How a leading VC firm is helping Nabtesco discover cutting-edge technology around the world
Markus Moor, Partner, Emerald Technology Ventures
How did the partnership with Nabtesco come about?
Emerald has been an investor for almost 20 years, focused specifically on industrial innovation – industrial component software in North America and Europe. And Nabtesco is a leader in certain industrial areas.
When we learned about Nabtesco’s wish to enter the venture capital field, we made some suggestions. We told Nabtesco how we do it and what we’ve learned over the past 20 years. That’s how we got to know each other, and we were very honoured when Nabtesco chose us as their investment partner.
What is open innovation?
Open innovation is a concept developed by large corporations when they realized they couldn’t do everything in house. New products are always multidisciplinary, so you have hardware issues, you have material issues, you have software issues to resolve. And getting the best experts into your company for all the different problems is very difficult and very expensive. So reaching out and working with other companies is critical to bringing products to market faster.
An important aspect of open innovation is that it’s not just about investing in start-up companies, it’s knowing which start-up companies are out there, knowing how they compare to other companies. Our hope is that we can serve Nabtesco’s needs by providing access – finding the relevant and interesting companies in the marketplace. I think that’s the important ingredient where open innovation starts.
How is Nabtesco Technology Ventures different from other funds?
A typical venture capital fund has multiple investors, which normally means that the fund manager – in this case Emerald – makes the investment decisions. We have other funds with multiple investors, and with those funds we make the ultimate decision on which start-ups to invest in.
The Nabtesco Technology Ventures fund is different: it has only one investor, so it is tailored to Nabtesco’s needs – that means it is looking for start-ups that have a specific strategic relevance to Nabtesco’s business units. Emerald has a strong brand, and we receive more than 1,000 business plans per year. A lot of them are in fields where Nabtesco is active. So we can share them with Nabtesco and see if there’s a fit. But Nabtesco is ultimately in the driver’s seat – they decide where they are interested in investing.
“We need both parties to be open and not afraid of each other, and willing to bridge the gap.”
What’s the key to a successful strategic investment?
I think what we’ve learned over time is that we need both parties to be open and not afraid of each other, and willing to bridge the gap. The start-up needs to trust the large corporation, which is often multiple times larger, so there’s an element of trust-building that’s particularly important to the start-up. And the other necessary element is curiosity within the Nabtesco business unit – curiosity about outside innovation and a willingness to work with the start-up company.
But it’s not always about investment per se. In some cases Nabtesco may just become a customer of one of the start-ups and use their technology. In other cases, it may want to license the technology, maybe just for the Japanese market, or maybe for one particular product. Or one of Nabtesco’s business units may want to own a piece of a start-up company because it’s strategically important. So it’s important not be focused just on “invest or not invest,” but “maybe I can use it, maybe I can license it, maybe I can do something else.” One has to have an open mind – there are many types of collaboration.
What is Emerald’s role in the partnership?
Emerald’s role is to find good companies, introduce them to Nabtesco’s business unit, and hopefully find a way to create value for Nabtesco. Because we have been doing this for quite a while, we have a database of more than 10,000 start-ups. Nabtesco can go back and look at all the companies we have looked at over the last couple of years, and there may be some very interesting technology or innovation in some of these companies that Nabtesco could benefit from today. So we will generate what we call “deal flow” – a flow of start-ups with which Nabtesco could work.
The second step is, if Nabtesco is interested in working with one of these start-ups, we will assess it. We will go into due diligence, we will try to find out how well the product really performs, how happy the customers are, how correct the financials are, how strong their management team is – all the normal due diligence one does as a venture capital investor. And then it’s back to Nabtesco to decide if they’d like to make an investment in this company, or if they’d like to find another way to work with it. If Nabtesco decides to invest, we will negotiate the investment, we will try to find other investors if required, and ultimately close the deal.
What are your hopes for this partnership?
Our hope is that we can bring interesting start-up companies to Nabtesco that serve its needs in terms of innovation.
Some people think innovation is only about the product – product innovation. But our philosophy is that there may be more value if one has a broad view and also looks at process innovation, manufacturing innovation, maybe business-model innovation – how a product can generate additional revenue once it’s in the field. Our hope is that we can provide a lot of these value-creating innovations to Nabtesco across the board.