From a culture of deal-making, efficiency and cost-cutting to learning "that accelerating open innovation across public, private and national borders can drive shared value for the company and its partners" is some step in less than a decade for US-listed industrial conglomerate General Electric (GE).
Few other companies would set a goal of investing $1.5bn per year in new products tied to clean technology but GE reached it a year early with its Ecomagination programme. It is all part of a drive to grow its revenues organically (a target of 8% per year or the size of a decent-sized listed company) rather than necessarily through mergers and acquisitions.
But a history of cost-cutting can run deep – new products in clean-tech can boost sales as well as be cheaper to run or offer efficiencies in other areas so boosting margins.
The crucial tool to be able to tackle clean-tech markets worth $35bn, as GE has identified, is finding ideas and nascent companies, sift through them and then being able to partner with them to scale them up. Offering cash can help draw those ideas out.
GE has seen more than 5,000 submissions for its $200m Ecomagination corporate venturing fund. Within a year, and in just one segment it invests in, GE has become one of the world’s largest corporate venturers by committing $134m to more than 20 portfolio companies identified by its Ecomagination Challenge.
However, rather than rely solely on its own managers’ judgements about what will work and how to deal with the entrepreneurs behind the ideas, GE has teamed up with professionals at four venture capital firms and then judged the way it can partner with them.
This need to partner encourages GE to look to more established companies – the Ecomagination Challenge is less a competition for start-ups or those with just an idea. Of the 10 most recent companies receiving $63m from GE, two have raised more than $85m in prior venture funding (Ember and SunRun) and three are already past their series C rounds. The other five are also all established businesses – for breakdown in their histories see the Global Corporate Venturing analysis below under news.
To encourage press attention and future ideas, however, GE has given grants of $100,000 to five companies with its Innovation Awards. These are more often the bright ideas that might work out on a larger scale over time but which require seed funding to be tested and then can grow from there.
Corporations realise the value in backing them is less whether the seedlings grow into something relevant to them than in being part of the innovation ecosystem for the other benefits it brings – the chance to talk to people who will probably have thoughts and deals that might work out better in the shorter-term. As one corporate venturing head said: "We are not interested in early-stage companies but want them just ahead of their inflection point of strong growth. But when this will be is unknown so we are constantly testing."
Incubating an idea in isolation within a company is a recipe for disaster – incubator or incinerator as press articles have previously put it after the 1990s dot.com bubble imploded. The latest method identified by a great report by Nesta is to "accelerate" a cohort companies with teams rather than sole founders chosen through an open application process, give them limited cash in return for a minority stake and intense mentoring from a wide range of experts for a limited period of time.
As the cost of setting up a viable business falls, the challenge becomes finding and scaling a company to achieve success. This requires capital and the reason why so many consumer internet businesses, such as Groupon, have raised and spent billions of dollars in the past 12 months, far more than almost every clean-tech company that can show technological risk in testing the idea as well as in scaling it up.
From a focus on efficiency to one of growth at any cost – ie what’s the largest market (such as consumer or emerging) – is reminiscent of the start of previous boom periods. The challenge for business leaders is to stay ahead of the crowd before it shifts into the next phase (rough rule of thumb: in about four to five years time), which often requires a new leader to reflect the changing culture.