Applied Ventures has doubled its war chest to $100m per year and is looking to engage with materials engineering startups in a new way.
“The technology advancement to improve society will continue, and we fundamentally believe that materials engineering will be core of it,” says Anand Kamannavar, the global head of advanced materials engineering company Applied Materials’ venturing unit Applied Ventures, on the Global Venturing Review podcast.
Indeed, it’s hard to imagine how technology can rumble along its ever-accelerating trajectory without parallel advancements in the very materials that form its components.
With an annual war chest of $100m, which doubled from $50m over the past year and is deployed on the balance sheet through an evergreen vehicle, Applied Ventures is pursuing exactly that. Its areas of focus include displays, semiconductors, AI/big data, Industry 4.0, energy efficiency, 5G, electric vehicles, and life sciences
What the enlarged fund size has allowed the CVC to do, according to Kamannavar, is to go in at later stages to complement the earlier-stage investments that have traditionally been its bread and butter.
It’s been increasingly venturing into later-stage territory in deals such as series D rounds for electric motor producer Infinitum Electric, and has continued supporting some early-stage investments well into the growth stage, with follow-on rounds for AI voice and sensor technology developer Syntiant, imaging and diagnostics company Ultivue and lithium metal battery producer SES.
While the parent company has a presence all over the globe and provides plenty of support, Applied Ventures’ entire team is based in California. This makes the management of a global portfolio one of the team’s big challenges. Everything from individual startups’ capital structures, to the laws and regulatory frameworks in each geography, to the way exits are handled in different countries can prove to be hurdles when you don’t have boots on the ground, says Kamannavar.
“We have a very successful track record of exits globally, but some countries have restrictions around when you can sell the shares. In Korea, sometimes the lockup period can be two or three years, whereas in the US, on an IPO, the lockup periods are only six months. So we have to take a country-by-country approach. We think globally and act locally,” he says.
More firepower also means the ticket size on rounds has gone up. Where Applied Ventures might have spent between $1m and $3m for a round, it can now go up to $15m. Additionally, it has allowed the unit to lead rounds, which it has been doing more of over the past 18 months.
“One of the big changes we have also done is we are taking board of director seats as we are taking an active role in leading the investments as well as working with our portfolio companies and pushing the envelope of what’s possible, and also getting deeply more deeply engaged with collaborations with Applied Materials,” says Kamannavar.
To date, it has led round investments for startups such as Syntiant and co-led rounds for metasurface optics producer Metalenz, for which it was also an early backer.
The unit has also shown a willingness to go beyond what would traditionally be regarded as a venture capital investment. It’s rare to see a CVC invest in a public company, when one would assume the technology and go-to-market risks that yield those VC-type returns would be largely overcome.
But that’s precisely what Applied Ventures did with Nanexa, a Swedish nanotechnology drug delivery company, putting in up to $3m into Nanexa’s private investment in public equity (PIPE) financing in April last year.
“We are basically looking at this investment as a tool to invest in things that are interesting and relevant to us, and we figure out what structure it is. So that has been our natural evolution as a CVC.
“We do a lot more private investments than PIPE investments, but we have also taken quite a bit of unique things that a lot of CVCs have not done.”
“How we see CVC 2.0 is going above and beyond the traditional corporate mode of: Okay, we are going to invest in startups, play a small role, be a board observer and see how things lay,” he explains.
“I think Applied [Materials] and Applied Ventures have taken a kind of a leadership role around saying, ‘Let’s figure out how we access the global innovation, and then we can figure out how to invest — whether it’s private companies, public companies, global companies, partnering with global organisations — and what’s the best way to do so’. And that has been a change in thinking that we have driven.”
Kamannavar explains: “The only big difference is we do not take board seats in a public company. And we don’t get any material information that is different from what any public investor does. So we make sure that we follow the rules of the land, but we also have the ability to use the different tools in our kit as required, depending on the situation.”
In the public sphere, Applied isn’t looking to back the Googles and Apples of the world. The team will typically invest smaller amounts in the PIPEs for smaller public companies — albeit ones that have the potential to grow big. To help that growth, Applied will often collaborate with the companies it invests in. It is working jointly with Nanexa, for example, on the development of ALD-coated injectable drugs.
“We do not mandate [collaborations], just to be very clear, but it happens just because both parties think that there is something valuable, and that’s what people get exploring. A lot of times it also starts from one area and then extends into other areas,” says Kamannavar.
Ahead of the curve
Applied Ventures is one of the oldest corporate investment arms in the world, having been in existence since 2006. Its longevity, and the stable and continuous relationship it has enjoyed with its mothership, have helped put it in a position to spot opportunities where others perhaps have not, according to Kamannavar.
“[Energy management system provider] Enphase is a $40bn company and we were the first investors at a $6m valuation,” he says.
Just as with the solar sector, another early ESG-themed investment was in EV batteries in the case of SES, when the unit initially invested in a 2016 series B round. Just three years earlier, SES was counting on grant money to develop its technology, now it is public with a market capitalisation exceeding $1.7bn. Applied Ventures hopes the same is true for its current focus areas like spatialomics, heterogenous packaging, flat optics and photonics.
“One of the greatest abilities of Applied Ventures is the ability to be the eyes and ears and see ahead of the curve before they become the norm,” he says.
“That way you are able to invest in something that the world doesn’t believe in, and yet, once those things come to fruition, there’s a non-linear impact both for the parent company as well as for our venture investments.”
You can listen to the full conversation on the Global Venturing Review podcast here.