Adam Baker is an investment analyst at AGL, Australia’s largest energy provider, and one of Australia and New Zealand’s most innovative companies, as recognised by The Australian Financial Review in its annual Most Innovative Companies list. Within the Future Business team, Adam helps manage the portfolio and source opportunities that align with the goal of helping develop new businesses that grow AGL, preserve our planet and improve communities. Here is the key information covered in the event.
What is Corporate Venture Capital
Corporate venture capital, or CVC, is a form of venture capital where corporate funds are directly invested in external private companies. CVC funds are managed and invested by specialised divisions of a larger company. Generally, there are three types of CVC funds:
→ Institutional CVC: a CVC that prioritises financial return and would be geared to leading startups to maximise revenue from the investment.
→ Strategic CVC: a CVC focused on the strategic component of the business especially on the synergy between the business and the CVC. AGL is an example of a strategic investor that is more focused on the solution/product working side-by-side. The CVC would assess if, and where, there are synergies for the corporate and startup to be able to work together.
→ Infant CVC: new CVCs who have just started out, looking to build capability and establishing their processes and are yet to become institutional or strategic.
The Role of Corporate Strategic Investors in the Startup Journey
→ Startups working with a CVC can test new ideas and soft launch prototypes in a safe, relatively low risk market.
→ Provide on the ground support to help startups expand into the market.
→ Startups will have access to the corporation's strategic value. Startups can leverage corporate’s extensive market knowledge, industry relationships and deep customer networks to identify or validate business ideas.
Overview of Corporate Venture Capital in Australia
In 2019, CVC funding reached a new record with 3,234 deals made with a total worth of $57.1 billion. CVC has come a long way now and has experienced large growth in appetite and has become an important concept for corporations to manage innovation which is a faster and more efficient way to find disruptive technologies. Here is an overview of CVC in Australia:
→ Pioneering sectors include information technologies (IT), pharmaceutical, and telecommunication.
→ There is a record high increase of CVC that have gone into AI. The advantage of machine learning and its application is predicted to help a lot of companies, especially in the health sector.
→ There is a massive growth in CVC scale as technology is evolving faster everyday. Bigger companies are learning they need more innovation to meet market demand. Nonetheless, entrepreneurs are also seeing that CVC can open market opportunities, provide strategy, and help grow business onto the next level.
→ Whilst the Australian CVC field is small in the grand scheme, global expansion is gradually happening.
AGL’s Future Business as a CVC
Through collaboration, partnership or investment, AGL’s Future Business develops new businesses that help AGL grow, preserve our planet and improve communities. It looks to bring fresh insight into solving customer problems in decarbonisation, decentralisation, connectivity and circularity.
→ Decarbonisation: Accelerate the low carbon future, starting with energy generation, transport, waste, industry and agriculture. Looking for new solutions and new companies that will lower carbon emissions.
→ Decentralisation: Find ways to export Australia’s rooftop solar expertise to the rest of the world. Focus on decentralised ownership of assets and sharing models that have the potential to transform the energy industry.
→ Connectivity: Identify ways to leverage growing opportunities from a connected world where people, things and places are inherently intertwined. There is a huge intersection between people, assets and locations.
→ Circulatory: Create opportunities that support the reduction, re-use and conversion of resources to protect the world's finite resources.
Adam encourages startups and innovative businesses to approach and view CVCs as a go-to-market partner.
Challenges Unique to Strategic Investors
In 2009, a report was published on ‘Why Corporate Venture Capital Funds Fail’. The findings were based on 27 qualitative in-depth interviews with corporate and independent VCs in the energy industry. The following factors were found to affect the survivability of CVCs:
→ Lack of entrepreneurial spirit within the parent company can negatively impact the CVC. The corporate should work with the organisation to make it a reality.
→ It is critical for the parent company to be involved in the technical and market development as a success factor. There is inherent knowledge that the parent company has, which is much more valuable than relying on external resources.
→ Overall, there needs to be an adequate amount of involvement of the CVC in the process and decision making of the startup, but not too much or too little. There needs to be a balance between the two extremes.
What Do Strategic Corporate Venture Capitals Look For?
→ A strategic CVC will look for alignment between the product/solution and how it can be used for the company.
→ For AGL, the strategic areas given above are for guidance and it does not necessarily mean that AGL will always look for energy technology-based startups. It can also be other technologies if there is the potential to solve a problem the corporate has. For example, AGL is a customer-centric venture capital that looks for innovation that solves customer problems.
→ Corporate strategic investors will also consider whether they have the capability to connect startups to the right crowd/people for growth since without the appropriate resources to support the startup, there are unlikely to be any benefits to both parties.
Advice for Startups Exploring Investment Options
→ Understand how your business can add value to the corporate. Discover the alignment piece that will connect both parties for collaboration.
→ Do not be afraid to approach a corporate, especially when they have shown interest in venturing into innovation as CVC allows corporates to take the leap and jump straight into customer engagement while the technology is being developed in the startups’ hands.
→ Take advantage of the startup ecosystem. There are many resources, groups, and government organisations that provide funding and advice.
Proudly Australian for more than 180 years, AGL supplies around 4.2 million services to customers, including energy, phone and broadband services. We’re committed to making energy, alongside other essential services, simple, fair and transparent. AGL operates the largest electricity portfolio in the National Electricity Market made up of traditional coal and gas-fired generation, and renewables such as wind, hydro and solar. We also operate gas storage and production assets. We’re focused on developing flexible supply, building on our history as Australia’s leading private investor in renewable energy, to support the transition to a new energy system. We have a passionate belief in progress and a relentless determination to make things better for our communities, customers, the Australian economy and our planet.
About HQ Boardroom Discussions:
The HQ Boardroom Discussion is a series of events where Hatch Quarter hosts an open and intricate discussion with top industry leaders. This is the fifth Boardroom Discussion we have hosted and is focused on corporate venture capital. The aim of such discussions is to incite deep conversations and gain information that is hard to come by, through facilitating the conversations with industry experts and business leaders.
Disclaimer: The information provided in the webinar and in this blog is strictly for educational purposes to explain government incentives and startups, and it does not constitute investment, accounting, financial, legal or tax advice. It has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.