New Entrant of the Year: Severstal Ventures

In May last year, Russia-based steel, energy and mining company Severstal announced the launch of Severstal Ventures – a corporate venture fund investing directly as well as through other funds in advanced materials and associated technologies, in Russia and abroad.

The previous February, Severstal appointed George Gogolev as head of disruptive innovation to support the creation of a CVC unit. Gogolev was director of corporate innovation and technology transfer role at state-owned fund of funds Russian Venture Company, where he started in 2012 as head of high-tech products market development before moving through a variety of roles.

Severstal Ventures’ launch came alongside the news that Cyprus-based subsidiary Melsonda Holdings had invested an undisclosed sum in advanced materials-focused VC firm Pangaea Ventures’ fourth fund, which had hit half its $105m target by January 2017.

Within three months of Gogolev’s arrival at Severstal Ventures, the CVC arm struck its first deal. In October last year, it helped complete a first close for Chrysalix RoboValley Fund, a vehicle with a $120m target managed by Canadian VC firm Chrysalix Venture Capital, targeting technologies using smart systems to drive the energy transition.

But the challenges of launching a unit is hampered by government concerns, putting a premium on resilience, networks and transparency to entrepreneurs and co-investors.

Severstal Ventures is one of the first venture funds in the metallurgy space. It was created by one of the world’s most efficient steel companies to look for disruptive technologies and identify new points of growth or threats in a mature industry.

The company said it classified opportunities and threats as technologies with the potential to swing the steel market in Severstal’s core segments of construction and energy by 5% or more either up or down.

In the first year, the ventures team focused on developing a coherent strategy, creating new internal procedures and building the pipeline. It made two LP investments in  well-established multicorporate funds in the materials and industrial space – Pangaea and Chrysalix – and started looking deeply into a number of deals. However, the tightening of US regulations on foreign investment into startups slowed down the investment process, Severstal said.

Commenting on the unit’s creation, Andrey Laptev, director of business development and corporate venture projects and former head of corporate strategy at Severstal, said: “Innovative technologies can significantly disrupt the processes, products and business models of global industrial companies. It is crucial to actively monitor breakthrough trends, identify and implement potential opportunities and mitigate any possible risks. In that sense, investments in VC funds provide unique access to a vast range of projects. With Severstal Ventures, our focus will be on technologies that are ready for rapid implementation, and we will aim to collaborate with these startup projects at operational level.”

The CVC fund, which does not have a set size, will ideally close around five deals a year, with plans to deploy roughly $20m to $25m a year, according to Gogolev, who said its first direct deals were being affected by US regulations. Speaking to GCV in July last year, he said: “Severstal decided to create this unit to look first of all for radical innovations and to avoid missing any huge opportunities or threats. We classify opportunities and threats as anything that can take away or generate 5% in one of our core sectors – energy, including oil and gas, and construction – as a 5% move in either of those markets represents billions of dollars.”

Targeting opportunities in Russia and abroad, the fund’s primary area of investment is materials, including bulk materials as well as materials for the construction, energy and automotive industries at large. The unit is also looking at coatings, as well as production technologies with a special focus on large-scale 3D steel printing for construction, while keeping an eye on mining and steel making technologies.

Aiming to deliver better returns to its shareholders, Severstal will mostly focus on the unit’s financial performance, with goals to bring sizeable cashflows with every new partnership or joint venture. In order to implement a consistent strategy, Severstal Ventures makes sure to maintain a dialogue with its parent company throughout the process. Gogolev said: “We are doing a major strategic initiative within the corporation, talking to all the teams, middle and senior managers included.”

As head of the unit, who sees Severstal as “the most efficient steel company in the world”, he is also keen to create a culture of speed and foster rapid decision-making within the team – a feature which, according to him, will make the company an attractive partner for startups.

Shortlist:

Alliance Ventures
Schneider Electric Ventures
Sinopec Capital
Binance