In corporate venturing the question of what to do next after you start the ball rolling on a portfolio is really interesting. A financial venture capitalist can start and stop investing based on how financially lucrative its operations are, yet a corporate has to always consider why it is investing.
So it was with interest that Global Corporate Venturing caught up this month with Waste Management’s Joe Vaillancourt, the head of its corporate venturing unit, which is looking to set out a new direction for its portfolio. Waste Management has built up a $300m to $400m start-up stake portfolio since around 2007, but is decreasing its equity exposure to start-ups, which was reported by news provider the Wall Street Journal as “a move away” from start-ups. According to Vaillancourt, the Wall Street Journal had “mischaracterised” the changes at Waste Management regarding its venturing unit.
Vaillancourt said: “The piece left the impression that Waste Management was retreating from its innovation platform and migrating away from startup companies specifically.” He stated that Waste Management was reevaluating the portfolio to decrease its equity exposure and increase the strategic leverage and time to commercialization, but there was no wholesale effort to divest its investments.
He added: “We are still interested in early stage high risk technologies/companies, we are just reevaluating the type of support we will commit to these companies. It may be true we will be investing less in corporate equities. Yet our dollars invested won’t necessarily go down. We will be increasing initiatives in project development and will also increase strategic support and contribute more in-kind value support.”
Vaillancourt said a general pull-back from clean tech venture investing, had led to its decision to decrease its equity exposure. He said: “With retrenchment in clean tech by the venture folks, this has required us to take more financial risk than we had anticipated. This means we have rethought our investment criteria, but it hasn’t changed what we are ultimately looking for. External innovation will remain active at Waste Management.”
Vaillancourt said the Journal piece presented a “biased view”. He said: “Any portfolio will naturally have failures. We can’t fund everything for 10 years. It should not be assumed that just because a large company makes an investment they would have any less discipline than financial investors. The Journal took this messaging to infer we are stopping venturing efforts. This is not the case. We had a very active 2013 and will look to announce a significant deal we just closed for a technology we have been developing for the last five years.”
The company believes its interaction with start-ups has also been positive. Vaillancourt said: “We originally put in corporate equity knowing we cannot get exclusivity, but maybe we would get co-development rights. Now everyone of our companies has something like development rights or a joint development agreement. As a consequence we are advancing the development of production units with quite a few of our portfolio companies”
The group views its portfolio as a way to get access to technology. Vaillancourt said: “We have a fairly agnostic view of the world and are looking for technology optionality. Our portfolio in its current form has upwards of 30, mostly minority, investments. The point is we are not looking to back the winning horse but for access to many technical options in order to be able to bring our major customers and municipalities non-landfill solutions to address their waste needs.”
The group views itself as a disruptor in the waste technology industry. Vaillancourt said: “When we started investing, technological disruption was bubbling all around us. Our level of participation in the growth of waste based technologies is fairly small. However, I do feel as though we are at the edge of the disruption inside the industry.”
The group is also continuing its interaction with investment opportunities. Vaillancourt said: “We still have a very active pipeline process and are seeing 800 to 1000 opportunities a year. We will be providing more, not less, in-kind support. This will bring to bear a strategic contribution rather than just a cheque allowing us more flexibility.”
The business has also backed a significant number of its portfolio companies. He said “In over 20 transactions we have provided follow-on equity, and in some we will not be investing any more equity. We will evaluate the type of ongoing support we will provide each investment on a case by case basis looking to see what the best use of our dollars is. The reality is some companies won’t survive in the marketplace. “
The group is also keen to stress its interaction with start-ups is so broad that it is not right to assume Waste Management backing a company means that is the technology it is opting for long-term. “We are in all the different areas [of clean tech waste investing. We are trying to prepare for the unpredictable outcome of where the world is going. Too many people think if we make an investment, this is the technology we are betting on. Yet we don’t think any one technology will win, but a whole lot of companies will become viable. This drives our agnostic optionality approach”
In the future it will be of interest to see how Waste Management’s new style of interaction with the start-ups it has backed and the wider ecosystem changes. We will certainly be keeping a close eye on how this change in strategy plays out.