When I heard that US utilities PG&E, Sempra Energy Utilities and DTE Energy had corporate venture divisions, it came as a surprise to me.
These are stodgy utilities focused on delivering extremely reliable service for their customers – in fact, required to do so as part of their mandate as regulated utilities. They cannot afford the risk of innovation. Further, they are not even rewarded for taking risk as their profits are regulated by state and federal commissions.
For that matter, what about Second Century Ventures, the corporate venture group of the National Association of Realtors? Blue Cross Blue Shield? Coca-Cola, General Mills, and Pepsico? General Motors just announced the launch of a new $100m corporate venture fund.
On the surface, none of these seems to make sense. Is venture capital not the realm of the high technology companies in communications, information technology and healthcare?
All of a sudden, it seems everyone is getting into the game. I reflected on my own experience with the New Ventures Group (NVG) of Lucent Technologies.
Our charter was to provide an outlet to make money from Bell Labs technology through the formation of new ventures. Of course, NVG was not supposed to take on the core technologies that fed the businesses of Lucent, the technologies with low risks and known, sizeable customer bases to which the businesses could afford to devote hundreds, even thousands, of engineers to bring to market.
We took on the higher-risk, leading-edge technologies that were unproven in terms of their customer scope and value and which the business groups could not prioritise to bring to market.
These included technologies such as voice-over-internet protocol, video-over-optical networks, small WiFi modules for mobile devices and broadband wireless data, all of which have developed into important technologies in the market.
Our sister organisation, Lucent Venture Partners (LVP), was chartered to invest externally in venture-backed companies of strategic interest to Lucent. While most corporate venture groups share a mission similar to LVP’s, some also support a mission similar to NVG’s.
What was the environment and strategic intent within which NVG and LVP were formed? Lucent Technologies had just been spun out of its parent AT&T, which had roots as a regulated monopoly in the telecommunications space.
Lucent set about the objective of transforming itself from its past culture of being a regulated monopoly into a high-tech, high-growth company modelled on the success of many Silicon Valley-based companies.
This required a massive organisational and cultural change across the company. In addition, the company was all of a sudden competing with many small venture-backed companies developing next-generation products for its markets.
So in the middle of this required revolution in the company’s organisation and culture, our corporate venture groups played important roles. We effectively represented a small organisational change that could be made to help facilitate this process.
Further, we provided an important bridge between our corporate parent and the entrepreneurial, venture-backed world. Over this bridge, interesting, potentially strategically important new technologies and business models could be identified, understood, and leveraged.
Further, this bridge also provided a mechanism to take some of the internal good ideas and technologies that may not fit the internal businesses so well for commercial development and leverage them in a more entrepreneurial external environment where they could develop and gain scale.
For example, utilities are facing increasing competition from alternative power producers as well as increasing pressure to clean up existing generation, adopt alternative and renewable resources of their own and deploy smart grid technologies for managing their networks and monitoring and, eventually, managing demand.
Automotive and healthcare industries are facing wrenching restructuring to improve performance and reduce cost. Adopting information technologies – and for the automotive industry, alternative technologies and more innovative and pervasive electronics for engine control to entertainment – will be critical to their futures.
Even the consumer packaged goods companies are figuring out how to reach consumers in all kinds of new communication modes, from wireless to social networks.
As I complete the reflection of my experience, I think about the example companies I named at the start of this piece. These are all great companies that have been huge successes in their respective industries for decades.
However, each of these companies is facing new competitive pressures. New information technologies and new business models are creating both opportunities for growth as well as incredible pressures to figure out how to move faster and address or incorporate these new technologies.
Establishing corporate venture arms makes sound sense for these companies. These groups can help identify, inform and bring new technologies into their parent corporations. While I am sure all these companies are going through broader transformations to remain at the top of their industries, the corporate venture groups provide an easy early step down that path.