Pradeep Tagare is an Entrepreneur turned 2x Corporate VC. After transitioning to CVC at Intel Capital, he’s spent the last two years setting up and leading National Grid’s CVC group. We talk about both his experiences launching a new corporate fund in the energy space as well as his experiences and lessons from a career at the storied Intel Capital. We also talk about how CVC needs to react during this Covid crises.
Sean Ammirati (00:03):
Welcome to Agile Giants: Lessons from Corporate Innovators. I’m Sean Ammirati, your host, co-founder and director of the Carnegie Mellon Corporate Startup Lab, and partner at the early stage venture capital fund Birchmere Ventures. Each week, I’m going to talk to guests who are experts at creating startups inside large corporations. I believe, fundamentally, a startup within a company is the same as one inside the proverbial garage, a group of entrepreneurs trying to make the world a better place, using new ideas and inventions. However, I also believe some of the techniques and processes are just inherently different. This podcast is going to explore those similarities and differences.
Sean Ammirati (00:56):
We’re going to continue talking about corporate venture throughout this season of Agile Giants. It won’t be the only topic, but we’re going to keep coming back to it because I really believe most companies are under leveraging their CVC activity, and we’re going to continue to shine a spotlight on that both with academic thought leaders, like last week’s conversation, and with those on the ground. And this week, we’re really joined by, really a legend in terms of work on the ground.
Sean Ammirati (01:25):
Pradeep Tagare has over 16 years experience in CVC, between his time at Intel Capital, one of the longest and most well-known CVCs, and then also coming to National Grid, where he actually leads their corporate venture activity, and really built that with his colleague from the ground up. We’ll talk a little bit about both his observations on corporate venture, as well as what the experience was like building out National Grid’s venture fund. If you’re trying to figure out how to build a CVC within your company, this episode is packed with actionable insights to help you do just that.
Sean Ammirati (02:01):
I’m really excited that you’re joining me today, Pradeep. Pradeep Tagare is at National Grid, has a CVC there. But Pradeep, before we jump into what you’re currently doing, I always love the story of entrepreneur turned VC, and so I was wondering if you could talk just a little bit about your career trajectory and what brought you to where you are today. And then, we’ll talk about what you’re doing now.
Pradeep Tagare (02:31):
Sure. Thanks, Sean. I’ve been in the software space for a long time, now. So after doing my graduate studies at Wisconsin Madison in computer science and engineering, I moved out to the west coast. My first job was, believe it or not, with an AI company in the early ’90s, that was doing expert systems and case based reasoning. I’m really a geek at heart, love technology, and that’s been the constant throughout my career.
Pradeep Tagare (03:03):
I started off as a hardcore software developer, was in the Bay Area during the first internet wave in the mid-’90s, and dealt with large, distributed, complex systems, dealing with data, distributed resources, and so on. Was with a couple of startups in the area during that time, as you probably … Well, some people may remember the heady times of the 1999, 2000. But, it really was a time when technology was the centerpiece, as these new platforms came online. So participated in that, moved into a product management role at a company called BroadVision. That was my first step out of hardcore technology, into more how are people going to use this, and what do they need.
Pradeep Tagare (03:55):
I was at a company called Healtheon as well, which was a Jim Clark company, for a little bit. And then, started my own company in the mobile middleware space.
Sean Ammirati (04:05):
Just to stop you for a minute, because I know who Jim Clark is, but there are some young listeners, they may not actually know what a Jim Clark company means. Maybe just a moment on that?
Pradeep Tagare (04:15):
Sure. Jim Clark was the CEO that they brought in for Netscape, with Mark Andreessen. He’s the one that really put Netscape on the map in the browser wars with Microsoft, and so on. He’s a legend in the Valley, and it was an interesting experience to just be part of that group. But, I didn’t stay there for too long because I wanted to do something on my own, always an entrepreneur at heart.
Pradeep Tagare (04:43):
So I started my company in the mobile middleware space. This was at around the time when the Blackberries were out, so there was a lot of excitement in the enterprise market around these mobile devices. They were very limited, you could only do emails basically. We were trying to figure out how to use them as a tool for consuming enterprise content, and possibly doing transactions based on that. Now it’s laughable, looking back, that we were trying to figure out how to do transactions on the mobile device, but the reality was they were just text-based devices.
Pradeep Tagare (05:21):
Anyway, did that company for about four and a half years, and learned a lot through that process. After that time I said, “I’ve spent enough time raising money and running a company, let’s spend money for a change.” I wanted to experience the other side of the table, because as most first-time founders, I really had no idea of how the venture capital ecosystem worked. All these terms, liquidation preferences, this, that, and the other concepts. I really wanted to experience it on the other side.
Pradeep Tagare (05:57):
So I joined Intel Capital, to focus on software investments, enterprise software investments. The thinking was I’ll do that for a couple years, and then go back out and start my next gig. 17 years later, I’m still in the CVC space. There’s something about the space that I like. But, at Intel Capital, I was there for about 14 years, we did a lot of investments in the enterprise space. Specifically, I focused on the open source software space, we invested in companies like MySQL, Jboss, early pioneers.
Pradeep Tagare (06:35):
And in the last few years of Intel Capital, I was with them in India, growing their operations in India. As you may know, that is an area of high growth, and we ended up doing a lot of really interesting deals there. And that brings my to my current position.
Sean Ammirati (06:54):
Just one question before we get to your current position, actually. Because you were at Intel twice really, right?
Pradeep Tagare (07:00):
Sean Ammirati (07:00):
When you go back to your hardcore engineer days, you were an engineer at Intel as well.
Pradeep Tagare (07:05):
Sean Ammirati (07:06):
Did that help you make this transition to the Intel Capital side? Or, were the businesses different enough that it was …
Pradeep Tagare (07:13):
Yeah, they were very different.
Sean Ammirati (07:14):
Pradeep Tagare (07:17):
The first time around, I was on the technology team that developed software for Silicon validation. The second time around, I was more investing in the enterprise software companies, so completely different groups, organizations, cultures, all of that.
Sean Ammirati (07:34):
Pradeep Tagare (07:35):
But, at some level it helped because you know the company, you know people, that kind of stuff.
Sean Ammirati (07:41):
Yeah, I was actually thinking specifically about culture, but you said completely different cultures so maybe not even really that helpful on that front.
Pradeep Tagare (07:49):
Yeah. A little bit, because you know how the corporate thinks so that helps a bit. But, in most CVCs, the CVC culture typically is very different from the parent. That was the case at Intel, as well.
Sean Ammirati (08:05):
Awesome. Intel’s certainly a very famous CVC group, and one of the longer standing ones. And then, you were just saying you spent quite a run there. And then, now you’re at National Grid, so talk about that a little bit.
Pradeep Tagare (08:21):
Yeah. About two and a half years ago, National Grid was … National Grid is an energy company out of the UK and Northeast US, it’s a publicly traded company, about $40 billion market cap, 20,000 employees, so fairly large company. They were looking to set up an innovations group, really to understand what’s going to disrupt the energy industry in the next 10, 15 years. The energy space, in general, is very almost insulated, National Grid is a regulated entity, so there’s not a lot of … And, safety and reliability are the two biggest issues and concerns at any energy company. There’s not a lot of visibility into the newer technologies that can potentially disrupt that business model, and that’s what National Grid wanted to do with its innovation group.
Pradeep Tagare (09:17):
As part of that innovation group, they wanted to invest in startups as well, to really understand at a much deeper level what’s going on in the space. So they were in the process of setting up this fund, and I came in to run that fund for them. The innovation group, which is what this fund is part of, is run by Lisa Lambert, who also came from Intel Capital. So National Grid Partners was set up two and a half years ago, with the mission of really understanding disruptions in the energy space, and helping National Grid uncover either new business models, or get more efficient in the process.
Sean Ammirati (10:00):
How do you and Lisa evaluate success, given that mission?
Pradeep Tagare (10:06):
Yeah, this is the $1 million question for any CVC, is what does success look like? Now, the thing is, at Intel Capital, we made a lot of mistakes along the way so we are bringing some of those learnings here. I’m sure we’ll make new mistakes here, so that will be the fun part.
Sean Ammirati (10:26):
It’s the definition of entrepreneurship, right?
Pradeep Tagare (10:28):
Yeah. We try to learn from it, and some of the learnings were, first of all, defining what success means, and making sure that the parent company and you agree on those metrics. It’s really hard to quantify, for any CVC.
Pradeep Tagare (10:49):
What we did was we basically set out what we call a scorecard, of what are the things that we would do that would be valuable to the parent. One is obviously technologies that National Grid can take and create new business models, or deploy them to either save money or create new revenue streams. Those are the easy ones, because you know that whether it’s deployed or not, whether that technology’s being used or not. That’s about, I would say, anywhere from 50 to 75 percent of the deals.
Pradeep Tagare (11:28):
The rest of it is the gray area, which is where it gets interesting. The way we looked at it was the mission of this group really was to understand what’s going on in the external world, and how do you bring that back to National Grid. We have done a few things, essentially around knowledge transfer. How do you take that knowledge and make sure that the right people within the company understand it, and get to interact with the startups to understand it at a much deeper level than if they were to just read about it in TechCrunch, or whatever.
Pradeep Tagare (12:06):
That is a key metric for us, is how do we do that. Part of that is just cultural transformation within the parent. So for example, our CEOs, we give them an opportunity to do a webinar to all of National Grid. Not just on their own company, but the area that hey work in, so that creates not only opportunities for our portfolio companies within National Grid, but really helps all sorts of people within National Grid understand what’s going on. That’s a very simple example.
Pradeep Tagare (12:41):
So we track how many of those we do, so we have a scorecard that, at the end of the year, we sit down with the GMs of the business units and essentially go through it, and see how we’re doing.
Sean Ammirati (12:55):
Do you think a year is a long enough time horizon for that second set of objectives?
Pradeep Tagare (13:00):
I think it’s a good indicator of how we’re doing. You’re never done done in this space, but it’s a good indicator of how we’re doing. If we need to course correct, then that’s a good time to review and do those corrections.
Sean Ammirati (13:19):
I want to get into some of your thoughts on CVC at large. But before we do that, I did have one more question from your last couple answers, as you’ve been talking about National Grid specifically. Which is, you used the term a number of times, business model reinvention, business model transformation, you talked about the business model innovation.
Sean Ammirati (13:42):
I think for people listening to this, they probably know what that means in a lot of industries. I’m not sure many people, at least most of the audience, would have a good grasp on what you mean within the energy space there. Can you give some examples of business model innovation in the energy space?
Pradeep Tagare (14:05):
Sure. If you think of a utility that provides electricity and gas to consumers, it’s a regulated entity so it provides that service, regulators set the price, and this business model has been there for a long, long time and it worked fine. Well, as well as it did.
Pradeep Tagare (14:28):
Now, what’s going on is you have a few trends that can potentially disrupt this model. The trends are, one is a rise in renewable resources. So what happens when you have solar and wind at a level that can provide electricity comparable to the grid? Second trend is electric vehicles. So what happens when you have the number of EVs is at a point where the existing infrastructure cannot support that load. And then the third is more the distributed resources, technology like blockchain, for example. Can you do peer to peer energy trading? And then, this whole effort and initiative around clean energy and climate change. All of these are trends that can potentially disrupt our business model.
Pradeep Tagare (15:27):
As an example of that, I wouldn’t be surprised if in 10, 15 years, pick a number, a company like an Amazon would be our biggest competitor, if there were an alternate way to get renewable resources onto a grid. It’s very similar to what happened in the telecom industry. If we are not aware of what’s going on in the space, and what role we have to play, the value creation that’s going to be done, very similar to the telecom space, is going to be [inaudible 00:16:03] our stack. That is what is an example of a business model transformation.
Sean Ammirati (16:09):
That’s awesome. Cool.
Sean Ammirati (16:11):
Well, let’s step up a level and talk just about CVC at large, and the CVC space because you’ve both been part of, arguably, one of the most famous CVC groups in the world at Intel, and now you’re building a CVC group with your colleague there. I think you have interesting perspectives across this. I actually first came across you and the work you’re doing with some research we were doing this summer at the Corporate Startup Lab, around the future sentiment of CVCs post-COVID. You’ve been, I think, in a helpful way, helping maybe other CVCs think about the importance of the time that we’re in. So I thought maybe we could start there, and then just talk about advice you’d have for CVCs in general.
Sean Ammirati (16:55):
So, we’re in a time of great transition, obviously we’re recording this in mid-August, it will probably run in mid-September. But, COVID cases are certainly still top of mind for everybody. How do you encourage CVCs to think about this period that we’re in right now, with all the change going on?
Pradeep Tagare (17:17):
One of the basic principles in this space is that this is a longterm business. This is not a business that you want to get in when times are good, and get out when times are bad. If you follow the CVC space over the last, say, 15, 20 years, what you will see is when the markets are doing really well and everyone is happy, the number of CVCs just go through the roof. And then when times are bad, it crashes equally fast. That just does not work in this business, that is one of the factors that got CVCs a bad name with regular venture investors because then you don’t know whether you can depend on this CVC or not, for their rounds, support, and so on.
Pradeep Tagare (18:10):
Rule number one is, this is a longterm game. When you set up a CVC, you have to think of it that way. You have to understand that this takes investment, it takes possibly the J-curve and being comfortable with that, in good times and in bad times. If the reasons for setting up the CVC are very clear and bought in by the top management of the company, then by definition it’s a longterm game. Just stick with it. I personally have seen three of these cycles, and we always come out okay on the other end, as painful as it is when you’re going through it. But, some of the best companies do indeed get started under these circumstances, and they go on to get great exits. The key is to just stick with it.
Pradeep Tagare (19:09):
That is what differentiated Intel Capital and a handful of other similar groups over the last 25 years, they just stuck with it. They went through so many iterations, and almost near deaths a couple of times, but they stuck with it. In my mind, that is the key. This is a stressful time for everyone, but I think the article that you are referring to. What I had said was, “This is the time when tourist CVCs will get separated from people who serious about this.”
Sean Ammirati (19:41):
Yes, right. I took it as a challenge to your peers to not be a tourist CVC, but to stay committed.
Pradeep Tagare (19:50):
The thing is that … Sorry to interrupt. I’m not saying that necessarily a bad thing. A corporate may set up a group for many reasons, and one of them could be a very short term focused reason. Which is fine, I’m not casting any judgements against anyone. But, what I’m saying is that if you want this to really produce strategic returns for you over a period of time, then you can’t be in and out of it because that just does not work.
Sean Ammirati (20:21):
It’s interesting. When I think about Intel Capital, part of what I think about is exactly what you said. But the other part of it is, I probably interacted with, I don’t know, a dozen Intel CVC folks and they all had alignment around the mission and vision of Intel. Unlike a lot of other CVCs I’ve interacted with, where I feel like you get different answers from different partners, it seemed like there was a clear understanding of the strategic imperative behind Intel Capital. And then, similar when you were talking about setting up National Grid, you talked about building the scorecard up front.
Sean Ammirati (21:01):
Imagine someone’s listening to this who’s an executive responsible for innovation, and thinking about adding CVC to the activities their group does. How would you encourage them to think about coming up with the mission and the scorecard that makes sense for their organization?
Pradeep Tagare (21:19):
Yeah, that’s really the heart of it. I think, from what I have seen, CVCs are set up one of a few reasons.
Pradeep Tagare (21:31):
At Intel, it really was around building an ecosystem around their platform.
Sean Ammirati (21:37):
Pradeep Tagare (21:38):
So the biggest win for Intel Capital was the ecosystem they built around Centrino, which was the first WiFi chip. Because if we had not gone ahead and invested in that ecosystem, it would have taken WiFi a long time to get to mass market. That’s a very simple and powerful example of what a CVC can do.
Sean Ammirati (21:58):
Yeah. My sense is for Intel, and correct me if I’m wrong on this, but it’s basically, “How do we grow the microprocessor market?”
Pradeep Tagare (22:04):
Sean Ammirati (22:05):
Because if we grow the microprocessor market, we’re pretty comfortable that our market will grow right alongside that.
Pradeep Tagare (22:12):
Exactly. That was, in hindsight, almost too simple. You know exactly what you had to do. It didn’t feel like it at that point in time, but it’s fairly straight forward.
Pradeep Tagare (22:25):
Where it gets interesting is if you don’t necessarily have a platform that you want to grow an ecosystem around, then corporates are doing this either for supply chain investing. So making sure that the vendors that they’re selecting for their critical projects not only do the benefit financially from an investment in them, but they have more visibility into their roadmaps, and potentially what their competitors are doing, and so on. That’s another reason. A third reason is just to understand what’s going on in the space.
Pradeep Tagare (23:02):
So I think, when you’re setting this up, I think you should be really clear about is it that you’re setting it up. What I’ve seen happen is companies set it up because that’s the cool thing to do, and you have extra capital, and you hear all these great stories of VCs making so much money, and all of that. You set up this group, and then you try and figure out, “Well, what do we really want from it? Is it financial returns, or is it strategic returns? And, what does strategic mean?”
Pradeep Tagare (23:39):
I would highly encourage whoever’s thinking about it to first say, “Okay, here’s what we want from it.” Whatever you want is great, as long as you’re clear on it. It could be something as simple as, “We just want financial returns,” which is fine, too.
Sean Ammirati (23:55):
Yeah. You do think it makes sense, just on a financial return perspective?
Pradeep Tagare (24:03):
Again, it depends on the company. Quite a few companies now, and big names, too, have really moved on to being more of a financial returns based profile, than specific, strategic based profile. I think different companies are okay with what they want out of it, it really depends on the situation.
Sean Ammirati (24:29):
It feels, to me, like if that’s one of the objectives it makes sense, but I feel like it’s hard to believe if that’s the only benefit you’re getting, it makes sense. But, maybe I’m just not thinking big enough here, just because there’s a lot of different ways to invest money that feel more efficient than setting up a CVC group.
Pradeep Tagare (24:51):
Yeah. I like to think of it as, and this is what I’ve seen with quite a few CVCs, as a pendulum that swings between strategic on one side, and financial on the other side.
Sean Ammirati (25:04):
Pradeep Tagare (25:05):
Depending on the management team in place at a given point in time, you will find that pendulum somewhere on that spectrum. Ideally, you want it to be right in the middle, where you get both strategic and financial returns. In reality, that’s very rare. I would say that’s less than 10% of the deals.
Sean Ammirati (25:26):
Pradeep Tagare (25:27):
So you’re on either side, and depending on how a company looks at that group, you will find companies all over that spectrum.
Sean Ammirati (25:35):
That hangs together for me. I guess, I’m just saying I think it’s probably okay, sometimes, to go all the way to the side of strategic value, but in terms of going all the way to the other extreme, where it’s purely just for financial returns, that feels like a hard hill to climb for me, if I put myself in the chair at the CVC.
Pradeep Tagare (26:01):
What happens is, then, it’s not … They still get some strategic value out of it, just by investing in these companies, and understanding what’s going on. But, there’s no formal structure around that. The investing team is not necessarily measured on that, they’re measured on IRR, or cash [inaudible 00:26:23].
Sean Ammirati (26:24):
I think that’s totally fine. I think telling CVCs to operate with financial motivations, in many cases, makes a ton of sense. But, if I’m the CFO at that company, it feels hard for me to believe that I’m looking at my CVC team the same way I look at the asset managers I invest in, for example, I guess is the point I’m trying to make there.
Pradeep Tagare (26:50):
Fair enough. Absolutely.
Sean Ammirati (26:51):
You should be getting some strategic benefit as well, even if … We had on the podcast, the guy who is building out Kraft’s CVC group, and he is very financially motivated, he’s a personal investor in the fund alongside the company, so he’s making that investment. Just like I, as the GP, make investments in my funds. But, I still think for Kraft, they’re also hoping to learn some things from the work that they’re doing.
Sean Ammirati (27:22):
But I love this thinking through what your objectives are, and also understanding what that strategic goals are. I think your scorecard that you talked about for National Grid is a really helpful way to operationalize that, because I think a lot of CVCs don’t actually completely operationalize those plans. I think you’ve done a nice job with them, helping them walk through that.
Pradeep Tagare (27:47):
That was one of the lessons learned from Intel Capital as well, it took us a long time to get there. But, you really have to have that to make sure that the rest of the organization is with you as well. Because that’s the other interesting thing about CVCs, is inherently there’s tension between CVC and the rest of the organization.
Sean Ammirati (28:11):
Pradeep Tagare (28:12):
Based on the culture, based on compensation, based on the type of work, and so on. You’ve got to be able to have a structure in place that shows the value add that everyone is bought off on.
Sean Ammirati (28:25):
That’s awesome. Let’s wrap this up like we always like to wrap this up. First of all, if people want to follow along with your thinking online, or connect with you, LinkedIn, Twitter, what’s the best place to follow along?
Pradeep Tagare (28:39):
LinkedIn is the best way.
Sean Ammirati (28:42):
Awesome. I will include a link to your LinkedIn profile on that. I guess, a related question is we also have entrepreneurs listening to this. Are there types of companies that you’d love to connect with, given your role at National Grid?
Pradeep Tagare (28:55):
Yes. Broadly speaking, two types of companies. One is any technology within the energy space. And the second is any technology that helps in the broad digital transformation space, so enterprise technologies in digital transformation.
Sean Ammirati (29:13):
Are you stage agnostic?
Pradeep Tagare (29:15):
Yeah, we are stage agnostic.
Sean Ammirati (29:16):
Okay, great. And then, the last question. You’re coming out of graduate school, but instead of whatever year you came out of graduate school, imagine you’re coming out of graduate school in 2020, and someone is trying to have the same kind of career that you have, entrepreneur turned CVC. What advice might you give him or her?
Pradeep Tagare (29:38):
I think try and get into companies that are doing cool technology, because that gives you a very strong platform. Based on that, then you can go into multiple directions, depending on what you like to do. As opposed to going to, let’s say, a particular application company. As appealing as that might be, if it’s a hard startup, my recommendation would be to spend the time at the core technology layer and build out from that over a period of time.
Sean Ammirati (30:11):
That’s awesome. Well Pradeep, I really appreciate you joining us today on Agile Giants, thanks so much and stay safe.
Pradeep Tagare (30:17):
You too, Sean. Good talking to you.
Sean Ammirati (30:23):
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