Ep. 27 - What’s the difference between CVCs and VCs?

Timing effect is key. Sometimes you have a good idea that fits with a good prospect, but if it doesn't happen at the right time, it's useless. That's key to be able to be in the business so that you understand what is the key moment to leverage the activities both for the corporate or the customer and for the startup.

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Today we continue our open innovation journey across the globe. We are in France. We are one of the main energy player in France. The company is called Engie and I have with me Johan Buchor. Johan is the managing director of NG Ventures, also proudly named NG New Ventures. Because again, if I'm not wrong, Johan, your experience as the CBC arm of NG is almost close to 10 years or some 10 years ago might be called as New Ventures. Probably today is more regular ventures, right?

Indeed, indeed. Hello, Alberto. Yes, and so we. The fund was funded about 10 years ago, in 2014 now almost 10 years ago actually there was, I think summertime. I wasn't there by the time I've been running it for the past five years now.

Yes. So I will start our conversation providing quick overview on NG as a company, as a group, for the part of the audience that do not know you and then I will ask you to walk us through the different open innovation areas that Engie is currently involved. From our prior conversation with you and other people of your team, remember that Engie has been one of the first player actually to be really involved in entrepreneurship. Remember the Innovation Trophies initiative that has actually come back probably even more than 30 years and has been one of the benchmarks also for the model. I remember that you beyond the CVC arm, you also have a venture builder and then obviously venture client partnership networks. So I will be good also to understand, trust the time what has changed. But let's start from NG first.

Yeah, so NG is a worldwide energy player, energy leader. We've been created decades ago and actually this is a result of different MNAs. We are active today in more than 30 countries and quite focused on delivering the energy transition, what we call the energy transition and we have in our purpose the objective to be net zero in terms of CO2 by 2045. So energy transition is quite a motto we have just as a ROFIA explanation, we have Four main verticals. One is of course about renewable energy so we generate solar, wind, both onshore and offshore hydro energy power where we are. Second one which is growing as well in terms of decarbonization is about energy solutions which are decentralized asset on industrial sites mainly and different other things. And two other businesses that are more from. From. From the history but still growing which is about flexible generation which is about again power generation but from gas, natural gas and hydrogen assets. And the fourth one is networks of both gas transmission, gas transportation networks and distribution networks and the power networks and in. In between. So we have both upstream and downstream businesses. In between we have a mid streamer. So this is an integrated model mainly about trading and marketing. So these are the verticals in which NG is busy with. And again our purpose is really to drive our activities and the wants of our customers towards energy transition towards net carbon zero. In terms of innovation, we defined that about a decade ago and set it up and have reviewed and updated that year after year. And actually every year we make some adjustment there. We have different pillars starting with the ecosystem. So we have a deep look at the ecosystem and there's a department focused on that. They do some call for projects for business units. They do some run some what we call NGO awards which is known generally speaking as innovation trophies. We also have an incubation department which is venture building basically. And we had set up about a decade ago a venture fund so CVC named now NG Ventures, which is the ones that I run.

Yeah, let's focus on the latter part. That is the part actually you are leading. You have been leading since probably since the beginning. So as far as I know I always been talking to you. So again, so you're really the person that drove the CVC arm since the early days and is currently running. So I think it's, it's.

First of all it would be good.

To have some, some. Some figures, some numbers also to. To benchmark the. The instrument. And again despite is difficult to consider CBC as VC funds because technically you, you are investing off balance. And so they don't have a technical, a proper capital allocation. But would be good to have some, some. Some number to understand how much you invest on average per year, which is typically the ticket size, what are the typical condition. Again as far as I remember NG Ventures or Engineer Ventures always been a very, very strategic focus investment vehicle with a strong link with the business units. So again it would be good to understand how do you guys work and do the investment.

This is.

And then your Your average typical approach and then after like to also to. To deep dive a bit more. In terms what has been changed in the past almost 10 years.

Yeah, this is. This is key. So no, I was not here at the inception of of NG Ventures. That was 10 years ago. It just wiped five years ago. But there was a key moment because this was the time when we had started a few things, succeeded in a few investments, few strategies, but also failed in others. And there was a time to learn from the past, to have a proper look back and define a strategy, a vision, a strategy, an organization and some processes to be able to run smoothly. So I've been busy with that over the past five years now in terms of figures to give a roof idea, we've invested so far about 250 million euros in different sectors, different startups and businesses, which means about 60 startups, external startups and about 15 external funds. Because at the beginning we also had the strategy to invest in other funds. So as a funder fund activity we stopped this latter. So we don't do such kind of investment any longer for different reasons. I will come back on that later. What else today? So we've already started our portfolio rotation. So we've already exited some startups. Some of those have also failed on their own. So they're not part of our portfolio any longer. And now we have 25 startups active, being active in our portfolio on different geographies, some in Europe, some in North America, others in Latin and Central America, in Asia, in Israel. So in the main hubs where which are innovative and where we are activities so that we are able to leverage this. We are a small team, we are about a dozen of us located in these areas. So to come back on your question, yes, we are a strategic fund. I may come back on that as well. Because we realized over time that it's not possible to be the best financial fund, neither the best strategic fund. And we had to make a choice in particular for the reason, the main reason being the allocation of resources. You can't do everything unless you have a very large workforce and attention everywhere, which is never the objective and the main purpose of a corporate. A corporate has the objective to develop its own activity and not funds specifically. So we made the choice to be really strategic and to become more and more strategic over time. So this is the reason why we have stopped investing in other funds as well. Because it we deemed that it did not really comply at the best with our objective, our strategic objective because we had an indirect link with the external Innovation as I was not deemed enough to reach the objectives we had defined. We had two main changes over time and in particular before going that I.

Think you touch a very very relevant point because this is a big and frequently asked question is do CVC should invest directly or indirectly? And like all the question that we typically ask cbc there is not the right answer but there is the experience where we done A and B and probably for some period of time A is a good solution. At certain point you. You find out that it's no longer a good solution. And I think probably the again my my, my, my two cents is that in the initial phases when you're still in your learning curve, investing in third party funds give you the ability to create your own network. You understand how the game is played by professionals, expand the deal flow and down the way this is no longer probably required. So I How did you come up to the decision to stop do investment into fund of funds and why you.

You started doing that for the reasons you just said. Mainly we had learned enough from, from this investment. So we had our networks, we had our activities, our organization already basically investing directly allows to do some cherry picking because we were very minor lp a limited partner in other funds, you don't have control on what's happening. And in the end after five or ten years we had realized that we had interest in a very small part of the startups invested by these funds. So basically we thought that it could be more optimal if we could choose it all of course doing some mistakes of course having to learn on our own other things. But the, the reward would be. Would be higher in terms of again strategic return which was. Which is still the main, the main objective with an eye of course of the. On the, on the financial side that philanthropy we need to show. To demonstrate that it. It's efficient and, and optimal. But that's the point. I'm not saying that it's. It's useless to invest in other funds. Don't take me wrong that that's not my point. And it can be very useful in some instances. For example entering into new geographies. If we had to invest in China for example, where we are not, or in India, we would probably do so school an external fund together those who are more local and more acquainted with the regions. This is not our NGOs objectives today. So basically where we are we already have a large footprint. We have people on the ground and we know what's happening. So we have the means to operate.

Yeah, that's a good point. And going back to direct investment. Other big question or million dollar question.

Then I will go will let you.

Go back to your train of thoughts because they stop you actually. But going back to the main question. Strategic versus financial, despite technically you are both. Because again you. You don't take okay the strategies. I don't care about the financial. You are. You're pursuing both objectives. But still the big question about strategic is a strategic. When is a strategic with more on close closeness to the core business or more to what is called Horizon 1 or is strategic not for the company of today, but the company of tomorrow? So mostly Horizon two and Horizon three because this is the real debate, because all of you are strategic. But strategic to what? The company of today or the company of tomorrow? The company of the day after tomorrow. So that is the big question.

Yeah, so it's a bit of all actually it's the company of tomorrow because we speak here about innovation. So these innovations are not ready today or not. On the sheds, however, we have defined the different verticals we want to work on. And this not only adventures level at CBC level, but also at the group level. So we have redefined that a bit more than two years ago. And we have decided, unlike in the past, to focus and to go much deeper into these verticals and to stop investigating. Or it does not mean that we don't have a look. Of course we have a look and we keep our eyes open. But to really invest and have a footprint in the sectors in the verticals. So the five ones I've just given earlier, where we have a strong footprint, where we want to optimize our activities, we to want operations and define the future business models and technologies that will lead to reaching these objectives. So that's. And it's not really a question of time. I would not distinguish it by time, but really by kind of activities. For example, when we started 10 years ago, we saw that or we had defined as an objective that investment could lead the group to enter into new businesses, new verticals that were remote, that were not part of the group by the time we have succeeded to some extent, but it has also led, and this is a drawback, it has also led to some kind of going a bit everywhere and lack of focus. And because the group NG Group two years and a half ago has defined a more focused strategy, not only in terms of businesses, but also in terms of geographies, we deemed that it could not be achievable to extend everywhere in everything. So we stopped that. So for example, we had invested in IoT in the past that was probably a good trend. But we have defined that IoT is not a sector for NG and we would really be better off trusting some partners to do that, for us to do that, not to develop ourselves on our own on this, in this sector. So we stopped. We don't, we don't consider these as, as investment priorities any, any longer. So that's, that's a key trend. Together with a group we have defined that we need to, we need to focus on these businesses. It also means that it's not that we stop investigating other businesses, but we need to go deeper in the businesses we are in. So deeper focus on ng's verticals. And of course it leads or it leads us, it led us to more hardware technologies. In the past when we started, we had thought that software technology, software as a service technology were probably easier, more promising, more scalable as well. In the end we now invest much more in hardware technologies which have patents, intellectual properties and are able to be included into our assets or the ones owned by our customers. So that's the second I would say wizard of these changes. And another change has also been that we have integrated much more with our research and development department. I would say that in the past when we started we were more using these R and D departments and business units in general of the group as people to help and to ease the due diligence on new technology, on the new business model, on commercial aspects as well of the. For the startups now we tend to go much further than the due diligence is the technology, is the service, is the product useful for them in, in the future? Not only an assessment, but basically would you contract with this company, would you integrate its product into your activities? Although these are not mature yet and. But do you believe they are going to become. To become mature on a realistic time horizon?

Well that's, that's interesting and that pop ups. The next question is the level of maturity of the solution you are investing into. Because again the earlier you invest.

The.

Less ready deployable the solution is. And technically speaking it's a long journey. Also the contribution that a company of your sites can put on the table is potentially large but is pragmatically small because it's complicated to integrate something that is not ready. Again you define yourself as a chef, so you are prepping us. Something is not yet ready but how far from the cooking time should be. So which is the right balance?

Yeah, no, you're right, it's a key question and thanks because I Have not addressed it in your first question. So what? So we like to invent our sweet spot is Series A. So basically when there's already a proof of concept, in general, the series A is hard to define. But there's already something we don't invest on slide only. We never go pre seed, for example. Investing later bears some challenges as well in terms of valuation. You underlined that point. That's one thing. But also we deem that when we enter later, the future of the company, of the startup is already defined, is already set and we cannot have any impact, positive impact on this, on this future, any, any longer for good or not. But that's, that's the point. So the sweet spot is really Series A. What we invest in, in a wage is between 1 and 5 million euro, the initial ticket and then we follow on when we deem it necessary. We rarely go less than 1 million euro because the transaction costs are too high and the stake we would have is too small, is marginal. So we love to have a seat at the board, at least at the beginning to understand better what the startup does, how it works, but also to help the startup to get some real network within energy, within the energy business in general. So these are people, either myself or people from my team who take, take this roll over. We are all experts in the energy sector. We know how it works and we know the people that. So that's very interesting. You know, startup develops often with time. The timing effect is key. Sometimes you have a good idea, sometimes that fits with a good prospect, but if it doesn't happen at the right time, it's useless. That's key to be able to be in the business so that you understand what is the key moment to leverage the activities both for the corporate or the customer and for the startup.

And again there's the, the last point that you made is relevant. So again, startups are all about timing because sometime the difference between being successful and failing is mostly the ability on the lack to pick up the wave of the right time. Because sometimes perfect technology, perfect situation, but it's too early or it's too late and you're done. But I think what you said and also with the importance to be seated in the board is to be able to understand what is the right time to, to bring the solution to the, to the business.

Yes.

And where you, you have the the. Because again from an external perspective that's something that I believe is the, the biggest hurdle then corporates have dealing with startups that from outside corporates are sort of a black hole are so complicated to be understood and so difficult to be rich. Sometimes I I told. We start. I say oh, I have a business card of. Of ng. So I have a contact which business card who. And that's because again you have just potentially entry ticket to. To do over again. There is a lot of stuff over there and not necessarily is there for you. And so having this internal translator is so important also for be able to. Not to. To burn the opportunity with the business because it's too early.

It's.

It's burning. When they say something is not ready, they don't want to see it again. And so also to understand that this is the right timing. And then going back to. To the first point that we made also for the investing, strategic investing directly is the ability to have a bit of control. You see sentence that I think I will quote you also in the next months is we invest in companies whose future is already being set. Again they are mature enough that they know what they are doing. We might help with my intersection with some of the activities, but we're not changing the story. And that means that is mostly learning from your side and sometimes exploiting down the way rather than trying to influencing. And this learning is something that you have a real opportunity to see the movie. When the movie is made despite you. You are not on the chair of. Of the people that actually is. Is driving the movie. But you can see how the movie is made. You can understand by the production choice that has been made how the story might evolve. And that is the real insight that you're bringing on board. But you need to be seated there. If you are intermediated to a four party again it's like to being in front of Netflix again. You have so many things but you don't really know what you're really looking at and so you're just scrolling. So help us a bit to understand how you really can gather the strategic information that I think are so. So vital for the job that you're doing and how you convey this kind of. This kind of information back to the company and back to the top management. How does it work?

Yeah, so there are. So let me maybe go a bit backward. We have defined two main objectives in our activity and now this is really crystal clear. It was not five years ago, but now it is. The first one is the one you quote for strategic market intelligence. Knowing what's happening on the market on both side. And of course as you say, I think the right contact is changing even when you're in so even for somebody within ng, knowing all the right contact at the right time, even for us it's challenging. So that from elsewhere, from an external party with multiple other activities, it's of course impossible and at least time consuming. So that's for sure. This is one key objective. Second key objective and is even more concrete is to be able to get concrete partnership between the startup and some entities of ng. For this you need to have the contact. You need to be at the right time, but you need to be able to. I'm not sure I would use the word influence, but at least to have an impact. Our purpose when we are minority shareholders, we have 5, 10%, 15% equity share. We have an influence, but it's really minor. We don't make decisions, we don't have control. But at least we're able to bring some information, for example from what we see on the market, what our business developers, what our salesforce see on the market on a day to day basis. Because we are part of these forums, we understand what's happening, we are all experts in this sector. So that's a good signal for the startup. Let me end with one point and I think it is key. Why would we invest which means put some dedicate some resources on human and financial resources efforts and risk. Why would we do that? If the objective is not to have an impact? This is really the point. The objective is not to take control of the startup. We always refuse that actually neither have an exclusive relationship, but at least to have an impact. If we invest either indirectly or too indirectly, sometimes this is more direct than what we think even outside. So either indirectly or without a real thing to bring, then we waste our time, we waste our resources. The point is so for example, if we invest too late, strategies already defined, contact are already made, etc. With different groups, what is the impact we can drive there? That's the reason why we don't enter too late. This is the main reason not to force an influence that we cannot force anyway. We don't have control, but to be able to bring something. So if we do something, this is to have an impact, to help the startup develop and possibly to integrate its product and services onto our offerings, onto our operations.

How many again you you have made? I can remember about six dish investment in the past nine years. 25 are still active. Some of them went down, some have been exited. How many of the company you invested has been acquired by NG?

1.

1. And what was the use case? If you can tell?

Yeah, well, I can't give Many, many details because that's, that's confidential. But the use case was that NG was, has been a customer for, of this startup for four years. It's been known and really it became co development. In the end we saw that it would be better if we could have control and basically keeping such kind of minority control or shared control did not make sense to some extent after some time. But let's be clear about that. We are very clear with startups that taking control is never the objective is never.

Because also 1 out of 60 is not exactly something. It's not a track record of an acquired. And by the way, it's very typical. I asked the same question to Bosch. They say no, because at the end this is not the point.

This is not the point. The point is to develop together such as the joint venture, for example. Most of the time you don't acquire joint venture. You, you have it developed together with somebody else and when it's grown enough, it goes on its own. It's able to walk alone without you sometimes and that really depends on how the business develops. But sometimes the activity becomes so close to you that you deem that you're too dependent upon each other and therefore it's better to really be together. It goes with some upside, but some downside as well. It's a real challenge for large corporate to integrate small entities. It goes often with difficulties either people living or some kind of traction being lost. So that's, that's a key, a key challenge and that's the reason or one of the reasons why we never privilege that. So let's do a bit of work together for some time. Five years, seven years. And then when you're grown enough, you live on your own and you'll be able to. So in between we have both benefited from the same work and be able to create value together.

Final question. How do you. Again talking about the strategic marketing intelligence that you gather are you transfer the, the knowledge that you get on the street through your portfolio companies basically in, not in the driving seat, in the back seat, but looking the way ahead and looking out. This company has been driven and so you transfer these market intelligence back to the company?

Yeah, it's a, it's a tricky question because we have to face that every day. We are not the only one. But yeah, basically on one side you have confidentiality and even some liability towards, towards the corporate because we are employees of this, of this corporate, we have access to privileged information and on the other end you have some liabilities towards the startups. Where you, you sit as a board member and basically we have to manage the, the, the advice we give, we see things on the market, we can't give details but we, we see the trends and, and this may be useful for the startup to see. If I take, I mean energy solutions for example, decentralized energy, green gases such as hydrogen, all these businesses evolve. If we take hydrogen for example, it evolves every day. I mean 10 years ago there was nothing about green hydrogen. Today there's a bit, some project in operation, next year this will be multiplied by a certain number, etc. Etc. So we are able to see and to help advising what's happening for the startup to take the right decisions. Again we have one seat out of three to five so this is not controlled but these are elements that can help the startup find its way better than elsewhere. That's kind of a free advice basically. So that's key. I would like to say that the other way around is also true. When we see some startups either facing some difficulties on the market or developing new solutions, new ideas because they see signals on the market. This is also useful for the corporate. This is also information showing that of course we cannot disclose any details there but this is also very useful to see that, that this service for example, forecast through AI in terms of energy prices is meeting some traction in the market. Maybe we should have a closer look. Maybe we should get in and question some of the processes we're using currently. Same thing for, I mean there's a number of examples. There are same thing for. How do you call that? Renewable, renewable gases for example. We see that there's, there's quite a lot of innovation in these businesses that, that have not worked so far. Probably there's, there's much more to do, so let's dig in. Digital Twins is another example, etc. Etc.

So final, final question.

If.

You have to compare CPC versus VCS because it looks like you're doing the same job but you're not and actually you have similarities, but there are also big dissimilarities. What is the main difference between the two of them? Again, beyond the strategic angle again what. This makes your life so more difficult and a bit easier compared to a regular standard vc.

So we are doing the same job, we don't chase the same objectives, but we have the same final goal. The same final goal which is the startup has to succeed, has to be sustainable and in the end be sold at, at a better price. That's that. So this is now in between these lines There are of course quite different added values of each. That's, that's. That's obvious. A lot of different. I would say, how should I say different goals of. For small goals that are pursued. If I take the CVC for example, at least the way it works at NG and we found, I believe quite a nice balance here is to say we need these collaborations to be. To happen and not only to happen actually this is not. We don't speak about having a contract between the entity of the startup. We speak about standardizing the relationship and using it as. As usual. As it becomes a usual process. So when we work with. I don't know, I can give some examples. One startup in the US we just invested that was 18 months ago named WAP the Maps. So they are doing some assessment of pv. So photovoltaic plants, large scale plants in, in the world thanks to. Basically our objective is not only to have contract with them but to standardize the usage of their service into our platforms. So that. I mean a very large portion of all assets of NG are monitored through this, through this facility. This is probably where there is a difference with the vc. This is good for a VC because it provides return, it provides outcome, it provides turnover for the startup. But the point is that for me this is not sufficient that they do business with anybody. They need to do business with Engine. So that's. I think there's probably a difference. Of course it be as. I mean it cannot go without a cost. The point is not to have cheaper services because otherwise it would be conflicted and it would not help the startups. Therefore my pnl but the strategic objective is very important and most of the time, if not always, we are able to find not only a balance but an optimal there not only they do business with ng but it is also more profitable than doing for the startups and doing that otherwise because we find a way to get I would say more transparent negotiation, more trustful as well negotiation between parties. We know that our interest and I think this, this word is is very important our interest, our line much more aligned between just a buyer and seller relationship where one or the other is going to win more to save more than the other. So aligning the interest is key. Sharing networks is also key so that everybody knows each other and work with trust on the long run. You know that when you have a commercial contract you can stop the contract. You have litigation, you have early termination clauses, but you can stop always the contract. When you invest in a startup, well, you're there for some time. And anyway, whether you succeed the commercial collaboration or not, I mean it's not going to stop anytime soon. So you live together for some time, so you need to plan. And this is what we have learned to do. When we invest we have the business unit, the sponsorship around the table. Not only saying, not only assessing that the startup is doing good, but also with willing to do some business with the startup which provide an access to the market for the startup. It's often appreciated. We also dedicate some budget for the follow up. For example, our R&D department developed some budget so that they can test and support the development of the product if that's necessary and if that appreciate it, of course. Otherwise we don't and we need to demonstrate that doing the investment and that's probably also another difference with the vc doing an investment is necessary for the collaboration. If it's not, then we don't, we don't have to deploy money. I have a maximum budget every year to spend as investment. I don't have a minimum budget. I. I don't have to deploy money that has been raised by the fund. So we only invest if we deem that the impact is positive for NG and for the startup.

So just to summarize is so cvc, mvc, they're doing the same job at the end the ultimate goal is the same making the the invested company is successful. Probably what is different are the. The intermediate milestones that you follow and because again you have probably sometime you also take different routes. But at the end the job is almost the same and the ultimate goal is definitely the same. So thank you Johan for, for this conversation and let's touch base in in.

A while to to see what else.

Will be will be changing in a few months and years because again this is an evolving game. Again it will remain the same typically as the loser.

Yeah, it changes every day and actually that's good otherwise we get bored, I guess. Exactly.

Thank you for being with us today and see you in the next episode of Open Innovation Talks. Mind the bridge chat with industry leaders.

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