When VC blends experience with innovation, 1+1 can equal 3

It is common for people to think of innovation and venture capital as complementary but separate phenomena: One side invents, one side invests. But a shifting landscape is breaking down that distinction to the mutual benefit of investors and startups. Venture capital sources are no longer strictly financial entities, but can include large, established companies in or adjacent to the industry a startup is working to disrupt.?

When venture capital is embedded in an industry leader, there is more on the table than cash. These increasingly collaborative relationships help both parties advance their business through the exchange of innovation, experience, institutional knowledge, market presence, and commercialization support.

This growing trend is called corporate venture capital (CVC), and according to Harvard Business Review , the number of active CVCs grew six times from 2010 to 2020. The entity I lead, 3M New Growth Ventures, was ahead of the curve. Since the founding of our venture group in 2008, we have invested in about a dozen new and emerging companies every year—and we have brought the full capabilities of a global materials science company to the table to help them succeed.

New ideas need friends

The first question our customers ask when we walk in the door is: “What’s new?” 3M has a 120-year history of groundbreaking innovation to draw from, but we know discovery can sprout anywhere. We established 3M New Growth Ventures to help identify and foster the right seeds.?

In choosing investment partners, we look for companies that align with our own strategic roadmap. Ideal candidates typically have a strong standalone presence, sound management teams, and well-defined technology and intellectual property positions that have yielded working prototypes or beyond.?

In forging these relationships, we seek out investment opportunities that not only offer rapid growth potential but also mutual value creation.?A company that receives our funding may be able to scale up more quickly. It may benefit from our process expertise or help in commercializing its innovations. It may even have a chance to integrate its work with 3M innovation already in development. In return, 3M’s stake—always a minority position—goes beyond investment value?to include access to the?materials, processes, and brainpower. Working with newer companies helps us keep our horizons broad and our business strategy sharp.???

A targeted roster

Currently, 3M New Growth Ventures focuses on eight priority areas: automotive electrification, safety, home improvement, consumer electronics, climate tech, sustainable packaging, industrial automation, and semiconductor and data centers. We evaluate opportunities in each of these areas through the lens of our expertise?in?materials science, chemical engineering, chemistry, mechanical engineering and manufacturing. Where these priorities intersect, experience tells us that beneficial disruption is often on the horizon.?

Some of today’s most active 3M Growth Ventures projects center on climate tech:

• Direct air capture. Earlier this year, 3M and Svante announced a joint development agreement to develop Direct Air Capture (DAC) products for the carbon dioxide removal (CDR) industry.? We are an investor in Svante.
• Green hydrogen production. Last year, 3M announced the development of an innovative 3M? Nanostructured Supported Iridium Catalyst Powder that could make the production of?green hydrogen?more cost-effective, efficient and obtainable – potentially offering a more sustainable fuel solution for manufacturing and industries where electrification is difficult, such as steelmaking, ammonia production, and transportation.?
• Passive radiative cooling. In nature, materials absorb more solar energy during the day than they can radiate back to the sky. 3M’s Passive Radiative Cooling Film (PRCF) reflects enough solar energy to allow passive radiative cooling to occur during the day helping heating, ventilation and air conditioning systems function more efficiently and use less energy.

In the past few years, investment activity by CVCs has accelerated. Global Corporate Venturing reports that more than 1,500 corporate-backed deals, totaling nearly $70 billion, were inked in just the first quarter of 2022. And Business Insider found that CVC investment remains strong in 2023, bucking a downward trend in overall venture capital funding.

How CVCs help their partners grow

What makes a CVC different from a traditional venture capital investor is the industry-specific elements that add value to the relationship. The startup receives funding from a partner?that knows the market dynamics first-hand and understands how today’s innovations can help accelerate growth. It also realizes the benefits of the larger company’s scale and resources.?

In 3M's case, that means access to our 51 technology platforms and to over 200 markets worldwide. With our support, a startup can create more distinctive products and access the right customers to grow their business. ?

How small and startup companies can work with CVCs

A garage startup fending off lucrative offers is a popular storyline, but it takes significant work to get to that point. To attract a CVC’s attention and support, a company in search of funding?should first assess its own progress against a number of key milestones. ?? ?

The company’s products and services should have a demonstrable connection to a market opportunity that company leaders can identify, quantify and map into the?future. The business model should be as sound as the products it is designed to support. Customer engagement might be relatively nascent, but early engagement should be in place already. It also makes a big difference if the management team has a proven track record of achievement, either individually or as a group.?

Innovation thrives on collaboration. So does success.

Large corporations and startups may look and feel worlds apart, but both have a lot to gain from working together across multiple, parallel channels—technical, sales and marketing, operational, financial and informational. At 3M, we view innovation as a core differentiator. Over our 121-year history we created a myriad of new products in a wide variety of end markets around the world. Making the next “new” is nothing new here.?

3M New Growth Ventures is eager to learn about new and exciting high growth opportunities. Today, opportunities in?automation, climate tech, and sustainability?are increasingly coming into focus. Many new companies are being created to capitalize on these trends. A specialized investment partner with materials science expertise and manufacturing scale like 3M is in a great position to be helpful to these companies.?If you feel your business aligns with what 3M is looking for in our partners, we would welcome a conversation with you. https://www.3m.com/3M/en_US/company-us/about-3m/3m-ventures/ .

?

?