Corporate venture capital (CVC) unit Solvay Ventures will be retained by one of the two publicly traded entities into which Belgium-based advanced materials and chemicals producer Solvay is set to divide.
The company announced the split last month, and Solvay Ventures will be transferred to an entity preliminary dubbed SpecialityCo, which will take on higher-growth, higher-margin businesses like specialty polymers, aroma chemicals, aerospace composites and assorted ingredients for consumer products.
The other side of the business, tentatively called EssentialCo, will mostly be home to commodities and product lines like soda ash, peroxides and silica.
Matt Jones, managing director for Solvay Ventures North America, told Global Corporate Venturing: “Everything that is going with the SpecialtyCo, I think is all in line with what we are doing in venture.”
SpecialityCo will have a higher proportion of senior leadership that understands and takes an interest in what Solvay Ventures does, according to Coppelia Marincovic, investment manager at the unit, who added: “The businesses that will go into [EssentialCo] are not businesses that we have been working with anyway.
“I think for us, [the restructure] is a good thing, bringing more agility, having more visibility, because people will value what we do more. It is good, it can only bring more support to our activity.”
Solvay Ventures’ remit crosses sectors including sustainable resources, energy transition, digital tools and health and wellbeing, and it works out of an €80m ($86m) evergreen fund, giving it a longer horizon and sparing it the pressure of having to divest from portfolio companies after a typical 10 to 15-year cycle.
About two-thirds of the fund’s capital has been deployed and Solvay Ventures tends to invest an average of about $5m per deal, though its initial contributions are typically between $500,000 to $3m in size.
Jones said: “We are stage-agnostic in the sense that it really comes down to what is the right time for the startup and Solvay in terms of trying to collectively do something together.
“Historically, that has been seed, A and B as initial rounds, because if it is super late-stage then the company has probably already figured out their tech stack, so there is less chance for us to be more impactful.”
The unit’s portfolio companies include lithium-metal battery developer Sepion, medical-focused 3D printing technology provider PrinterPrezz, self-healing additive technology producer Autonomic Materials and 3D printing technology developer 9T Labs. It looks to forge partnerships with its parent in addition to investing.
Jones said: “Half of our job is finding partnerships. There are a lot of companies that maybe do not fit our venture model, maybe they do not want a corporate on the stack, but they still want to work with Solvay.
“While I think equity, we also think, first and foremost, what could Solvay do with the startup and is it the priority for Solvay to do it? We try and make those connections, regardless of the equity side.”
While Solvay Ventures does not need sponsorship or a sign-off from a Solvay business unit, it does want to maintain alignment and ideally have Solvay collaborate with a portfolio company to de-risk the investment and make it a better overall financial prospect.
An area such as 3D printing indicates the potential for the strategy. Even if Solvay does not make the machines itself, it could produce or optimise the high-performance materials the portfolio companies use for the process and point clients in a company’s direction if they want to print with Solvay materials.
Solvay Ventures has achieved three exits: Kumovis, a 3D-printed medical device provider acquired by 3D printing technology producer 3D Systems earlier this year; Solid Power, a solid-state battery producer that executed a $1.2bn reverse merger in 2021; and battery and industrial prototyping software developer MultiMechanics, acquired by industrial technology manufacturer Siemens in 2019.
Direct focus
In its early years, Solvay Ventures pursued more of a fund-of-funds strategy and it has taken limited partner positions in over 10 funds. It now focuses more on direct investments but will continue putting a portion of its capital – roughly 20% – into LP commitments.
Maricovic said: “Our direct investments are clearly outperforming our fund investments, which was kind of unexpected. We thought we would be at the benchmark of what other good funds are doing. We are outperforming them.”
With the funds in the unit’s portfolio due to start coming to the end of their terms within the next two to three years, the proceeds are set to be recycled back into its armoury. Those deals also have strategic value in network development and the insight they give into how business is done in certain markets, Jones said.
Solvay Ventures’ recent investment in the second fund of China-based private equity firm Longwater Investment is a good example.
“We are going to work with that fund to build our network, to understand the ecosystem, to understand how deals get done,” Jones said. “We need to build that capability.
“So we may not get deals that are strategic, maybe [the funds] will go do 10 deals and one of them will have relevance to Solvay, but what we are doing with those is learning the ecosystem.”
Another example is a recent follow-up investment Solvay Ventures made in an unnamed bio-fund based in Europe, which is set to give its parent company a clearer picture of what entrepreneurs are doing in the biotech space and how investors are thinking of the risks associated with those companies as they scale.
Shifting landscape
A major change Jones has seen in the market has been the complete capital stack now available to deep tech companies from accelerators, as well as the change in attitudes toward the prospects of cleantech investments and an across-the-board sustainability focus.
“One of the complaints about cleantech 1.0 was that it was too capital intensive,” Jones said. “I think what people have really come to realise is that it is not that these companies are capital intensive, it is that they are targeting markets that are so large they can take in as much capital and still get a venture return.
“So I think that is a big change in the investment landscape that we are seeing, allowing these companies to raise the capital needed to actually attack the problem, given its size.”
The biggest challenge remains how to get those companies to scale, an area where Jones’ pitch to founders highlights the importance of corporate relationships.
Internally, there has also been a shift in the way the unit has trained its focus on a smaller number of high-growth areas rather than the multitude of niche markets as varied as carbon fibre composites, agriculture, food and green silica that makes up Solvay’s product offering.
Maricovic said: “We have refocused our strategy into having more dedicated topics. We are still monitoring everything that has some link to Solvay, but I think in terms of what we put more effort into, it is a much smaller area: batteries, hydrogen, carbon capture, biotech – maybe five or six core topics.
“I think for those topics, we have this mandate where we have much more flexibility, we have the trust from the leadership, we can be much more agile.”
The unit has been able to grow momentum organically by the strength of its track record, which has made more people reach out and trust them, Maricovic said, though it has perhaps been limited by the underuse of Solvay’s communications capabilities.
Regarding what would help CVC arms work with corporates, Jones said: “I think we need to do this internally, too: more education of what ventures is, how it works and why it works. People move around a lot at all corporates so having that kind of Venture 101 – Here is what we do, and why we do it and what we are expecting of you; our own internal education around why we exist is important.”
Thinking about how corporates can make budget available to capture the value brought in by corporate venturers, especially when it is difficult to predict precisely when an opportunity may arise, is also important, Jones added.
