For an early-stage investor it makes sense to use secondary sales to rotate out of some more mature startup holdings as a matter of course, says portfolio manager Davide Romeo Nanni.
A stagnant exit market has led many corporate VC units to explore offloading portfolio stakes on the secondary market, but French energy utility Engie is more proactive than most, pursuing a deliberate rotation strategy as a matter of course.
The company’s CVC arm, Engie New Ventures, is seeking buyers for a substantial amount of its portfolio, and has met with more than 200 prospective investors as part of the process, which is being overseen by portfolio manager Davide Romeo Nanni.
“After 10 years of existence, we are in the right spot to do that,” Nanni says. “It’s quite natural to say: ‘Okay, now we are in the position where we have 27 companies in the portfolio, some of them have matured, have commercial traction and are very de-risked.’
“We were looking for exits anyway, we just decided to be way more proactive.”
“There is an opportunity for an exit for some of them, a decent exit. The group has given a strong push to accelerate the whole process but it’s something we would have done anyway. We were looking for exits anyway, we just decided to be way more proactive.”
The decision came in the wake of a strategic review last year that concluded that the unit should be more autonomous, financing new investments using returns from the portfolio rather than cash from Engie itself.
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“In the past we had, let’s say, a passive approach to exits, meaning that anytime there was an M&A or management buyout, we exited from the company,” Nanni says. “We decided to be a bit more proactive and explore all the secondary market options.”
Engie New Ventures has identified a significant minority of its portfolio as potential secondary exits. Nanni says that is also related to a change of focus for its parent company, which has restructured its business in recent years to focus more on energy, while shedding its technical services business through a divestment of subsidiary Equans. As a result some of the startups in its portfolio just don’t have a strategic fit with Engie anymore.
The process has so far been fruitful, with one company exited and substantial progress on two more, Nanni says.
Identifying the right startups to sell
Nanni and the Engie team have learned a lot about the best way to tackle a divestment process.
Nanni says the immediate targets, among the portfolio of 30, were the startups where Engie has either met its strategic purpose, or where it found it could not, usually because the companies’ respective aims moved apart over time.
Next, Nanni has prioritised companies that a) have begun to generate healthy revenue, b) have a cap table of interesting investors on it that can demonstrate the startup’s worth, and c) have technology Engie has been able to pilot or test so that buyers can be confident it works. These are the startups that can create a good financial return.
“What we really wanted to avoid…is putting together a portfolio of companies that are not considered interesting for the market, just to get rid of them.”
“The idea was to identify companies that could be interesting for the market,” he adds. “What we really wanted to avoid – and this is quite important because I think it’s been a recurrent trend which has not been very beneficial in the CVC market – is putting together a portfolio of companies that are not considered interesting for the market, just to get rid of them.”
Talking to the founders
The next step was to speak to the founders. There can be some trepidation about losing a strategic investor, especially when a key incentive of taking CVC money is the strategic or commercial partnerships. But the unit makes clear that while Engie New Ventures may not be on the cap table anymore, that will have no effect on any tie-ups with its parent company.
“That is very, very key,” says Nanni. “It’s very tough to sell a company if the management is not aligned. But we did discuss our intention to exit with the investors and with the company.
“One of the key elements in the discussion is to say look, it’s Engie New Ventures exiting, the collaboration that is in place with Engie will keep going. With some of those companies, the collaboration built between the Engie group and the company is so strong that it doesn’t need the presence or the capital of Engie New Ventures at all. So, that is something that we will discuss at length with each startup.”
Buyers still tend to offer low prices
The next step was to locate the right buyer for each stake, a process that is still ongoing for the unit.
“We identified a couple of advisors that could support us in the process, we built an external deck to propose the [selected portfolio companies] to the market, and we started to approach the market,” Nanni says. “We identified more than 200 investors and spoke with them, explaining that there was an intention from us to exit from those [startups].”
Prospective investors range from specialist secondary funds to growth equity investors to corporate VCs interested in proven technology, as well as existing investors in the companies who may want to increase their own stakes outside of a formal round. The majority come from Engie New Ventures’ network and those of its team, while the advisors find external people with which it is not already in contact.
The unit has also sharpened its approach. It was initially open to selling the stakes either one by one, or as a batch to a single investor, but is now focusing on finding a unique buyer for each company. Nanni says that in the first couple of months of the process, it received some offers for the entire portfolio, generally from European secondary-focused funds, but these were far below the price they had in mind.
Those secondary players had done business with corporate VCs in the past, buying entire portfolios, he says. But there’s a feeling from some parts of the market that CVCs are easy marks in this situation.
“The CVCs that were doing this kind of thing in the past were CVCs that were going to shut down, and that’s not at all what we’re trying to achieve here”
“I think that in this kind of market there is a bit of bias. Because the CVCs that were doing this kind of thing in the past were CVCs that were going to shut down, and that’s not at all what we’re trying to achieve here.
“Those investors which have that bias approach those operations, mostly when discussing CVC, saying: ‘It’s a big corporate, so the CVC doesn’t work, they want to get rid of it and they are not going to be very demanding in terms of price’.”
New investments continue
Although it is yet to confirm buyers for most of the portfolio companies it has chosen, Engie New Ventures is not dropping its pace on new investments. It backed six new startups in 2024 and took part in a €60m round for French low-carbon iron producer GravitHy in March this year.
“We are keeping our investment pace, which is around three to five new investments every year,” says Nanni.
While the unit may have initially been nudged towards secondary sales by its parent company and a stagnant exit market, it plans to keep doing this as a matter of course. Engie New Ventures is an early-stage unit that targets startups at the seed and series A stage, and so once it gets that strategic tie-up, it doesn’t have to wait around years for an exit just because that’s what a VC firm would do.
“We are going to have a list of portfolio companies for sale that we are going to update over time, and over time we will keep making an effort to sell those companies,” Nanni says. “There is no intention to end the process – it will keep going, basically forever.”
