideas into businesses. Prior to that for around 10 years I was an entrepreneur myself, primarily in the healthy living and healthy foods space as I co-founded and was chief executive of the Republic of Tea and then senior vice-president of Odwalla, a healthy juice company.
Physic Ventures is really the first venture capital firm dedicated to investing in keeping people healthy, which we think of as personal health, planetary health and community health.
Gaule: An interesting aspect of Physic Ventures is how you are partnering with corporates, such as Unilever. How does that work?
Rosenzweig: While we have several large corporate partners at Physic we also have financial investors, and that symmetry is very important. The institutional investors are interested in financial returns, so they hold the general partner accountable to being the best performing partner we can be. The corporate partners are interested in both financial returns and strategic value, so we try to find the sweet spot between Physic’s investment thesis and where the corporates are interested in generating value.
With the foundational commitment of Unilever and soft drinks company PepsiCo we have been able to identify a lot of spaces in the nutrition, agriculture, food and sustainability sectors that are of mutual relevance. Our approach is called Network Innovation, which involves using the global insights we can gain from these big corporate partners to synthesise with our own understanding of the entrepreneurial marketplace to identify large unmet needs in the market. We often leverage technical expertise from those companies; Unilever has 2500 PhDs around the world for example. We’ve had visiting associates come into our firm and conduct evaluations of technology landscapes in synthetic biology, in packaging materials and a whole host of areas.
We’re very thesis-driven in our approach to investing; we will develop a thesis about a market space, what will win in that space and what are the attributes of a company that will win in that space. Once we make an investment in an area that’s of mutual relevance, we try to drive and accelerate value in that portfolio company by either creating a pilot relationship, a first customer relationship, a distribution agreement, a spin-out or license of technology into a new company.
In the first fund we’ve got four or five great examples of Network Innovation, for example starting a company with one of our corporate partners in a new space by leveraging intellectual property (IP) and expertise that was dormant in a Bangalore research lab. This was technology that was developed at great expense and clinically efficacious, something that is usually a huge barrier to entry for a small company. We were able to bring that out and create a new company with the aspiration of being able to go to market faster and more capital efficiently than a large multinational could.
We have also had a great case study in identifying an unmet need in the global packaging material space. This has involved leveraging market insights, technology expertise and a development relationship between the start-up and the multinational which attracted non-dilutive capital to the company through a US Department of Energy grant. Because we were able to foster this relationship very early in the company’s lifespan, we were able to attract twice as much non-dilutive financing as the investors put in.
Gaule: Where are the sectors you are focused on?
Rosenzweig: Yes, in California, where we are based, we are in a good place for health and wellness as these trends have been taking root for around 20 years.
Twenty years ago when I started Republic of Tea there was the first clinical study showing the medicinal benefits of tea, such as the antioxidants and anti-inflammatory properties it contains. This was really the beginning of science in food. Since that time botanical medicine and medical foods have become mainstream, and the health benefits of practices such as yoga and meditation are starting to be confirmed through medical science. Fundamentally what has changed in the past few years is the increased accessibility of affordable sensors, devices and information technology diagnostics, along with the confirmation that health outcomes actually drive lower costs and better quality of life.
Gaule: The health economics case can be made around ‘You will live longer and be healthier if you do yoga’, but what is the product and who pays for it at the end of the day? Is it the insurer, the government or the individual? What changes are you seeing in business models?
Rosenzweig: We look fundamentally for ‘B2B2C’ (business to business to consumer) platform opportunities that link disparate parties in a way we haven’t seen before.
There’s been a proliferation of applications and one-off devices but these are really just the early seeds that are indicative of trends and will not necessarily be financed into game-changing or category-creating businesses.
We have seen many business plans for theses sorts of things, such as a sensor that can manage heartbeat or activity or an iPhone App that can measure the number of steps you take or calories you burn, but didn’t feel that those were investable. Fundamentally these are novel and interesting indicators, but there needs to be a scalable business model – one that is not reliant on any one sensor but has a platform technology that could take input from any number of sensors. That information then needs to be translated in a way that is useful to you as an individual and also in a way that would be credible to your doctor or health provider. We are looking to connect personal health to institutional health, as well as the sensing and diagnostic realm. The business models that are appealing to us are connecting platforms.
Gaule: And who pays for it at the end of the day?
Rosenzweig: We have been working on an opportunity within the food-at-home space where we saw many companies that were offering either recipes, procurement of food, or sharing your food experiences, but nobody was aggregating the whole experience into a game-changing solution.
In terms of monetisation there are opportunities for connecting those individuals who have an interest/need to a professional provider, and there are incentives for insurers or health providers to start to provide financial incentives, such as a reduction in your health insurance costs if youare a healthy person.
Gaule: What do you do to relax when you are not building ventures (hobbies, family)?
Rosenzweig: I love to spend time with my family. I have two children, one that is 17 and going off to college and one that has graduated from college and works nearby in San Francisco.
I am a very avid and passionate gardener, I just planted 106 rose bushes last week and designed something I called the Centennial rose garden. I also have place I call the Idea garden in the Russian river valley, we do our business retreats there. I find that once people get their hands dirty and start to really understand how seeds turn into plants then into fruit, the ecosystem that is involved with that and the patience and care, it a very healthy metaphor for growing sustainable businesses.
So I spend a lot of time in the garden and I grow a lot of food, I love to cook the food for the family and friends, that’s my source of renewal!
Now, questions to Jon Hague, vice-president of open innovation at Unilever.
Gaule: Can you please give us a brief description of your role and background?
Hague: I am vice president for open innovation in Unilever based in R&D. I have worked for Unilever for 22 years now and have been leading the open innovation group for just over three years. My background is R&D all the way through my career and I have worked for Unilever in Indonesia, the US and the UK, working in many different categories along the way.
Gaule: Can you give us some insights to the key strategic changes and perspectives to innovation at Unilever?
Hague: Unilever has changed dramatically in the past seven years. We have moved from a highly multi-local organization with many individual operating countries and a dual-chief executive (CEO) structure to a single global organization with four global business units: homecare, personal care, foods and refreshment. As we have driven this transformation we have looked to move to excellence in how the innovation machine in Unilever operates. We have been driving the mantra of bigger, better, faster innovation for several years now. Acquiring new technology through partnership has been a key element of this and we have built or reinforced this with suppliers, universities and small- and medium-sized enterprises so 60% of our three to five-year pipeline comes from partnerships, up from about 40% in 2009. This level is about where we want it to be.
Along with this we have created a new businesses unit. This is chaired by our chief R&D officer and has the CEO as a key decision maker so that we are able to manage risk at a corporate level.
Finally the sustainable living plan has required that we think about how and where we partner to halve our environmental impact while improving the livelihoods of everyone who comes into contact with Unilever, from our consumers to our smallholder farmers.
Gaule: Can you give us some insight to the approach you are taking for open innovation supporting health and wellness change?
Hague: We have made public in the sustainable living plan that we will help more than one billion people to take action to improve their health and wellbeing, such promoting hand washing and other hygiene interventions, such as more frequent brushing of teeth. Make safe drinking water available to 500 million people by 2020 by expanding our Pure-it brand and technology, which is as safe as boiled water but without the hassle and cost of boiling. Improve heart health by motivating 100 million people to take our heart age test in support of our Flora brand. Help hundreds of millions of people achieve a healthier diet as we reduce saturated fat, salt, trans fat, sugar and calories while working to improve the taste of our foods. We are also using our consumer prowess to enable behaviour change using the Unilever "five levers for change" programme: make it understood, make it easy, make it desirable, make it rewarding and make it a habit.
Gaule: How are you developing in emerging markets?
Hague: Unilever’s existing business is 54% in the emerging growth markets and if we achieve our ambition to double our business then the percentage will be more like 75%.
We are using the new businesses unit to enable the creation of future markets in some cases. For example, we have a multi-partner initiative in South Africa to enable the creation of a business in solar water heaters as hot water in homes drives penetration of the things we sell (soap, shampoo, laundry detergent) and the community we are installing into becomes a channel for us to promote products in a sustainable way.
Similarly we have an urban sanitation business in Ghana that is installing toilets in people’s homes, and collecting the waste, so ending open defecation and this business also becomes a channel for product sales.
Gaule: What do you do to relax when you are not driving innovation (hobbies, family)?
Hague: Cricket and tennis are my main interests and I also live in a great place with lots of opportunities for coastal and hill walking.
You can hear the full interview as an audio file to download from Global Corporate Venturing or from the www.corven.com/corven-networks website. Previous interviews are also available on iTunes, search for Corven Networks
To contact Andrew Gaule and for future interview ideas, please email:
andrew.gaule@corven.com and jmawson@globalcorporateventuring.com