As the tagline for its own history of the company, US-listed industrial conglomerate General Electric (GE) says: "For over 130 years, we have continued to innovate what has yet to be imagined."
Despite the difficult, if not impossibility, of producing something before it has been imagined, GE has nevertheless been a highly successful, innovative company with a sophisticated corporate venturing unit.
The company said it had invested in more than 1,000 third-party companies, including a reported $4bn in 300 businesses between 1995 and 2000. However, the dot.com implosion after the millennium led to a re-evaluation of its strategy and a move to later-stage equity investing. GE is also one of the largest lenders to people and businesses through its GE Capital division.
By investing in later-stage portfolio companies, GE has been better able to link them to its business units – GE Energy, GE Global Research, GE Oil & Gas, GE Water and GE Capital. The company said: "We offer more than money. Our portfolio companies benefit from GE’s extensive financial and manufacturing footprint in the energy and water industries, industry-leading corporate research and development, operational expertise, multi-country reach, and best-in-class due diligence."
For example, GE provided $15m of the $70m raised by US-based A123 Systems in April 2009 but, beyond providing capital, GE, through GE Global Research, provided system design expertise and supported the port-folio company’s stationary power product development for electric grid applications, and helped to design battery system components for its automotive programmes.
GE, a conglomerate that outsiders have occasionally said should be broken up, has also refined its venturing process as part of a wider programme of innovation, called Imagination. Its equity investments are primarily made by two divisions – GE Energy Financial Services and GE Capital, Equity.
GE Capital, Equity said it provided equity capital to mid-market sponsor and lending relationships and to companies with differentiated technology in GE’s core industries. GE Capital, Equity manages more than $5bn in equity and indirect (fund) investments that can cover all its sectors, energy, oil and gas, healthcare, transportation and aviation, but includes a specific $250m corporate venturing fund for the healthcare sector. Healthymagination, set up in October 2009, has made one deal, a $5m investment in heart device company CardioDX, although it had expected to do 10 deals a year.
The fund is part of a $6bn programme by GE to boost healthy living. This programme includes $700m for research and development and a medical device company, Intel-GE Care Innovations, formed last year as a joint venture with US-listed semiconductor maker Intel to invest $250m over the next five years for research and product development of home-based health technologies.
Michael Jones, executive vice- president of business development at GE Healthcare, is a director of the Healthymagination fund, along with Sherwood Dodge, executive president at GE Capital, Equity. At the time of the CardioDX deal, Jones said: "GE Capital, Equity and GE Healthcare have made a relatively large number of minority equity investments, either as part of a staged acquisition or for strategic relationships. Making the Healthymagination fund more formal was necessary because there are increasing opportunities and a need for GE to extend our innovation network and be outwardly focused. Previously our investments were reactive. This fund will be more proactive and venture-orientated and also have the GE global research cen-tre involved for technology assessment and sourcing companies."
In July 2009, just before setting up Healthymagination, GE said it had become one of the founding members of a Japanese government-led initiative designed to accelerate the development of clean energy, environmental and healthcare technologies. GE is one of 16 corporations – and the only US-based company – that have each invested $5.3m in equity in the Innovation Network Corporation of Japan, while the Japanese government invested $872m and provided $8.5bn in loan guarantees.
GE Capital, Equity, led by Sherwood Dodge, also managed a second, $200m fund, called Peacock, for the media sector. The Peacock fund was managed as a joint venture in conjunction with broadcaster NBC Universal but has been transferred to cable company Comcast after it acquired NBC in January. A similar partnership between GE and other companies has also funded a corporate venturing fund for the energy sector.
In January, GE, energy utility NRG Energy and oil major ConocoPhillips committed a combined $300m to launch Energy Technology Ventures, a corporate venturing joint venture to invest in about 30 early and growth-stage clean-tech companies over the next four years.The Energy Technology joint venture is the first time NRG and ConocoPhillips have started a corporate venturing programme, whereas GE has been active in clean-tech corporate venturing through its $22bn GE Energy division.
GE Energy primarily invests what is effectively project finance for wind farms and other power projects covering, such as oil and gas, power transmission and distribution and renewable energy as well as about $200m in 27 later-stage emerging energy and water-related technology companies through its venture investing group. GE said it made "equity investments in companies that pursue game-changing technologies and services throughout the energy and water value chain, from natural resources to clean tech".
GE usually invests up to $5m per deal but can spend more, such as battery maker A123 Systems, in which GE invested an aggregate $69.8m over seven rounds for more than 10% of the company ahead of its flotation.
The GE Energy division has also led corporate venturing investments out of a group-wide Ecomagination project to become more efficientas a company and invest in clean technology for future products and sales. Each GE business unit has to generate four Ecomagination projects every year. Former GE adviser on innovation strategy Larry Keeley, co-founder and president of consultancy firm Doblin, part of the Monitor Group, said the waste found through Ecomagination paid for the programme.
In a speech at the IBF Corporate Venturing and Innovation Partnering conference last month, Keeley said GE in 2007 had set out a plan aiming for an increase in organic growth rates from 5% to 8% a year. He said "Three percentage points is the equivalent of a Fortune 50 company each year."
To achieve this, GE has made more than 190 innovation breakthroughs in the past two years, Keeley said. He added: "Every business unit has to identify high performance people to be sent to GE’s Jack Welch training centre for three weeks. Once there, they spend two days learning the GE innovation methodology, and then with four others form a cohort under a business unit head. None has worked together before or in that area.
"They spend 10 days crunching data and visiting sites then make four presentations at the centre, to the business unit head, to [executive chairman] Jeff Immelt and for funding from the board. If successful [in suggesting an idea] you will probably be moved to the business unit."
Keeley warned that other companies would findit difficult to apply the GE model because of its size and connections with governments. But GE is keen to work with others through a process of partnerships as well as corporate venturing, and set up a $200m clean-tech competition with four venture capital (VC) firms last year.
GE, along with the four VCs (RockPort Capital, Foundation Capital, Kleiner Perkins Caufield& Byers and Emerald Technology Ventures), set up a $200m Ecomagination competition last year, picking winners from 70,000 entries from the first tranche of the event covering the electric grid. GE said it and the four VCs had collaborated on sourcing deals, but each firm could decide whether to invest in the clean-tech entrepreneurs.
GE said it would invest $45m in 12 deals seen from the Ecomagination competition, with the remainder coming from the VCs, according to news provider VentureWire.The 12 deals are: Sweden-based ClimateWell and Ireland’s FMC-Tech; US-based companies Consert, JouleX, OPower, ScientificConservation, SecureRF, Sentient Energy, Soladigm, SustainX and SynapSense; and a collaboration with the Fu Foundation School for Engineering and Applied Science at Columbia University in New York.
In a statement at the time, Immelt said: "The Ecomagination Challenge has delivered on our commitment with partners to drive innovation and investment through collaborative action.
"We are working with these new partners to accelerate the development and deployment of these concepts on a scale that will help drive a cleaner, more efficientand eco-nomically viable grid. The partnerships formed through this Challenge represent a new way of doing business at GE as we continue to expand our broad digital energy offering in the growing power grid market."
GE expects these electric grid markets of energy storage, utility security, energy management software and electric vehicle charging services to become a $20bn business sector by 2015. The second tranche of the competition, Powering Your Home, covering clean-tech innovations for houses, runs until early this month and offers fivewinners $100,000 each.
For a company founded on selling electricity components, such as light bulbs, GE has diversified into other business lines but supplying power equipment for the next generation of energy users remains important. Last year, GE posted $100.2bn in revenues for its industrial division while GE Capital had turnover of $50.5bn.
As well as using corporate venturing and open innova-tion competitions to become more creative, GE has been increasing its internal research and development (R&D) since the Ecomagination project started in 2005, including a 21% rise last year compared with the $1.5bn spent in 2009. GE said in 2005 its plan was to double investment in innovation and technology with the launch of Ecomagination. In the first five years GE invested $5bn in clean tech R&D, and generated $70bn in Ecomagination revenues.
This led in 2009 to GE committing to an additional $10bn investment in the five-yearperiod to 2015 and to grow Ecomagination revenues at double the rate of overall company growth. Part of this growth will come from emerging markets as GE’s 300,000 employees operate in more than 100 countries.
However, rather than developed products in the US and other developed markets and adapt them for other countries, GE has promoted the idea of reverse innovation.In an article in October 2009 for information provider Harvard Business Review, GE was said to be using reverse innovation to focus on developing local technologies in emerging markets and then distributing them globally.
Fact box:
Started: 1995
Assets under management: >$5bn
Key people:
GE Capital, Equity – had both the Healthymagination and Peacock funds Sherwood Dodge, president and chief executive
Bruce Ingram, funds leader
Patrick Kocsi, portfolio leader
Mike Fisher, investment leader
Rajan Gupta, senior vice-president
Rafael Torres, managing director
Hugh Golden, managing director
Jonanthan Glass, managing director
Mark Chen, managing director, China
Hubert Esperon, managing director, UK
Gustavo Arnaiz, managing director, Latin America
Shin Kimura, vice-president
GE Energy Financial Services
Kevin Skillern, leader of venture capital
Ricardo Angel, senior vice-president
John Cote, vice-president, venture capital portfolio
Andrew Lackner, associate vice-president
Jerry Polacek, managing director
Trey Kellett, vice-president