New model ventures rise for corporate needs

It is a regular complaint from corporate venturing executives that they do not get value from their venture capital [VC] relationships, but merely a fund investment which they cannot control. Some in the VC industry have more actively courted and looked to please corporate investors, but the general feeling remains that the majority of VCs keep corporate backers at arm’s length.

In response to this complaint, corporate venturing executives themselves have taken the initiative to set up their own groups, such as Bloc Ventures, set up by David Leftley, head of Europe at Vodafone Ventures, and Bruce Beckloff, former head of corporate strategy and venturing at chip designer Arm, as well as CapBridge, set up by Brad McManus, former head of the Panasonic Venture Group (PVG).

Yet an early mover among people setting up new firms catering more heavily to the needs of corporates was Andrew Shapiro, founder of the Broadscale Group, which he dubs “a new model investment firm” that advises corporates on later stage deals, after having been set up last Autumn. Shapiro has lined up as backers US industrial and energy heavyweights GE, Johnson Controls, National Grid and Duke Energy. Broadscale is currently holding talks with six more backers to build up a powerful club.

Shapiro was previously the founder of consultancy firm GreenOrder, which advised 100 corporations on their green plans, including GE with Ecomagination and ETV, and subsequently GO Ventures.

Shapiro said: “I ran consulting firm Greenorder. I explicitly decided I had been doing it for 10 years and did not want to do another consultancy. We are a new model investment firm. We are facilitating investment capital, taking a stake in every transaction. We bring capital to the table with Pegasus [Capital Advisors, a private equity firm which has allocated a portion of its fund to invest in Broadscale deals] and intend to participate in deals to have an aligned interest, to forge a new model of fund advisory.  This is one-part investment syndicate, one-part merchant bank and one-part accelerator.”

He said a large part of the model will be facilitating open innovation relationships between corporates and start-ups, which will also involve the exchange of warrants and other equity-like instruments for corporates that do business with the start-ups.

Shapiro said: “Network members are paying us the equivalent of a management fee.” However, he also expects equity like stakes in each transaction, and will tailor these arrangements to the specific deals,which can vary from the likes of distribution deals, manufacturing, vendor financing to strategic purchasing.

 He said this provision of early revenues will likely be more valuable for start-ups than investment. “When start-ups unfortunately failed over the last three to five years, it often was not due to lack of capital. It was because they did not have the right road map for success. Our overall mission or thesis is to unlock progress through combining entrepreneurial drive, creativity and insight with the unparalleled market access and knowledge large corporates can provide.”

He added: “When I talk to CEOs [chief executives] of corporations the most important thing for them is never to get the highest return possible. It is more we do not want to lose money. It is much more important to glean strategic insight.”

Shapiro is looking to ensure the group is able to demonstrate value, because he recognises corporates’ involvement with start-ups may be near a cyclical high. He said: “Corporates investing in growth companies is a trend which ebbs and flows. They can be a bit fickle. We want to make sure people don’t come in three years and say why am I doing this investing activity? Are we getting any thing out of it?”