Give us a brief introduction to yourself.
I was born in the Ukraine and my parents brought me to Silicon Valley aged eight. I grew up around technology, went to the same high school as Steve Jobs and Steve Wozniak. I have been messing around with startups probably since my early teenage years, one way or another. I went through a few of my own companies for about 15 years. I ran a design company, a printing company before that, and a venture-backed software-as-a-service company. I then went to the dark side, joining HP in March last year, and helped launch the corporate venture arm for Silicon Valley’s original startup.
Describe the changes and structure of HP.
The biggest change is that the company split in two in November of 2015. So now there is HP Inc, which is us, and Hewlett-Packard Enterprise – two separate companies, two separate management teams, tickers, strategies, completely separate. Just the similar name.
HP Inc has three primary business units – personal computing, which recently became number one in PCs, the printing unit, which, both in consumer and commercial, are top in the world, and we have a new business unit, 3D printing, formed a couple of years ago with a focus on commercial applications of additive manufacturing.
Give us a brief introduction to HP Tech Ventures.
We operate within the chief technology officer (CTO) office. The company has three business units in terms of products, and there are three regional business units responsible for sales in the Americas, Europe, Middle East and Africa, and Asia-Pacific. In the middle of all of that we have the CTO office where we are adjacent to the legendary HP labs. Our main office is in HP’s global headquarters in Palo Alto, California, where there are four team members. We also have one person on the east coast and one responsible for Israel in Tel Aviv. We invest from the company balance sheet, which has its challenges, but we are just getting started.
Give us a bit of insight into scale and scope.
We have a handful of deals already. We will probably do half a dozen deals this year. Typical deals are $1m to $10m. Our sweet spot is series A and series B, we will co-invest with top-tier financial investors, and commit up to half of a round, but because we are investing from the balance sheet, there are a number of considerations, including financial consolidation rules. For these reasons, we tend to let the institutional investors lead.
What are the key technologies and new business model opportunities you are looking at?
Every deal we do is sponsored by one or another organisation within the product groups usually, so we are investing within the strategy and within the context of HP’s roadmap. Our current interest areas cross hardware and software in 3D printing, innovation in printing and imaging, virtual and augmented reality (VR and AR), education, healthcare, and core technologies, such as batteries, screens, new sensors and so on.
Do you find a tension between delivering what the current business wants and where there might be more strategic opportunities?
I would really call it an impedance mismatch. Business units operate on a quarterly basis and they live within their context. At large companies, things, inevitably, move pretty slow. But when they do move, they tend to be pretty large-scale. To startups, a couple of weeks is a lifetime, so it is very important to try to reconcile these incompatible timescales to make sure we can get into the good deals that usually close in a month. This means, in a lot of cases, we need to get to know the companies much earlier, to get us through the gauntlet and make sure that everybody gets the chance to talk to them and provide feedback within the company.
What are the team skillsets and experience?
It is a pretty experienced team. Folk have been in the company between a couple of years and 30 years. Most know the inner workings and have relationships across the organisation. My background is quite different, so I am the outsider. My experience is as an entrepreneur in the trenches, as a mentor and trainer with a number of accelerators, and as a startup conference speaker and thought leader. I am able to generate a lot of very high-quality dealflow and I would be lost navigating the corporate side of things without our liaisons on the business unit side.
When you see an interesting business and have invested in it, how do you connect it with the core business?
On my team I have counterparts who have constant communication with the various business units. So when I bring in a potential investment, the first step is to share it with one of my partners who will get it to the business unit for feedback to determine if it is a conversation we want to take further. We will usually let the business units structure their commercial agreement alongside any investment, and it could be a partnership before we do an investment. Ultimately, it is really up to the business unit to maintain the commercial relationship, whereas from the investment management side we tend to behave very similarly to institutional investors working to track the company over time, providing strategic guidance and any other help they may need.
Do you take board or observer seats or are you flexible?
You start getting into the weeds a little bit when you look at some of the legal ramifications here, so we tend to take observer seats. As an observer your fiduciary duty does not switch, legally, to the portfolio company. We invest from the company balance sheet, we are employees of the mother ship and our fiduciary duty is squarely with HP. That also means we firewall a lot of the information from the business units, so there is an implied trust within the startups that we keep certain information confidential.
I would advise that everyone talks to their in-house counsel and have them retain outside counsel experienced in venture as well. A lot of times, in-house counsel is not experienced with the nuances related to the startup world and minority investments. It is a pretty specialised area.
How does HP Tech Ventures measure financial and strategic performance?
A company like HP does about $1bn in revenue a week. The financial returns in most deals do not move the needle much and they are kind of secondary. Our primary concern is strategic. This means we are seeking to gain deeper insights, relationships, and brand recognition in categories where we are active in the market.
When a company the size of HP goes into a new business, it is a multi-year, multibillion-dollar investment. By investing around the ecosystem of that new business, we can gain a couple of points advantage here and there. It starts adding up pretty quick as to the market advantage.
As to the quality of investments, if institutional VCs are not touching it, we certainly won’t either. Almost as a rule, we co-invest with top-tier investors. If a company is not able to raise money from other investors we think twice. It is a good discipline to have.
One regular occurrence important to avoid is funding duds just because they are referrals from business units. There may be situations where a business unit is trying to do a partnership with a company for an important component to their roadmap. They want to make sure the company stays in business, and that is probably the worst reason to invest in a startup. In these cases, where the technology may be critical but the company is unstable or overly reliant on us, it may be a great opportunity to acquire instead of investing.
Give an example of a particular investment or partnership you have conducted.
I recently led an investment in a seed fund called the VR Fund. They operate globally out of Silicon Valley, a great syndicate of other LPs, including some global corporates. What this investment means for us is that we get perspective from a great team investing a couple of years earlier in a strategic category.
VR and AR have become very important for HP since we announced a new gaming unit last year. So investing in a seed fund like this allows us to stretch a relatively small commitment quite far and builds us a relationship with several dozen portfolio companies. We get to know them over time and they see HP as a great partner, in some cases even integrating their products with our product lines. In some cases this may also lead to direct investments in their next round.
There are a lot of different things that corporate venture units and innovation teams and companies can do. Our strategy really is threefold – direct investments from series A and B, seed investments via limited partnerships in very vertically-focused funds, and ecosystem support to build awareness. We do this via event sponsorships and I speak at many conferences to make sure the various ecosystems are aware of HP Tech Ventures and where we can add value.
What do you do to relax?
I am a professional airline passenger these days, so I try to get as much sleep as I can on the plane, but I did just write a book that came out in March. That was a two-year project that started well before I joined HP. It is called Accelerated Startup. The book helps entrepreneurs and would-be entrepreneurs go from idea to product to company.
To listen to this and other interviews on a podcast, subscribe at gaulesqt.podomatic.com. Andrew Gaule leads the GCV Academy, developing the capabilities and expertise of organisations leading open innovation, venturing and corporate venturing programs to drive strategic benefit. He also supports innovation programs and collaborations with “innovative new value chains” in global organisations. To contact Andrew Gaule and for future interview ideas email andrew.gaule@aimava.com or James Mawson at jmawson@globalcorporateventuring.com