Large industrial and energy companies (excl Powergen) account for about 31% of global GHG emissions. So it follows that they should shoulder much of the burden of delivering the new zero targets that governments and companies have signed up to in recent years. In order to do so, many of them will need to embrace new and disruptive technologies, many of which have not yet been fully commercialised.
Image credit: https://dribbble.com/shots/6831093-Bear-Butterfly-Dribbble
The problem therein is that large industrial companies (the bear) don’t know how to engage with fragile, small startups (the butterfly), and often do more harm than good when they try to do so.
Historically, large industrial companies had three ways of obtaining new technologies that helped them be better at what they do. They could develop new things in house, acquire smaller competitors, or buy from within their supply chain. Unfortunately, this tried and tested three option playbook is no longer sufficient and big corporation is having to learn a fourth option to keep pace in the energy transition.
Substantial in-house R&D capabilities have become an expensive luxury afforded to only the biggest and most profitable firms, with research departments falling victim to sustained overhead reduction efforts in the quest for competitiveness and shareholder value. Additionally, the pace of innovation within big corporates is stifled by risk aversion, bureaucracy and an incrementalist approach, but this ‘slowly, slowly’ approach lacks ambition.
Traditional M&A can work well for new technologies which are fully commercialized, de risked and ready for scaling. However, most of today’s startup founders don’t want to be bought out when their ventures are 20% track record and 80% future potential. Instead, they need patient capital and minority investors who won’t drown them in reporting red tape.
Most technologies in the industrial supply chain are by definition commoditized, or at least semi commoditized and differentiate minimally on cost, quality and delivery. But, breakthrough technologies at a low to medium TRL (technology readiness level) wouldn’t even get a meeting with corporate buyers, let alone a PO (purchase order).
Whilst some progressive corporations have made a valiant attempt at Corporate Venture Capital (CVC), the more successful ones are the exception to the rule and nowhere near the scale or pace that’s needed for the current 2030 halving of emissions.
So, what to do?
At Greenbackers, we constantly manage the failings of the old playbook as we counsel and advise founders, exasperated target corporations who preach ESG and innovation engagement to their investors, but remain inaccessible, inflexible and inattentive to relevant startups and scaleups.
We strongly believe that a new approach is required by Big Industry and Big Energy. Here are some suggestions on where to start:
- Remove the ‘2-year stint’ in “New Technologies” from the management fast track rotation plan. Corporate executives plotting their fastest route to VP are like fish out of water in these roles.
- Learn the ecosystem and select partners (Accelerators, advisors, incubators) who can act as a buffer or filter between the scary big corporation and a kitchen table founder working 80 hrs a week on their life’s dream.
- Understand, appreciate and accept that early-stage technology is inherently RISKY. If everyone was a fast follower, then we would never try anything new. Define your constraints, understand the risk, mitigate it as much as you can, but get your company in the game.
- Accept that ambiguity is di rigueur in early-stage tech. At least 50% of the time the answer to the question is “we don’t know yet”. This can be hard for corporate execs to get comfortable with. They will need free reign to get it right.
- It’s about more than providing capital. Often the ability to offer help building and testing a prototype, or supporting a field trial in one of your facilities can be equally if not more valuable than funding in the early days. And great PR value.
Additionally, working with founders is one of the most energizing things that corporate teams can do. The unbridled creativity, no fear of failure and constant challenging of status quo can bring a fresh perspective to mature business models within a corporation.
Finally, it’s just more fun in the start-up world. So come visit, you won’t regret it!
Mark Hannigan is a Partner at Greenbackers Investment Capital and runs their Corporate Services practice from his base in Texas, USA.
