Episode 13: 3 Rivers Venture Fair — The Corporate Venture Capital Value Proposition
This week’s episode of Agile Giants is a little different. A few weeks ago I had a chance to moderate a panel at the 3 Rivers Venture Fair in Pittsburgh, PA.
The panel focused on corporation venture capital, and specifically the corporate venture capital value proposition. We had guests from Covestro, Bayer and UPMC, each participated as panelists talking about how each of their individual companies approached corporate venture.
If you’re interested in talking more about Corporate VC, feel free to reach out. It’s an area I’m continuing to explore myself and would love to get other people’s perspective on Corporate VC.
Sean Ammirati: 00:08 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 the similarities and differences.
Sean Ammirati: 00:56 This week’s episode of Agile Giants is a little different. A few weeks ago I had a chance to moderate a panel at the 3 Rivers Venture Fair in Pittsburgh, PA. Looking at corporation venture capital, and the corporate venture capital value proposition, it was an interesting intersection of my two roles as a VC and leading the corporation startup lab at Carnegie Mellon. We had guests from Covestro, Bayer and UPMC, each participated as panelists talking about how each of their individual companies approached corporate venture.
Sean Ammirati: 01:28 If you’ve listened to Agile Giants for a while, you heard Priscilla Beal’s interview where she talked about how Bayer runs the G4A program. I still think that’s a really compelling model for companies to explore. It was interesting to have her discuss that and then also be complimented by the Covestro and UPMC approaches. I thought this was a really helpful lens into how companies can attack corporate venture capital and thought I would share it with you as a special episode here. Hope you enjoy.
Sean Ammirati: 02:05 This is an interesting topic and if you guys were here yesterday, and saw the news from Innovation Works about corporate venture investing in the region, I think we finally are seeing some data start to bare out a trend that a lot of us have been observing for a long time here, which is that the corporates are getting more and more active in the venture activity here in Pittsburgh and really across the country. It’s great to have three local leaders here who can add a ton of insight in terms of how startups and corporates can work together, specifically around venture investing.
Sean Ammirati: 02:37 Rather than me introduce each of them, I’m going to ask them to introduce themselves. I think I know most of the people in the room, so I’ll make mine really short and then ask just to go down the row here and introduce yourself. If I haven’t met you, I’m Sean Ammirati. I’m a partner at Birchmere Ventures here in Pittsburgh, which is a seed stage fund, one of the couple local funds here in Pittsburgh. I also am the director and co-founder of the Carnegie Mellon Corporate Startup Lab which has been doing a lot of research for the last two years on this topic of how startups and corporates can collaborate. So interested personally in this topic from both perspectives and have learned a lot from all the folks on the panel here. I’m looking forward to continuing that. Priscilla, if you can start and then we’ll just go down the line introducing ourselves.
Priscilla Beal: 03:19 Sure, good morning everyone. My name is Priscilla Beal. I work for Bayer or Bayer, depending on what part of the world you’re from. My group is called G4A Digital Health and we’re basically focused on identifying new business models, new businesses, new revenue streams for the organization rooted in behavioral science.
Currie Crookston: 03:38 My name is Currie Crookston, I’m the Head of Innovation for Covestro. I’ve been in my job for I think about a year and a half now. Prior to that, I spent 14 years doing startups, and I’ve done five of those. Covestro hired me to help bring that startup culture and then also in terms of engaging and working with startups.
Matthias Kleinz: 03:57 My name is Matthias Kleinz. I’m a Vice President at UPMC Enterprises, which is the investment arm of UPMC, the integrated delivery network here in Pittsburgh and Western Pennsylvania. At UPMC Enterprises, we invest primarily in healthcare innovation. My team specifically is called the translational science team. While UPMC Enterprises is known longterm for investing in healthcare innovation, specifically on the health IT side, we basically are now making a foray and an active effort to get involved in life sciences investments, so bio-pharmaceuticals, diagnostics, life science tools and those things. We’re building a new team there and that’s what I’m part of.
Sean Ammirati: 04:33 That’s great. We’re going to do two context setting questions, also, I’ve got this iPad up here, where if you text questions, I can ask them and really are interested in what you guys want to know as well, so I’ll keep an eye on that. But please go ahead and text those questions. Let’s start with just two context setting questions back to back. The first one of those, not specifically what your group is doing, but just generally the companies that each of you are a part of.
Sean Ammirati: 04:55 Maybe talk about all the different ways that Bayer, Covestro and UPMC work with startups, just so we have the umbrella lens. Then we’ll jump into your specific roles. Let’s again go down the row here. Priscilla, you can start us off. Twice in a row here.
Priscilla Beal: 05:09 Happy to. Bayer is invested in or does multiple types of investment whether it’s venture, whether it’s direct partnering. G4A Digital Health is focused specifically on what it sounds like, startups in the digital health space. We also have an arm called ventures which does our more large scale investments, they’re called Leaps. They do things like partner with Casebia. We have a group called Casebia that partnered with Crispr on the Cas-tech-9 technology and they do those larger scale investments. Then within the context of investment, we also have divisional representatives that go out and do similar things to G4A, so scout for startups and potential partners.
Currie Crookston: 05:51 We span the spectrum from university open innovation looking at technologies there to spin out, to get it in the market marketplace, all the way to acquisition and everything in between. We do some partnership work, we also have made some investments and we structure different kinds of deals based on the technology and how to approach this with the businesses.
Matthias Kleinz: 06:13 At UPMC Enterprises, whilst we’re trying to behave like a traditional venture capital investor, I think we have a heavy strategic mission in a way to basically help develop the healthcare innovation space here in Pittsburgh and then the rest are in Pennsylvania region. What that essential means is we have the flexibility to basically get involved in investments at an early stage. We have a heavy focus on incubating companies as apposed to just traditional investment into established companies. As a result of that, we’re basically really trying to provide from the UPMC Enterprises perspective. The business planning, the strategic and the operational support that’s required for an academic innovator inside the university of Pittsburgh or another organization or someone local who has a good business idea, to basically formalize that idea and take it forward. When the time is right, UPMC is then willing to play the traditional investor role and put capital to work as well.
Sean Ammirati: 07:04 Great, let’s dive into your specific roles in terms of each of this. Maybe we’ll go this way to give Priscilla, so we’re not always leading off with her. I think you’ve started incubating, I think three ideas now at this point, right?
Matthias Kleinz: 07:19 Over the last two years since the translational science team has been live within UPMC Enterprises, we’ve now got two companies that are operating. They’ve been up and running for about six months or so. We’re currently going through a second phase of company formation with three others in the pipeline that have received investment approval. We’re really getting to the nitty-gritty now.
Sean Ammirati: 07:39 I need to check my notes better. So five total but three I think was what you’re working on right now. Can you just talk a little bit and we’ll have each of the panelists do this then I think we’ll be done context setting. Remember go ahead and text us questions as well. Talk a little bit about that process from … I think most of the cases it was at Pitt, but sort of academic institution to how you filtered to how you end up working with them.
Matthias Kleinz: 08:00 Yeah that’s right. When the translational science team was formed at UPMC Enterprises two years ago, we decided, first of all, to put a scientific thematic spin on it, which was primarily around immunotherapy. That’s driven partly by the legacy at UPMC and Pitt from a research perspective, that’s where we saw the key strengths. At that point in time, the starting point of all of this was essentially, in some ways, a even pre-seed stage investment that we at UPMC were making, not even taking equity stakes at the time, working just with investigators and collaborators primarily within the University of Pittsburgh to talk about their ideas, where we saw commercial opportunities and potential in those ideas. And then define with them what, over the next 6, 12 months, critical next steps could be that would move their ideas and their technology to a point where we have certainty that there is a viable commercial path.
Matthias Kleinz: 08:51 That was the starting point. There was a long pipeline of probably 15 to 20 projects that were supported and we now are starting to see some of these projects graduating to a point where we see a clearer commercial path. But still, if you think about bio-pharmaceutical development, that’s a process of 10 to 12 years of getting from the first inception of an idea to possibly a commercial product. We’re still at the very early stages of that process, but we think we really now understand what needs to happen next to get this closer to the clinic and get this closer to a path towards possible commercialization.
Sean Ammirati: 09:28 Awesome. Currie, I think yours are more revenue-based at the early-stage, you want to talk a little bit about how your group works with these startups?
Currie Crookston: 09:35 I’d say I’m a little bit of a contrarian. I come from the startup side of it. As a startup person, you’re looking at: you need money to get traction, to get revenue and you’re trying to do that by minimizing your delusion. As I’ve looked at the corporate venture, what I see is just typically the equity vehicles are really designed to optimize the return on equity. If I think of what Covestro offers, we offer stuff that really is logarithmically more valuable than the return on equity. For example, if we have a product that can work in automotive, I can literally get that product in every car in America.
CurrieCrookston: 10:22 Not only can I get that product in every car in America, I can get that car, that product in most cars in the world. If you think about that potential value creation for a startup, that is vastly better than me negotiating a deal to get twice the return on my half a million, two million dollar equity investment. I’d rather get 5% better on my global project with a startup, than I would necessarily pushing to get equity terms that are more attractive to me.
CurrieCrookston: 10:52 The way we’re working is not necessarily focused on equity, it’s about trying to get technologies that we have a tremendous value add to. If the technology works, we have the ability to make that commercially successful. That’s where I’m looking right now over the last 18 months.
Sean Ammirati: 11:11 You’re basically going out with these challenges and then doing … And it’s effectively non-recurring revenue for these guys. Is it like an NRE style engagement? Is that correct as a starting point?
Currie Crookston: 11:22 Well it could be both. It could be an non-recurring revenue in the sense that we’ll give them some money to work on some technology. We can also give them money as part of a deal that enables us to have some rights to technology, and so within Covestro also too … Our view of the world for a lot of these companies is a really small piece of their pie. We’re a materials provider and our thing is polyurethane and chemistry. We’ll do anything as long it’s related to polyurethane and chemistry.
Currie Crookston: 11:47 For a lot of these startups, that may be very, very small piece. So for us, if I can maximize that piece and they still have 100% equity ownership, then it’s better. It’s a great win for everybody. Investors still have 100% ownership, they’re going to get revenue out of that slice of the pie and I can optimize my slice of the pie because also too, if their technology works, I can deliver it to commercial side.
Sean Ammirati: 12:11 Cool. Priscilla, you want to talk about G4A?
Priscilla Beal: 12:15 Certainly. G4A has been around since 2013. We have 140 startups that have gone through the various programs that we have. Historically, we had one in Germany they call Ghost Equity. We’ve now transitioned the program this year, so the valuation of our 140 plus companies is around 250 million Euros. We have recently modified the program so this year we’re looking at a convertible note for our earlier-staged startups that we invest in. We have an annual program where we launch challenges and ask startups to apply.
Priscilla Beal: 12:45 There’s two different tracks. One is for earlier-stage and then we incubate them, then partner with them on a project that lasts three months. Then we have a later stage called Advance where we work with the winning startups to deliver at least a prototype, if not, a working solution that we then invest in outright or we convert our note and proceed accordingly.
Sean Ammirati: 13:09 We talked two weeks ago on my podcast, so I’ve heard a lot about this. If you’re interested, if you go to Agile Giants, you can see the interview two weeks ago that Priscilla and I did. One of the things that you guys have done really well is sort of transparently upfront, make sure the entrepreneurs know the term. They know exactly what they’re signing up for as they move through. But there is this equity as ultimately part of it if successful, convertible note, Ghost Equity or whatever the case may be.
Priscilla Beal: 13:36 We intentionally have a really flexible model because we issue these challenges and sometimes they’re sort of revolutionary in clinical trials advancing, for example, a cancer treatment to market two years faster based on an algorithm that we’ve partnered to co-create. Then in other instances, there’s a company that we don’t necessarily or can’t necessarily partner with now, but we do see value in that technology and so we invest in them to Curries’s model. When that company is able to deliver on that, we can then help them scale at that point, but we’re still demonstrating our confidence in that technology.
Sean Ammirati: 14:09 I want to come back in a minute to equity versus non-equity between the two of you. We’ve started to get some questions in and this probably a good jumping off point for UPMC and maybe the other want to weigh in as well. One of the questions that came in was, “What are you doing specifically to partner with the local academic institutions?” I know that you’re doing a lot in that frame, so maybe you could start and other panels can jump in as well.
Matthias Kleinz: 14:31 As I indicated, we are trying to be present in the local scientific community as an entity that is ready for partnering. Essentially, what this means is we start at a very early stage from a perspective of an investigator within the University of Pittsburgh, for example, having an idea. At that point in time, we like to know about it. We can start and help people think through what the potential of their idea could be.
Matthias Kleinz: 14:58 We have a team of people at UPMC Enterprises that includes folks with life science, business backgrounds, folks with operational backgrounds on the regulatory and on the clinical side of things all the way to people that have more financial backgrounds that help us with the investment side of things. Depending on where an investigator is with their idea and where that idea basically fits in the overall workflow of developing a potential therapeutic from idea inception all the way to commercial product, we can help them plug in any capacity or capability and skillset needs that they might have and really help them shape their thinking. That goes beyond science really then towards, “What’s my path to commercialization? How should I be thinking about positioning it in a disease area?” A, B or a C if there’s optionality.
Matthias Kleinz: 15:44 In that sense, it’s a lot of traditional incubator type work that we do early on. Then again as I said earlier, when the time is right, we actually convert ourselves into more of an investor where we work with the founders to build a formal business plan, think about what the capitalization needs are and come to the table with potentially our ability to put capital to work and take in an equity stake in the company. Even then we’re not done yet. UPMC has great strengths from a perspective of being a healthcare system that allows research to be ongoing inside the halls of UPMC and Pitt.
Matthias Kleinz: 16:21 I think in that sense, we also are a strong partner. As your company comes off the ground to really have the success factors and have the supporting infrastructure in place to make that product development process a success.
Sean Ammirati: 16:35 You guys have anything to add on local academic partnership?
Priscilla Beal: 16:38 From Bayer’s perspective, we work currently with CMU on things like Capstone Programs and that sort of thing. Really from a local standpoint, as far as how we hope to, hopefully you guys think so as well, are looking for people who can act as a channel and as a partner to really get the word out about the solutions we’re looking for. Hopefully given the brain trust that exists in Pittsburgh, especially through academia can find startups as part of those strategic partnerships.
Sean Ammirati: 17:07 We did an event at the Corporate Startup Lab with Innovation Works, there’s some people from IW here, together that was a reverse pitch and Priscilla was on one of the panels where she actually pitched a room full of 200 entrepreneurs on problems they had and how the G4A could plug into it, which I thought was cool.
Sean Ammirati: 17:23 We were getting a lot of questions in here, so we’ll eventually get to your two debate on equity verus non-equity or maybe we won’t, we’ll see. I want to get the people want as well. This is probably a good question for you Currie, as someone who is an entrepreneur and is now on the corporate side. I think others can weigh in as well if they want. The question is: how do you feel corporate venture capital’s engagement strategy with startups and the local ecosystem has changed over the past decade?
CurrieCrookston: 17:47 I think that there’s, generally speaking, a lot more excitement around corporate venture capital than there was 10 years ago. You see a lot more enthusiasm to support it at the corporate level. I think for Covestro, Covestro has only been an independent little over three years. We’re just figuring out these things, so Bayer with Priscilla, they have a very sophisticated system that has evolved and matured over the years. We’re still getting our feet on the ground.
CurrieCrookston: 18:13 We’re just dipping our toes in the pool, if you will, for a lot of these fronts. I think there’s a lot more activity. You look at the presence on the campus of CMU in Pitt with a lot of companies now looking actively to do stuff. That really, I don’t think was happening like that 10 years ago.
Sean Ammirati: 18:30 I think that’s true. I think the data is bringing that out as well. Just the amount of corporate venture activity here in Pittsburgh is meaningful. I can say as someone who sits on the VC side of the house, we’re just way more excited about partnering with corporates than we were 5 years ago. I can’t speak to 10 years ago because I was an operator at the time.
Priscilla Beal: 18:51 I think it’s also a mind shift, right?
Sean Ammirati: 18:53 Yes.
Priscilla Beal: 18:54 So large organizations has always been really good at being large organizations. They’re really good at process, they’re good at commercialization, they’re good at scale. Something that I think has really tipped the scales for this mind shift or for this change in partnering in the models that startups and corporates are looking at is the willingness for the ivory tower, large pharma organizations or large organization material science organizations, etc., who are opening their doors and actually admitting, “Hey, we know that you’re an expert in this, we’re not. We would like to partner with you.” I think that’s a huge mind shift that’s happened that’s really contributed to this new wave of partnering.
Sean Ammirati: 19:36 I think that’s a huge point. We’ve gotten really good at supporting certain types of innovation. We’ve gotten really good at supporting the types of innovation that happen at places like Alphalab here in Pittsburgh. Just to make sure that this is not misconstrued, I’m a huge, huge fan of what Jim and Ilana are doing at Alphalab and Alphalab Gear, but we’ve gotten really good at that type of innovation. The innovation that fits cleanly into a traditional accelerator.
Sean Ammirati: 20:01 I think there’s a bunch of other innovations that have not been supported like they needed to over the last decade. I think part of what you’re seeing with the folks on this panel here is opportunities that would be hard to commercialize in a traditional, $50k web app or 3D printed physical product that all of a sudden now with the right corporate partner, you can actually make happen.
Sean Ammirati: 20:24 This is a good question for all three of you. We talked a little bit about the front end of your process, but somebody asked, which is a good question, about the outcome. What’s the preferred exit for the companies that you work with? Are you looking to eventually acquire them just for return? How exactly do you think about the ultimate outcome of each? Maybe we’ll start with UPMC and work our way this way.
Matthias Kleinz: 20:47 I think UPMC is a little different than Bayer and Covestro in a sense like, we’re sitting on a panel here and we talk about corporate VC and clearly we are corporate and we do VC, so we fit the bill. At the same time, I think UPMC is really trying to see this more as a side activity for our core business. We’re not necessarily feeding our core business with innovation. To a degree, we’ve done that in the past with health IT and data based innovation. I think on the life science side that’s not so much the case.
Matthias Kleinz: 21:14 We don’t have any ambitions of turning UPMC into a pharmaceutical or a diagnostics company down the line. We are aware of essentially, the ideas and the innovations that exist here and the potential value of those. As a result of that, we really try to foster those in a more traditional venture capital model. That, that could have windfall benefits for UPMC from a financial perspective down the line, is a positive side effect for us. I think our expectation typically would be that we get a trade or a strategic deal out of an investment down the line, which can help UPMC strengthen its overall financial position and continue to do what it’s best at which is provide good clinical care for our patients here in the region.
CurrieCrookston: 21:56 I think for Covestro it varies. Right now we have a number of startups we’re working with. We have some the outcomes where the outcomes will be a big customer. There’s others where were going to be a partner and there’s others that if the technology or what they’re doing is really core to what we’re about, then that’s something we’re going to own. It really depends on what they have to offer to us, what approach we take.
Sean Ammirati: 22:20 How transparent are you with them about those three swim lanes if you will?
CurrieCrookston: 22:25 I try to be totally transparent. Something I started with the very first startup I did is have the mind set of … I’ve used the idea that I don’t offer a deal I wouldn’t be willing to accept. I empathize deeply with startup companies and what they’re trying to do and being afraid of working with the big company. I’m very candid and upfront of this is the pathways of what I think this can do. It may change because we won’t know until we know, but here is where I think this is going to head. So they understand it upfront.
Sean Ammirati: 22:54 I’m a real big fan of the three companies up here and what they’re doing. There are other companies in town that I won’t name, that I think don’t have that respect for entrepreneurs. We’ve got to change that. We’ve got to start treating entrepreneurs as peers in these conversations. I think it helps that you were an entrepreneur, but I think in general, all three of the organizations have done a good job figuring out how to actually treat the entrepreneur as peer. I like that framework of don’t offer a deal you wouldn’t take.
Currie Crookston: 23:21 Actually, what I’m seeing happen is, I’m even having some companies come to me now because they talk to their friends and go, “Hey, Currie is a pretty nice guy.” So, we’re now building momentum. This is something I stole from … I can’t remember what the fund is in California where they got started by offering better deals than everybody else. Now they’re one of the elite firms and how they broke into it was is they were recognized as place you could get a better deal.
Priscilla Beal: 23:44 Something I’m really proud of is, we actually bring the startups to the table. Once we go through a first round of application review, one of the challenges that we’ve had, not just G4A but Bayer in general when looking to partner, is that the iceberg approach a startup comes to you and then it takes us internally six to eight months to get LMR in line and then we finally get back, then the startup isn’t around anymore because they needed cash now or they’ve already moved onto another partner who was able to move more quickly.
Priscilla Beal: 24:14 One of the things that we’ve done is brought the divisions and the challenge owners to the table from the very beginning and kept them involved throughout the process. We co-create the actual challenges that we’re trying to solve. We involve them in the actual application reviews, so they have skin in the game from the very beginning on the decision factors, and the criteria with which we’re using to select these companies. Then beyond that, one step further, we have a multistage approach that yes, takes a little too long from a startup perspective. That is specifically there, the time is specifically there, so that we can bring potentials before we’ve selected the finalist. We can actually bring them to the table.
Priscilla Beal: 24:50 We fly them to Berlin, their lawyers, our lawyers, our LMR, their CEO or what have you sit in a room and really flush out, not only what is the project going to be, what is the end result of the three or the five month incubation or partnership going to look like. What is the outcome that both parties feel agreeable to sign a document on? Then we come up with the use cases. From the very beginning it’s very tangible, not only for the people who are issuing and then sponsoring, and the stakeholders within the challenges within Bayer, but then the startup has transparency because at the very beginning they’re sitting with pharma or with consumers saying, “No, that’s not the mission of my company. What about this?” Or “We just want the data.” It’s a reciprocal process.
Sean Ammirati: 25:35 That actually gets to the next question, which was: how did you guys avoid the bureaucracy or the rumor of bureaucracy in large companies from slowing these startups down?
Priscilla Beal: 25:44 It’s not a rumor.
Sean Ammirati: 25:44 It’s not a rumor? It’s a real thing? You heard it here first Patty. You can quote us on that. You talked about a number of things like bringing a stakeholder saying getting the lawyers involved. Anything from UPMC or Covestro’s perspective on keeping the bureaucracy out or minimizing it?
Matthias Kleinz: 26:01 What we’ve been trying to do over the first two years, especially of that translational science effort and that’s been building on efforts that were previously ongoing in the areas of health IT enabled innovation is to really streamline the process. UPMC is a very large organization or academic partner, the University of Pittsburgh is too. As a result of that, there’s always a degree of bureaucracy, but I think we’ve been able to cut through the tape to a degree of standardized processes to a point where they can accelerate and also make them more transparent to the folks that we work with, which is primarily pharma.
Matthias Kleinz: 26:35 That goes back to the point of giving people a little bit more of a roadmap visibility of what they’re getting themselves into. And at which point they should concerned or at which point they can feel they’re walking through a process with us that will take time, but they understand it and as a result of that, they feel that they’re moving forward and are well taken care of.
Currie Crookston: 26:55 I have a couple things. One is that, I’m fortunate that I have a discretionary budget, so I can spend money without having to ask anybody. Then I also I have fortunate that I work for the Head of North America and then also I have a global head. If I need more money it’s … They work for the CEO, so there’s theoretically an easy way to get more money if I’m needing it. The challenge comes in when, depending on how much I have to involve the businesses.
Currie Crookston: 27:23 For some of the startups, if we’re not necessarily deeply … I can start with them and we can have a structure where you have an option structure where we can get rolling. I don’t fully commit the businesses such that I don’t want it to have this enormous buying across the globe and I’m spending six months trying to get alignment. I can get the ball rolling. Then as things progress, I can then line up other things underneath this option structure where if they want to participate, they can. If they don’t want to participate, totally fine. Then I’m not held up spending six months trying to get a deal together.
Sean Ammirati: 27:54 G4A is a pretty mature version of this I would say. If you were going to give one piece of advice to try to minimize the bureaucracy that rumors exist in these companies, what would you recommend Priscilla?
Priscilla Beal: 28:05 I would recommend just coming to G4A. One of the things that we do … Yes, we have our annual program and it’s got a finite timeline, but also because we have this very longterm relationship within pharma and consumer for the stakeholders that are coming to us to participate in G4A. We then either inside the program, or when it’s not officially running, still are kind of that door. So people that come to us, if it’s not relevant to one of the challenge areas that we are currently running or if it’s not currently running, we can still direct and introduce and be that introductory force for startups.
Sean Ammirati: 28:42 Cool. Let’s talk a little bit about each of your unfair advantage. I’m a big believer that cash is cash, is cash and I’m sure the startups like the cash part of this. But beyond that, if you were selling an entrepreneur on the unique competitive advantage of working with your organization versus some other entity, what would you point to? Maybe we’ll start with UPMC and work our way this way.
Matthias Kleinz: 29:08 Sure, thank you. I think I tried to allude to it already earlier. First of all, I think we’ve built a team at UPMC Enterprises that has all the capabilities of a traditional venture capital fund to really help you think through your opportunity and ultimately the path to an investment that can make you successful. I think that’s an important ingredient that we bring. I think the other thing that UPMC brings to the table by the nature of what our parent organization actually is, is in the life sciences and in the development activities that are associated with that.
Matthias Kleinz: 29:41 We are one the largest delivery networks in the world. We have very active clinical and preclinical science ongoing. I think as a result of that we, especially when it comes to company incubation, have a lot of ways that we can provide founders their teams with access to the clinical side of things, which is important for drug discovery, for discovery of therapeutics and diagnostics. That, I think is unmatched when just try to form a startup somewhere else and you don’t have that embedded relationship with an organization like UPMC.
Matthias Kleinz: 30:14 I think last but not least, what we also do have because we are in that sense corporate VC, I think we can take a more strategic view to our investments. We can get involved earlier, we can get involved in areas where I think you have to have a little bit more patience as an investor to get there. Most notably, we can get into therapeutic areas that are probably not the favorites of traditional VC because you can’t get to a quick exit in three to five years. Those are the things that we would be doing. We have an ongoing effort in aging and aging related diseases, which from a clinical development perspective, is a very challenging path. Lots of investment required, long clinical trials. But yet, because we have that strategic view and we know how important it is across the patient base of UPMC we’re willing to take that long view and that risk associated with it.
Currie Crookston: 31:03 I think for us first, having done five startups, when I talk to startup people … I’ve been through this numerous times and I’ve been on the other side of the fence with a small company trying to work with big companies. I’ve seen both those things. I think there’s that advice upfront. Second thing is, is that no delusion, which is from investors and founders that’s an exciting thing. Then the things that we’re interested in, and our major product areas were number one or two in the world at what we do.
Currie Crookston: 31:31 If you’re working in an area that relates to that, we can scale … I can give the example of automotive. We can put you in every car in America if that’s the product is rolled into that. From attraction, commercialization standpoint, that’s a compelling story to tell investors.
Priscilla Beal: 31:50 At Bayer, I would say we have a couple main benefits. One I would focus on goes back to what I’ve been speaking to. It’s that reciprocity that you have as part of G4A as a cohort. We have executive mentors, multiple one. You have your challenge owner who is typically a VP and an executive within Woman’s Health, for example. Then you also have the head of pharma. We bring in these mentors and work with the startups, not only specific to the challenge that they’re working on, but also giving advice on how to craft or shape or grow your business.
Priscilla Beal: 32:24 The executive mentoring is a huge component of our program and something that we’re really proud of. The other unfair advantage that we have is really the fact that we are one of the largest pharma organizations in the world with some of the most popular medications on the market, so we have huge amounts of data. We have access to clinical trials or to create clinical trials to make sure that these startups get the data that they need. It’s my answer.
Sean Ammirati: 32:52 There’s been a lot of questions and this makes sense given the entrepreneurs in the room, about what areas and sectors you invest in and what you don’t. There’s one specific question for Priscilla, which I’m going to ask her. Then what I thought would be interesting is that each of you guys could maybe talk about the range of sectors or industries that you’re interested in talking to startups then. Maybe as a twist as well, maybe the thing that you think people will be most surprised as sector or industry that’s in-scope for each of your given entities. We’ll go UPMC down on that, so you guys can start getting ready. The specific question for Priscilla-
Currie Crookston: 33:25 I always get to be second.
Sean Ammirati: 33:27 You know what Currie, you can go first.
Priscilla Beal: 33:32 First is the worst, second is the best. Come on Currie.
Sean Ammirati: 33:33 We’ll go Currie first after … But the specific question for Priscilla is: are you investing in food delivery services since it’s closely related to health?
Priscilla Beal: 33:43 I love that question, but you’re not going to like my answer. The short answer is yes, but I can’t talk about it. The second answer is also yes. We made a small investment in an agricultural company recently. You might’ve heard of it and obviously they have a huge effect on what the supply chain is going to be and how we impact growers and agronomists across the world. Yes is the short answer. Specifically for G4A, our focus is on digital health.
Priscilla Beal: 34:10 Right now, there’s nothing in our pipeline, there’s nothing in our challenges this year that were focused specifically on that food thread, but we do also as G4A have group called Venture Design that is partnering with both pharma and consumer to work on any number of solutions that aren’t necessarily within the core what Bayer calls it portfolio right now.
Sean Ammirati: 34:31 Cool. Currie you can go first here.
Currie Crookston: 34:33 Well really I’m second because you just asked her the question.
Sean Ammirati: 34:35 Oh my goodness. We’ll get there, I promise. Next one you’re first, first. Go ahead.
Currie Crookston: 34:43 I’m not sure it’s necessarily a big surprise, but we’re putting a lot more effort into digitalization across the board. From an IoT perspective is to talk to somebody about sensors, we have a half million sensors around the globe in our different plants. IoT is a big thing for us. Machine learning is a big thing for us. We’re spending a lot of money at that. Your typical big company problems, energy we’ll use in North America, we’ll use nine figures in energy supporting just North America let alone the rest of the world.
Currie Crookston: 35:17 Those are areas of interest for us and of course, if you’re talking about coatings, your Nike golf shoes are made with our stuff, your Callaway golf balls are made with our stuff, your auto box is made with our stuff, cosmetics made with our stuff. We’re looking across all those areas of opportunities to take stuff that we haven’t developed yet, that could help us.
Matthias Kleinz: 35:42 I’m not sure I would say there’s anything surprising about UPMC Enterprises in a broader sense invest in. I think it’s all about improving in the delivery of healthcare. That involves, of course, many different things and it starts with the things that I talked about a lot today because that’s where my personal focus is, which is really innovative healthcare technologies, bio-pharmaceuticals, diagnostics and tools to discover those bio-pharmaceuticals, diagnostics.
Matthias Kleinz: 36:07 UPMC Enterprises is really more broadly looks at things like digitally enabled customer or patient engagement. I think we look at those business models very closely, have a lot of capabilities there from a software engineering perspective, from a machine learning and artificial intelligence perspective. We focus a lot of our activity on optimizing the clinical workflows, so clinical support tools all the way down to supply chain management for large integrated hospital systems, I think is in the realm of what we invest in.
Matthias Kleinz: 36:38 In the end, someone might have a good idea of what could improve care. At the moment I can’t anticipate it, but that would always still be in the cross hairs for us.
Priscilla Beal: 36:46 I’m not sure there’s anything. I guess it depends on how familiar you are with Bayer’s portfolio with what would surprise you. A lot of people don’t know that we have dermatology products outside the U.S., ophthalmology products. It’s mostly just traditional what you would think of, but you know radiology. So going through the list of divisions and the list of therapeutic areas and consumer health categories that we have. Some of those might surprise people that we have Dr. Scholl’s inserts. A lot of our people don’t know we make Coppertone. I’m not sure there’s anything too surprising.
Sean Ammirati: 37:19 Currie, first question here for the panel. A number of you will ask for advice from your perspective when entrepreneurs pitch you and when entrepreneurs approach you. Could you give a little bit of advice on the best way to pitch someone like yourself?
CurrieCrookston: 37:34 I think for one, is you find the right person. I think within the organization is where the right people. Second thing is, you need to understand or do your homework that you understand what our potential needs are and how what you’re doing is going to relate to us. Somebody pitched me on synthetic meat, so I think those are probably the biggest-
Sean Ammirati: 37:56 You just gave them a blank term is that what you did?
Currie Crookston: 37:58 I’m in man.
Sean Ammirati: 37:59 Good, fill in the blank. What’s the best way for them to research you?
Currie Crookston: 38:08 The magic of Google. We have a big website, we talk about all sorts of stuff. There’s annual reports. We have all sorts of things about what we’re doing, what we’re interested in, what our businesses are. There’s a lot of people out there that work with us. There’s a ton of information about what Covestro is doing. It’s shocking sometimes where I’ve had people come in and pitch me, that literally there’s no bridge or connection to what they’re doing with what potentially work with us.
Sean Ammirati: 38:35 How about you UPMC? What advice would you give them on pitching you?
Matthias Kleinz: 38:37 I think it’s probably in nature of what we invest in. A lot of the time what you see from folks that reach out to us for the first time, is heavy emphasis on the science. We can’t do what we do without the science, but in the end we’re doing science to improve patient care which means there needs to be a path to commercialization. The more that we can see that the team that does the science actually has an awareness of where the potential applications lie and communicates those from the get go, I think the easier we find it to get behind an idea.
Priscilla Beal: 39:12 I’d reiterate what Currie and Matthias both said, but then also say back to the startups, “Know what it is that you want.” I’ll give you an example, we had a company that came through last year and we wanted to acquire them and they didn’t want to be acquired. So have that conversation and has a startup or as an investor or somebody that’s bringing a company to us, know what your endgame is as well. Yes match and make sure that it’s relevant to what Bayer as an organization is hoping to accomplish and make sure it’s relevant for us as a company because of what we do, but also come to us with a clear understanding of what it is that you want to get out of that relationship and ideally even some suggestions on how you would like to handle that relationship.
Sean Ammirati: 39:57 Why don’t we go down the row here and if people want to connect with you, maybe you guys can hang around for few minutes afterwards. What’s the best way for the folks in the room her to get in contact with each of you?
Matthias Kleinz: 40:09 My information is available on the web on UPMC Enterprises’ website and apart from that, UPMC Enterprises actually has a formal portal on our website that allows submission of investment ideas or impossible pitch ideas. Unless you can get a hold of me personally or don’t want to, I think there’s a formal path that UPMC Enterprises uses to take on investment ideas and work through them and get in touch with the founders about possible next steps.
Currie Crookston: 40:38 I’m on LinkedIn one. And two, also reasonably well connected in the world here. If you’re connected with Alpha Gear Innovation Works, Alphalab, they know how to find me.
Priscilla Beal: 40:50 What they said.
Sean Ammirati: 40:53 You should also tell them what’s the G4A website.
Priscilla Beal: 40:54 Yeah exactly, me too. G4A.health is the website for G4A Digital Health, if you’re a startup interested in doing that. There’s also an open innovation portal that Bayer has for that larger scale investment that I was talking about at the Crispr level. Then I’m on basically every form of social media you can think of.
Sean Ammirati: 41:14 Please join me in thanking the panelist.
Sean Ammirati: 41:18 So there you have it, three different perspectives on how to do corporate venture capital. I think one thing that it’s important to take away was just how each of the panelists in their own way talked about respecting and complimenting and working with the entrepreneurs and making sure the relationships that they were setting up were win-wins for both parties involved. Clearly, if you’re a corporate executive thinking about launching corporate ventures and corporate innovation activities, there’s a lot you can add to the conversation, but don’t forget that there’s a lot you can learn as well.
Sean Ammirati: 41:47 If you’re interested in talking more about this, feel free to reach out. It’s an area I’m continuing to explore myself and would love to get other people’s perspective on corporate VC. Hope you have a great rest of your week. I’ll be back with a more normal episode of Agile Giants next week, thanks.
Sean Ammirati: 42:09 I hope you enjoyed this episode of Agile Giants. If so, consider sharing it with a friend and if you think it’s worth five stars, which I hope you do, please go to iTunes and rate it, so that others can find this content as well.
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