Network Innovation for Sustainability (EABIS Colloquium, 2012)

Network Innovation for Sustainability (EABIS Colloquium, 2012)

Prepared March 2012 for EABIS Academy of Business in Society for their annual colloquium on sustainability, strategic innovation, and entrepreneurship. The event is designed to be a multi-disciplinary forum on 1) whether, why and how sustainability can be a key driver for innovation, 2) identification of synergies between sustainability and innovation success, and of 3) product, process and systemic innovative solutions that leverage sustainability issues and turn them into opportunities for companies, thus contributing to competitive advantage and leadership.

Network Innovation by Design: Strategic Innovation for Sustainability

Unilever, a global consumer products company, and Physic Ventures, a San Francisco-based venture capital firm, have implemented a dynamic collaboration model that integrates entrepreneurship, venture capital, and corporate open innovation. The model is designed to catalyze and scale new enterprises that address big challenges in health and sustainability.

By aligning values and strategy, Physic Ventures (PV) and Unilever team with entrepreneurs to invest and add value to new businesses that deliver game-changing innovations with triple-bottom line results. “Network Innovation” embraces an integrated approach to value creation, generating competitive advantages that produce financial returns and positive social and environmental benefits.

Physic Ventures is the first venture capital firm to focus on investing in innovative science and technology-driven health, well-being and sustainability companies. Unilever is recognized as a global leader in corporate responsibility and has championed its Sustainable Living Plan, a comprehensive blueprint to reduce the company’s impact on the environment while bolstering positive societal outcomes. The Unilever Sustainable Living Plan (USLP) takes an integrated approach to improving health and well-being, with a focus on reducing environmental impact and enhancing livelihoods. With 50 quantitative targets, the USLP goes beyond Unilever’s factory gates and addresses the full life cycle of its products and supply chain, as well as the broad purchase and usage behaviors of its consumers. According to its USLP, Unilever’s products are used by two billion people each day.

Unilever is the anchor investor in Physic Ventures, which also includes pension funds, foundations and family offices among its limited partners. Many of the limited partners are traditional, self-professed “single bottom-line” investors, counting only financial returns as their desired outcome. But others—particularly those that have a broader mission, such as foundations and family offices—have taken an interest in valuing and tracking the non-financial impact derived from bringing important health and sustainability innovations to market and eventual global scale. These outcomes include new job creation, improved access to health, better health outcomes, and lower healthcare costs, as well as reduction in carbon footprint, energy, and water savings. (Cambridge Associates, the leading

benchmarking and evaluation consultant for institutional investors, recently instituted a “Mission-Related Investing” practice.)

Unilever’s motivations as an investor are both financial and strategic. Unilever seeks to leverage PV’s entrepreneurial expertise and venture capital ecosystem to access innovations that fulfill its strategic ambitions. While corporate venture capital is now a mature field, this hybrid partnership structure—with an active corporation participating alongside financial investors (without special preferences or rights)—is a progressive construct in the VC industry.

How the Network Innovation Model Works

The alignment of Physic Ventures’ investment focus and the USLP strategy, combined with a 10-year horizon for value creation, provides the conditions for innovations to take root and flourish. The partners have also designed a unique collaboration interface that unites the best of entrepreneurial and corporate resources and cultures to generate competitive advantages for the investing practice and Unilever. For PV, these include making well-informed investment decisions, mitigating downside risks, and accelerating value creation in its portfolio.

While Physic Ventures has an independent management team that directs all investment decisions, Unilever provides a full-time, long-term Venturing Director who plays an active role in sourcing opportunities and finding ways for Unilever to add value to portfolio companies. PV utilizes proprietary business intelligence from Unilever’s global research capability to enhance its opportunity recognition and scouting activities. PV also accesses world-class technical and domain expertise from Unilever’s global R & D and business categories to assist with due diligence. PV regularly hosts “Visiting Associates” from Unilever, mainly PhD’s in the physical and social sciences, for six-month collaborative “deep dives” in areas of mutual interest. For Unilever, this process provides “first-looks” into emerging technologies, business models, and market trends that are outside its normal purview.

Once a sector has been thoroughly explored and a new investment finalized, PV and Unilever work to add value and accelerate the growth and success of a portfolio company. Often this is done in ways that provide mutual benefit and synergies with Unilever’s SLP goals. This approach can engage Unilever as an early pilot partner or as a first customer to accelerate proof of concept and time to global market—bringing important capital efficiencies and value generation to the investment. This mitigates business model risks for entrepreneurs and investors while creating early adoption advantages for Unilever. At later stages, Unilever can be a prospective acquirer, creating liquidity for investors, and amplified positive impacts generated by global distribution of health or sustainability innovations.

There are several companies in the Physic Ventures portfolio that illustrate the potency of the Network Innovation Model:

Novomer is a “green” chemistry company that develops catalysts for producing sustainable chemicals and materials from renewable feedstocks such as CO2. PV leveraged insights from Unilever’s global packaging and R & D teams to identify future unmet needs and then identified a start-up at Cornell University that had developed the science to create next-generation, packaging materials. Physic lead the Series A financing for Novomer and facilitated an early partnership with Unilever. The company received a significant U.S. Department of Energy grant

as a result of its rapid progress toward commercial viability. Novomer’s value in the commercial and investor markets has been greatly enhanced by its collaboration with a global partner like Unilever.

Recyclebank provides incentives and rewards to consumers that encourage people to live more sustainably. Recyclebank operates a curbside recycling system in over 300 municipalities in the U.S., and an online community with 4 million members. At the time of its investment, PV was able to bring Unilever to Recyclebank as an early partner, providing validation from a global customer. Recyclebank’s encouragement of sustainable behaviors, such as recycling, helps Unilever achieve its SLP goals.

Yummly is a recipe search tool and digital platform that helps people plan, procure and prepare meals to cook at home—leading to healthier lifestyles. PV and Unilever worked with the founding entrepreneurs to develop a global expansion plan funded by PV and a joint venture relationship with Unilever. Yummly is engaging with Unilever’s global nutrition, brand, and media experts to build features and functionality that add value for the full ecosystem of participants involved in bringing great food to the dining room table.

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Doing what needs doing

Why we need a "Save It Now" button (now!)

Why we need a "Save It Now" button (now!)