In May 2012, GE chairman and CEO Jeff Immelt called a meeting in Silicon Valley. The agenda: fundamentally rethink how GE approached corporate venture capital. The meeting at the Rosewood Hotel in Menlo Park included not just GE executives who had been responsible for managing the company’s outside investments thus far, but also representatives from eight well-known venture firms, including Google Ventures and Mohr Davidow.
“We had been doing corporate VC for a couple decades, but typically in a decentralized way,” says Noah Lewis, a managing director at GE Ventures who focuses on healthcare investing. The meeting brought together insiders and outsiders to explore “how a corporate investor like GE could contribute the most to the ecosystem, while also benefitting the most,” in Lewis’ words.
Since that 2012 gathering, a great deal has changed about GE’s approach to venture capital. GE Ventures has a new headquarters in Silicon Valley, a $1 billion “evergreen fund” that is continually replenished, and a new leader: Sue Siegel, who joined GE from the VC firm Mohr Davidow.
Lewis laid out for InnoLead the ways GE has upgraded its venture capital strategy since then. The changes, he emphasizes, weren’t about fixing something that was broken, but rather were intended to help make GE’s investment activity “bigger and better and more powerful, from a financial and strategic value perspective.”
Structural Shifts
- After the May 2012 gathering, many of GE’s existing investment execs were relocated to Menlo Park. Several new investors were hired from venture capital firms. Today, there are about 20 investors around the world, based in offices in Silicon Valley, Boston, Houston, and Tel Aviv.
- GE is focused on four investment areas: energy, healthcare, advanced manufacturing, and software.
- GE Ventures isn’t part of any of GE’s business units. Siegel, the CEO of GE Ventures, reports to GE Chief Marketing Officer Beth Comstock, who reports to Immelt.
- “We have an investment committee that meets every Monday,” Lewis says. “Our goal is to be able to act nimbly. We can move as fast as most traditional VCs.”
- “The business units at GE think about a three-year plan. We think about what is happening in our practices in three to ten years.”
- Many corporate VCs invest just once in a company, Lewis says, allowing them to see what is going on with that startup and its market. For GE, “the first check is the beginning of a marriage. We expect to make follow-on investments.”
- “We manage and measure our business exactly like a [traditional] venture capital firm,” Lewis says.
- Historically, GE’s average investment in a company was about $3 million, Lewis says. Post-2012, “we extended the check size up and down, so we could better cover the full range of company lifecycles.” That can mean putting $15 million into a more mature, fast-growing company, or doing small seed investments through accelerator programs.
- Within GE Ventures, making investments in startups is just one of the “innovation options,” Lewis says. Others include GE Ventures’ “scaling practice,” which seeks to create partnerships between GE businesses and the startups that GE Ventures backs, to benefit both parties; a new incubation group, focused on creating “blank sheet of paper” businesses; and licensing GE patents to outside parties, which can include startups or larger entities. (Those are discussed in greater detail below.)
Partnerships with the Business Units
- GE Ventures, unlike Dell Ventures, which we’ve covered previously, doesn’t need sponsorship or approval from a business unit leader to make an investment. In the past, GE had looked for that sort of alignment before making an investment, “but it tended to sort of hamstring every deal,” Lewis says. “It didn’t foster the creative tension of getting the benefits of risk capital.” Today, business units don’t have the ability to veto investments, but Lewis says “there’s a smooth give-and-take” between GE Ventures and GE’s businesses. “There are open channels, and we have access to senior leadership in the business units.”
- “Preventing a bad partnership [between a startup and a GE business unit] is just as important as making a good one happen.”
- GE Ventures has a non-dilutive “sidecar fund” — money it can allocate to accelerating a partnership. Instead of getting equity in exchange, the startup typically gives GE certain strategic rights — like the right to market or distribute its product in a certain geography. “This funding is to align the interests, and define roles and responsibilities. You need to insulate the startup from the quarterly gyrations of corporate budgeting.” An example: GE Healthcare’s ultrasound business partnered with an Australian startup, Nanosonics, to jointly develop and market a new product. “That product went from zero to very healthy, double-digit millions in revenue,” Lewis says.
- “Soft interactions” between startups and business units build relationships, Lewis observes. “They take time to develop, but through them, a partnership might materialize. It could also be a loose collaboration, or a general awareness of each other.” GE Ventures organizes events to introduce entrepreneurs to GE executives, and also makes introductions to GE customers on behalf of the startups in its portfolio.
- “Financial goals are very important to us,” Lewis says, noting two recent public offerings and a sale of healthcare companies. “Those are considered great wins for us — and GE had no strategic partnerships with those companies.
- “The person who makes the investment in any startup is always going to be the lead relationship manager with that startup. But within each practice, like healthcare or energy, we have an individual that acts as the ambassador — we call them a Scaling Practice Portfolio Manager — who is focused on creating strong, lasting, high-growth, very profitable partnerships. They run what we call our ‘scaling practice.’ For us, it’s really about applying what we know how to do at scale, and helping startups get onto the GE platform while maintaining their independence, helping them become more capital-efficient.” GE Research, for instance, employs about 5000 scientists; they sometimes help startups overcome scientific and engineering challenges.
- “We strive to be very founder and co-investor friendly. Bear-hugging startups can be destructive to them,” Lewis says. For GE Ventures, “the key is maintaining independence for the startup — exit independence, and governance independence — and not to create captive startups. They need to maintain their agility and their ability to innovate quickly.”
- Lewis says its important to know what kind of partnership a startup needs — if any — and connect them with the right collaborators within GE. “If the startup is trying to develop a proof-of-concept, and they are working with a business unit that is all ready to sell that product, we think that is more likely to fail, as opposed to doing a partnership with GE Research.” There are three different kinds of partnerships GE Ventures tends to facilitate: proof-of-concept; an engineering or technology integration; and a go-to-market partnership that takes advantage of GE’s sales and distribution channels.
Incubation, Licensing and New Company Creation
- “Corporate licensing is now under GE ventures, so if we uncover some GE intellectual property that a startup could benefit from, we want to be able to quickly and seamlessly out-license it, so they don’t have to invent around it.”
- GE believes there is lots of additional value that could be generated from its intellectual property, “so we are enabling open source innovation around IP we have, and letting independent entrepreneurs come up with and profit from an idea, leveraging our IP. That’s very different from the corporate DNA at most places.” An example is the recently-unveiled Aros air conditioner, developed in partnership with the crowdsourcing site Quirky.
- Within GE Ventures is a new incubation group, run by Risa Stack, a former partner at VC firm Kleiner Perkins, that explores creating new startups within GE. The incubation group is “looking to create NewCos that address unmet needs that aren’t addressed in the existing marketplace,” Lewis explains. “That could involve creating new businesses, partnering with a startup that has part of the solution, or spinning out technology into a startup.”
- Lewis says that GE Ventures doesn’t want to be limited to investing in companies that are working on small improvements in product categories GE operates in. “Our process goes out 20 years to look at trends, and how they will disrupt things. It’s not a ‘core business out process,’ but a ‘market back process.’ In healthcare, we’re not looking for next greatest MRI or CT scanner, but we’re looking for unmet needs. We’re looking for the unicorn, which may not exist yet.”
Where GE’s Deal Flow Comes From
- “We get deal flow [the opportunity to invest in startups] from everywhere inside GE,” Lewis says. “When our scientists read papers or go to symposiums, we want them to tell us about any early companies they discover.” GE Ventures also shares investment opportunities it sees with traditional VC firms, and they do the same. When the CEO of a GE Ventures portfolio company introduces one of his or her peers to GE Ventures, “that’s the real seal of approval,” Lewis says.
Information Exchange
- When GE Ventures conducts due diligence on a prospective investment, or explores opportunities in a new area, Lewis says, “there are GE engineers and commercial leaders who get involved with that process.” Afterward, “they go back to their day job and apply entrepreneurial problem-solving methods based on what they’ve seen and learned, while maintaining the confidentiality of any specifics.” An example: GE Ventures’ investment in Check-Cap, an Israeli startup developing a colon cancer diagnostic test that fits into a pill patients can swallow. “Imagine [Check-Cap’s] scientists talking with our X-ray engineers who have a 300-pound machine,” Lewis says. “Imagine the disruption it brings when they’re back in their lab, talking about taking cost or weight out of their devices.”
- “We are not a rogue, ivory tower VC group. We have very regular interactions with CEOs of the business units. We consider them our [limited partners] in many ways. We tell them about our financial performance, though we are careful not to share information about specific portfolio companies [which may compete with their products]. We have webcasts, conference calls, and town halls across the world with each of our stakeholder business units. One of our big goals is driving disruptive innovation deep into the culture of GE.”
