From our Air Liquide experience, we have invested in an existing Impact Investing Funds, as I was mentioning before. Coming back to my first answer, it seemed important for us, at the beginning of our Inclusive Business activities development, to invest in an existing actor instead of creating our own funds which is quite difficult and a long-run process to be launched and efficient.
But, at the end, I’m quite convinced that, managing its own investments is the most efficient way to generate and reach a wider and more important financial and social return on investment
We do the same in Air Liquide. Developping our own business with a real innovative aspect compare to the Group’s model (new business models, new value chain and distribution netword, dedicated digital applications and so on…) and we are co investor. The next step would be to launch our own funds like you !
Difficult to say at a generic level since very dependent on sector, business models and type of social challenges to be solved. However, maybe… most potential either direct investment or third party fund:
Self-Managed Fund: if a company wants to build or contribute to an innovation pipeline and has a strong corporate venturing team to manage such investments. Then it might make sense
Direct investments: Interesting option if the business model is unique and very can become or core element of the company’s business and social impact strategy.
Third party fund: excellent model specifically if minority stakes make sense and if bigger pools of capital are required for scaling the business of the investee. Additionally, third party funds could bring in investors from different sectors – incl. sectors that can provide patient capital - and fund management can be left to a professional financial firm.
Yes! And of course it would be exciting to be able to learn from such an ambitious project. It is difficult to get information on the venturing space, and some of the good cases we learnt about could not be disclosed. Interestingly, especially where social investments became core business relevant, it seems to become complicated for fund managers. There is still the implicit divide between purpose and profit at play in many companies, or maybe also politics around who does what.
The key issue is how you manage intimacy with the third party fund. If you are too far away you loose the benefits of maket insight, too close you are seen as conflicted by partners. It’s a tricky balancing act
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Hi Christina, based on my experience it is often difficult to get internal buy-in for a direct investment, because it takes a lot of effort to manage it. It is often much easier to do a sponsorship in an early stage and follow progress like that (like @Rey also mentioned).
However in later stages, a direct investment could make sense, I think.
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Q2:
direct investment: When the Inclusive Business has a very clear and direct value/supply chain connection with the core activities of the Parent Company (e.g Creating a Strategic Supplier that will provide the Parent Company with raw material sourced in ethical, fair and sustainable ways)
self-managed fund and third party fund: When the Corporation wishes to explore new customers, R&D, and geographies (Grameen Danone)
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Hi Christophe! Fantastic that you could join! Yes, it’s a great example of how different approaches can work in parallel. Would love to learn: do you see synergies between these programs, despite the Chinese Wall?
In my experience we need to shift mindsets re measurement & evaluation. This can’t be an afterthought to be able to populate a report with some nice looking data. Measurement & evaluation needs to be a design principle of an intervention and it needs to be understood as a crucial element of every managerial dashboard. We need to know what impact we create and not just assume that an intervention is doing good and we also need to know whether our capital allocation is happening on an informed basis. I would recommend to read the Boston University study done on Novartis Access which was recently published in The Lancet.
The sponsorship approach is indeed a good solutions to keep free building structures and dealine with legal issues etc. Indeed, startups can often benefit at least as much from gaining access to a large companies value chain than from an investment. It’s definitely great for an early stage engagement.
Rey, would you have the possibility to suggest one of your BizLab ventures to Airbus Ventures for investment if relevant? So, is there something like an internal graduation process? Or are objectives completely distinct?
Yes of course, we get global market knowledge that is very helpfull. We also connect to companies invested by third party fund in non competitive ways providing technical assistance or answering to open bidding processes
Hi, I’m Stefan. I’m Managing Director of DIVA Ventures L3C, which partners with MNCs to develop high-impact ventures. I’m also head of portfolio development for Novozymes, working on the next generation of growth engines for the company (fully commercial), incl. CVC and acquisitions.
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I agree with your opinion Hassan, direct investment looks interesting in that case, but, it implies, from our corporate view, more decision makers internally to be sure,… so the process is much more longer and so, costly in a way !
Welcome! Thanks for joining us today!
Agree. In CIV, companies invest with several objectives, including social objectives. So it is not enough to monitor growth and reach. M&E should be set up from a managerial perspective, to check if the core hypotheses behind a model actually hold, and to improve the approach over time.
A1: Assuming a MNC is intent on moving into the inclusive business space, it should take a portfolio approach to the vehicles it uses. This includes both internal business development (via e.g. existing business units or bespoke incubation) and external business development, incl. CIV (by which I mean CVC for impact, making minority/strategic investments). The decision to use one vehicle over another isn’t fundamentally different from a similar decision across a non-impact-oriented BD portfolio. Essentially it comes down to how far away the target opportunity space is from the core business. If the technology, business model or market (or combination) are too “alien” to the core business, it makes sense to start with a strategic investment to gain knowledge and experience. The only exception is when “speed” is required - then an outright acquisition might be a riskier but overall more attractive proposition.
A2: Direct investment (balance sheet model): Good if your existing M&A and CVC teams are strong + the mandate to pursue “impact” is strong + there is strong & clear governance around the risk/return assessment of opportunities (i.e. opportunity cost and concessionality are clear and related to the mandate). Self-managed fund (GP model): Better if you want a simpler approach to mandate execution & governance (don’t want to “confuse” the investment team) and provide a white space to manage more complex risk/return profiles + would like the option of syndication. Third party fund (LP model): Good if you’re still uncertain about various aspects and want to learn fast by piggy-backing on others.
What is your experience, Christophe? Can this be managed institutionally, e.g. by putting partners’ interests on the agenda in board meetings, and creating structures for employee engagement?
For one of our Corporate client the process took 9 months from the Concept Definition to the Official Investment Approval by the C-Level.
I would be happy to go the through the internal organizational challenges faced when it takes longer !