Corporate venturing has become a key component of ABB’s quest for growth. To understand better how ABB works with startups and how investment decisions are made, ABB Review met with Grant Allen, Managing Director and Head of Ventures at ABB Technology Ventures (ATV). Grant is based in ABB’s new Silicon Valley headquarters in San Jose, CA.
ABB Review (AR): Can you please describe the innovation ecosystem at ABB and how it has changed in the last few years?
Grant Allen (GA): A robust and forward-leaning R&D function is the foundation for ABB’s pioneering technology leadership. It’s what I point to most frequently as our sustaining competitive advantage and the number of true breakthroughs we’ve had as a company over the years is remarkable. Every time I meet with ABB’s researchers, I’m impressed by the capacity we have internally to develop new products and progress the state of the art in our industry. However, as in any large company, there can be a bias towards improving the known, rather than exploring – even clumsily – the unknown. This can lead to patterns of incrementalism and optimizing towards the evolutionary rather than the revolutionary. In practice, this means that a large percentage of development resources are spent on improving and optimizing the current portfolio, often at the expense of risk-taking and investigation of new breakthroughs. We view this as a search for local rather than global maxima that will, over time, build shareholder value. I clearly see the need for any large company to have a search party function to identify and capitalize on breakthrough technologies and business models that go beyond the core and help the parent company find entirely new offerings for their customers. This is the search for the new white space and ultimately the global maxima. And this is where I believe corporate venturing functions like ATV can be a good tool.
AR Where do you see corporate venture capital (CVC) five years from now? What are the biggest trends in terms of corporate startup engagement?
GA Corporate venturing is more prevalent today than it has ever been. It is a clear trend that large companies are looking outside their walls for disruptive innovations. Now, whether they are simply looking to track those innovations or take them seriously, engage with them, perhaps even challenge their own existing models, that’s the real trick. I don’t think many of these corporate venture capitalists are doing this well – they’re window shoppers in the sense that they’re looking at and talking with a lot of startups and bringing their executives through Silicon Valley for what we call the technology petting zoo but they are not investing big checks or meaningful business unit calories. That’s when CVC activities become hard because while we all like to make money on our investments, the real measure of our success is how much it moves the strategic needle for our parent company.
In five years, I see CVC still going strong but with about half – if not more – of the groups investing today having pulled back from the market. These are the groups who have dabbled but have either failed to produce strategic value for their parents or have lost too much money, or both. History dictates that CVC groups have a short shelf life; often the simple turnover of an executive sponsor can trigger a strategic review and bring about the end of the venture capital arm. Thus, we have to be especially vigilant that at every stage of our platform life cycle we are delivering strategic value and doing so in the context of a durable financial returns mechanism.
AR Tell us a bit more what role ABB Technology Ventures plays in this market environment?
GA When I first moved to Silicon Valley three years ago, I met with many of the big-name financial venture capitalists: Andreesen Horowitz, Greylock, Kleiner Perkins, Lightspeed. There was generally muted interest in the ABB-relevant topics such as renewable energy, factory automation – even robotics. The hardware investment trend had not taken off yet and there was still a hangover from the cleantech boom of the early 2000s in which most funds investing in energy tech lost their shirts. Fast forward to today, and AI and robotics are two of the hottest topics in tech investing, deep tech is highly en vogue, and in spite of the longer ramps, many funds have turned to hardware Andy Rubin’s Playground Global have been created solely to invest in hardware! Now, some of these same top venture capitalists seek ABB out because we are experts in these fields, particularly robotics and industrial IoT. We are happy to play the role of technical advisor and as we leverage that to add value to the other investors in the ecosystem, we can then get into the very best deals and bring to the table the other things that make ABB such a great investing partner: ABB’s brand, a deep R&D bench, a global supply chain and channel access, market knowledge and decades of experience producing some of the most precise, rugged and functional products on the planet.
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