July 9, 2014
Interviewed by: David Snow
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GE Canada’s New Approach to Venture Capital

GE Canada has changed its approach to venture capital. Instead of just focusing on the transaction, they are now partnering with companies to drive innovation, says the firm’s Elyse Allan. The broader approach deals with a range of areas, including technology, business models, scaling, pricing and analytical methods.

GE Canada has changed its approach to venture capital. Instead of just focusing on the transaction, they are now partnering with companies to drive innovation, says the firm’s Elyse Allan. The broader approach deals with a range of areas, including technology, business models, scaling, pricing and analytical methods.

GE Canada’s New Approach to Venture Capital

With Elyse Allan of GE Canada

How has GE Canada changed the way it deals with venture capital?

Elyse Allan, GE Canada:

At GE, we are remaking our whole approach to venture capital, so in the past 18 months, we’ve disrupted our own approach to ventures. We’ve created a new group called GE Ventures, with the fundamental change that, as opposed to focusing traditionally on the transaction, we’ve developed more of a partnership approach. The transaction is one piece but now what’s equally if not more important is the nature of the partnership and the strategic intent underpinning that partnership. By strategic intent, I mean there are a lot of ways we can drive innovation and bring technology to small companies, learn from them about different types of business models, and test different types of business models.

The new approach of GE Ventures is around looking at the strategic intent or the top areas we want to focus on, then looking at how we can drive innovation in these core areas and what new types of innovation we can drive—technology as well as business models, scaling, going global, new types of pricing mechanisms, and new types of analytic approaches. All of that combined with the traditional sort of VC financial.

How do you measure the returns and the success of a partnership?

Allan: There’s always a financial metric. But now, as opposed to it being what I would call “traditional” VC metrics, we’ll still look at those and say, “How do we get a return in a certain period?” A lot of times, we’re looking to have return in that three to five-year period. Some of that’s not different, but looking at how we get that return is different. Now, maybe we’re investing in a company where we are going to be sharing on the revenue. Maybe we’re going to have exclusive access to the technology for a certain period. Maybe we’ll be able to test and accelerate a product that we think is fantastic, help accelerate it to market, and do a revenue-sharing on that growth.

So, the difference is, how do we get that return? There are many more options now in terms of looking at how we get that return and the time horizon can be very different.

Why are you moving to opensource initiatives?

Allan: We have embraced open-source innovation in a big way in the past couple of years; it enables us to create a real market dynamic where we can go in and get best-in-class ideas. What’s great is we can go from a strategic perspective into an open-innovation challenge, go out to the market, and get a host of different types of companies and solutions in all different stages—it might be individuals or small companies. We have a spectrum of ways we can work with any of those. We’re not predisposed to saying, “This is the cookie cutter you have to fit.” We’re totally open about it. We can move from embracing the technology they have to helping develop it, to putting equity in later that might be non-dilutive. We have a real spectrum of options and now we’re playing along that whole spectrum. We didn’t used to do that.

What impact is innovation having on the energy industry?

Allan: The energy industry is very important to GE; it’s such a dynamic industry. It’s one target area for our new GE Ventures group and we’re looking at areas like distributor power. Of course, in this age of gas, which is very important, we’re looking at the technologies around unconventional fuels as well as areas like storage.

Let me give you one example of a company called Ferris, which is in the unconventional gas space. In this case, we partnered with Ferris—it’s a 50/50 partnership and it’s all around the last mile.  Ferris focuses on trying to get gas or fuel to the ultimate end-user where they need it. We partnered with them around flare gas, where we said, “How do we capture that flare gas?” Typically, you take out the liquids. In this case, we also compress the methane that comes out, we put it into storage cylinders that Ferris makes, and they deliver that compressed gas in a box using GE’s oil-and-gas technology called CNG (compressed natural gas). Then, they use that technology and are able to deliver this compressed gas out to the wellhead or to remote sites that currently are on diesel. Therefore, they take them off diesel, reduce the emissions, and reduce the cost. We call that “the last mile” because they’re getting the gas actually out to where it’s needed.

It’s a terrific partnership with Ferris. It changes the game in terms of people who relied on more expensive and emission-producing diesel are able now to get gas to places where you couldn’t get it before.

It’s really game-changing in the industry, in terms of both distributed oil and unconventional fuel—marrying them all together. For us, it shows that you can create a new business model. Here’s a venture that actually has created a new business model that’s focused on system integration. It’s not necessarily how we thought about our VC investments before. It’s exciting for us and a great new partnership.

There are a lot of other places where we see innovation occurring in the energy space. Another is the area of the brilliant wind turbine. Again, we’re taking this idea of the industrial internet and software analytics; through software, we have wind turbines talking to other wind turbines, saying, “Hey, the wind is coming! Redirect yourself, face in the direction of the wind and maximize the efficiency of the wind farm.”

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