Kaloyan Andonov: PTTGC is a chemical company from Thailand with a global footprint, but what has stirred its interest in corporate venture capital?
Tianyi Sun: PTTGC is a petrochemical company with $15bn in assets and headquartered in Thailand. The company has gradually built a portfolio in sustainability, such as bio-based chemicals and has been ranked first in the chemicals industry by Dow Jones Sustainability Index for three consecutive years. PTTGC’s interest in corporate venture capital (CVC) goes back almost ten years. At the time, the company realised the importance of diversifying businesses and thus started to execute a multiple-year, three-step strategy, with an emphasis in high-value products and sustainability: Step change, which involves growing and strengthening GC International’s core operation and our business in Thailand through partnership; Step out, which involves international expansion through project development, M&A initiatives and new collaboration opportunities; and Step up, which is the integration of sustainability into our core business. In this context, the CVC unit is a key component in the ‘Step out’ strategy. The team was assembled in 2017 and started to actively make investments in 2018. We are tasked to interface with emerging technologies globally and have the mandate to explore ways to engage with opportunities that can bring in new capabilities (technology, market access, business model) to the corporate mothership.
KA: What is GC Ventures’ investment mandate and how is the CVC programme structured? Do you invest from the corporate balance sheet or outside it?
TS: We invest from the corporate balance sheet and we report to the organisation that drives the international expansion of GC. We have four focus areas: advanced materials, biotech/life science, cleantech and industrial digital. Our entry point is typically series A or B. In most cases, we work with companies that are already generating revenue and looking to scale up and develop the next-gen products. We always co-invest with financial VCs and other CVCs to form investment syndicates and support portfolio in the long run. For now, our strategy is to do minority shareholding where we typically request just an observer seat.
KA: How do the four major areas of interest (digital platforms, clean tech, advanced materials and bio and life sciences) align with the overall strategy of the corporate mothership?
TS: We are a strategic VC, and so we make investment decisions based on both the potential of financial return and the potential of strategic synergy. GC has different business units internally that work in all those functions. The CVC team has regular brainstorming sessions with them. Based on the need and timeline from business units, we try to narrow down high-level investment mandates into a few specific areas as high priority in the coming year, and we use this to drive our investments and look for specific deals. It is a very aligned approach.
KA: What is it that GC Ventures can offer to its portfolio companies that other investors may not be able to? How do you onboard startups and connect them with your business units?
TS: GC is not just one company – it is part of PTT Group, which is the national oil and gas company of Thailand. Within PTT Group, GC has many sister companies so there are a lot of potential resources we can bring to the portfolio. With that in mind, there are three key things we can offer. First, we can provide access to a very diversified group of businesses, ranging from oil and gas, to chemical manufacturing, to power and utilities, and to retail and food services. Second, we are a reputable partner to access Southeast Asia markets, where the growing population and booming manufacturing sector drive the economy. Third, GC has an extensive range of subsidiaries and network in both petro-based and bio-based chemical. All of these can help portfolio companies build and grow their businesses. For example, the distribution company within our group is actively helping one of our portfolio companies identify customers in Southeast Asia.
Before each investment, the CVC team works with business units and the potential portfolio to brainstorm possible collaboration models. Post investment, being part of our portfolio management, the CVC team continues to serve as the interface between business units and the portfolio to make sure the right expectation is set and a proper collaboration programme can be built.
KA: In terms of the supply chain issues that are of concern at the moment with the reopening of the global economy, have there been cases where you have leveraged the supply chain of the mothership to help a startup?
TS: Yes, we are in the process of speaking to all portfolio companies trying to understand what challenges they are facing in terms of supply chain and if there is anything we can help with. One portfolio was looking for local manufacturing resources in the US to meet their customers’ requirement of local production, while another tries to find local feedstock to avoid overseas shipment uncertainty and increasing cost. Our team has been able to build a relationship between them and one of GC’s subsidiaries in the US, which has access to some of the resources the startups need. The problems have not been fully resolved yet, but that is the type of help and connection we can provide.
KA: Your investment mandate is broad, geographically speaking, with Thailand and the US being the most strategically important locations. How has that unfolded so far?
TS: In the CVC world, we are still relatively new. Part of our strategy involves investing in funds first to increase our geographic coverage and once we are comfortable enough, we start to make direct investments. We have two teams – I am based in Boston and am responsible for our activities in North America, and I have my counterpart in Bangkok, overseeing investment activities in Asia and Europe. We started in North America then decided to expand. We have invested in two funds and six start-ups in North America.
However, as we were in the process of making investments in funds across other geographies, the covid-19 pandemic hit. So, like almost everyone else, that imposed some limitations on how our team could operate. Our pace slowed a little in 2020, but quickly ramped up again in 2021.
For areas outside North America, we have managed to invest in one fund in Europe and one fund in China. Now, as the global economy continues to reopen and we have better understanding of the situation, both teams will continue to execute our strategies more actively in the coming years.
KA: You have invested indirectly in regions such as Europe, Canada and China by taking LP stakes in funds, including Pangaea, Emerald Ventures and the SinoGreen Fund. What has your experience as an LP been like so far?
TS: Our experience working with those funds has been great – it is a true partnership. As we are a strategic CVC, we invest in funds not just because we want the financial returns, but we also want to build relationship with them, get into the ecosystem and access the knowledge and know-how they have.
To use myself as an example, my background is in material science. I spent a few years at a consulting firm helping CVCs with market research and tech scouting, but I am still rather ‘green’ when it comes to making investments. Pangaea offered to take secondees from GC when we invested in Pangaea Ventures. I was one of the secondees sent there and had the opportunity to work with their GPs for two months to learn how deals are done and how to think like a VC. I then brought the knowledge back inhouse and the entire team can learn from this. Since then, I have had regular conversations with those seasoned VCs to bounce ideas, refine our investment thesis and seek their advice. Aside from knowledge transfer, other key strategic benefits of working with those funds include access to highly relevant high-quality dealflow and expanding network.
KA: Venture capital is a business that is about people. How many people are there in your team and what is their background?
TS: For the core investment team, we currently have four in the US and three in Thailand. We all share a common passion of working with innovative entrepreneurs. In terms of experience, all backgrounds are a mixture of technology and business – some are trained as technologists and exposed to business through consulting, while some have a business or finance background, but gained industry and technology knowledge over the years, for example, through experience at GC.
KA: What are the characteristics of a startup that you look for in order to invest in it?
TS: As I said earlier, we are a strategic VC and we make investment decisions based on the potential of financial return, as well as strategic synergy. On the potential of financial return, it boils down to three points. The first is that the startup needs to follow the global megatrends and have a large addressable market. The second is that its technology can demonstrate good product-market fit. The third is that it has a good team that can execute.
On the potential of strategic synergy, we look at how close the startup’s offering is to our business unit’s immediate need and how the startup’s technology, market, or business model can complement GC’s portfolio in the long term. When we come across an opportunity, we work with other VCs and CVCs to validate our investment thesis on the financial potential and work with business units to define strategic value.
KA: In terms of the mix of skills or attitudes you look for in founders and leaders of startups, what is the blend you seek?
TS: We have seen successful entrepreneurs with all sorts of background. The common thing about them is that they can maintain a balance between dedication to the ideas they have and the openness to feedback. They must know what they want to do and be very focused on it, but at the same time they must also know how to listen and receive feedback, so that other people can really help them grow.
KA: Aside from a trusted financial VC to lead a deal, you also look for deals where other corporates take part. What has your experience been co-investing with other corporates?
TS: For almost all investments we have done so far, there have always been other corporate co-investors in the syndicates. We prefer to have other strategic VC investors like us joining the syndicate from different parts of the supply chain, so that each of us can help the company in their own ways. Within the chemical sector, CVCs are generally very collaborative because we all benefit by sharing the risk and helping the portfolio companies grow – I have not seen much rivalry, even with corporate venturing arms of companies that would be considered competitors.
An example is one of our portfolio companies Actnano, which recently closed its series B round. Actnano develops an innovative protective coating technology for electric components with a focus in automotive applications. From its investor base, you can find two financial VCs and six CVCs, all of which are very pleasant to work with. Another example is ESS, which develops a low-cost technology for long-duration energy storage and was recently public listed on NYSE. You can also see some of the world’s leading energy and chemical companies in the syndicate supporting the companies together.
KA: How would you describe the overall investment experience of GC Ventures?
TS: Overall, our experience has been very positive. From the CVC team perspective, we are growing the portfolio, learning as a team and some portfolios are starting to show the potential of demonstrating good financial returns and strategic synergy.
From the corporate perspective, the mothership recognises that CVC is a critical function, sees it as a key tool towards innovation and continues to support its activities. From the ecosystem perspective, people start to recognise our people and our names, portfolios start to come to us seeking help for challenges they are facing and we are seeing increasing inbound deals and referrals. All of this is a very good signal that we are on the right track. I do not want to pretend that everything is perfect – running a CVC team such as ours is just like running a startup, there have been hiccups and there is a lot that we do not even know. Like most CVCs, we are also experiencing some growing pains, but if we put together what we achieved so far and what we have learned in the past four to five years on a personal level, as well as the team and corporate level, I think it is totally worth the time and effort.
KA: Finally, what is your view on the Thailand startup ecosystem?
TS: If you take a broader view of Southeast Asia, the economies are booming along with their populations. There is a lot of innovation in consumer-facing technology and there have been notable deals and exits from there. But if you look at the energy and chemical sector that we operate in, except Singapore, the innovation density is probably not as high in the region as it is in North America or Europe. This is why CVC arms like us are critical to explore and incubate in GC’s homebase. With that said, we have been seeing very positive movement in favour of chemical and energy innovation in the area, because promoting innovation in deep tech has been brought forward on many Southeast Asian governments’ agenda in recent years. Private sector is also participating in this movement. We are seeing increasingly more incentives and programmes from public and private sectors to attract and keep young talent to bring or develop technology and grow it over there.
Q&A: Andy Ting, founder and managing partner
Kaloyan Andonov: what is the strategic value that GC Ventures brings to the business group?
Andy Ting: Corporate venture investment is a key enabler of GC International’s ‘Step Out’ strategy. GC has established a clear target to increase the share of speciality chemicals in its business portfolio. As the share of speciality chemicals business increases, the number of relevant adjacent markets, applications and technologies also expand. Instead of trying to do all the R&D and application development internally, it is much more efficient to tap into the intelligence and entrepreneurial spirits of the startup ecosystem. Through the network, GC is able to access emerging technologies that could be relevant to its business.
At the same time, GC could help selective startups in their technology commercialisation efforts through collaboration programmes, which is a win-win situation. Collaborating with startups and deploying promising technologies will be one of the parallel means for GC to pursue its sustainability targets.
KA: How do you view the risks and opportunities in minority stake investments in venture capital deals?
AT: The key benefit of minority stake investments is the ability to build a diversified investment portfolio. With the smaller check size associated with minority state, we can efficiently deploy our fund in multiple investments. This is strategically important, as it gives the opportunity to be exposed to a variety of interesting emerging business sectors and technologies. A diversified investment portfolio also is a well-known tool to mitigate the higher risk in venture investment.
The risk of minority stake is the lack of control and the reduced ability to shape the business direction of a startup. Given the nature of startup business, which is to prove a new business model, the commercial feasibility of a new technology or a new product, the startup often needs to adjust its business plan, which may require changing the business model or targeting different end-use markets or customers. As a result, the original strategic intent of investment may no longer be aligned. On one hand, the corporate investor will need to regularly reassess the strategic fit of its investment and make timely decision. On the other, it needs to work closely with other investors to ensure the startup has the best chance of succeeding.