German conglomerate Henkel is about to turbocharge its venture capital fund, folding it into the company’s Henkel X open innovation platform and putting Rahmyn Kress and Marius Swart, architects of the company’s recent digital transformation, in charge.
Henkel, which makes products from detergents to adhesives, originally set up the €150m fund in 2017 and has so far invested in 11 startups in beauty, homecare and advanced materials.
For example, the venture capital fund recently invested in Truman’s, a US based startup aiming to reduce plastic waste by selling customers cleaning products as concentrate cartridges that can be diluted in water.
“Truman’s is the poster child for the kind of company we should be investing in. It is a marketplace, it is a circular economy, it is sustainable and reducing the carbon footprint,” says Swart.
Now Kress and Swart want to take things up a notch. The Henkel VC arm is being folded into the company’s Henkel X open innovation programme — where Henkel collaborates with startups and other corporations in looking for new ideas and renamed Henkel X Ventures.
Not the only ones to try this
It is a path we have seen before — two years ago German insurer Allianz turned its Allianz X incubation programme into a corporate venture capital unit. Allianz X Venture recently more than doubled the fund size to $1.1bn and has taken big bets on growth-stage companies including N26 and GoJek.
Henkel’s fund is much smaller than Allianz X, of course, and Kress is saying nothing for the moment about increasing its size. But Henkel is hoping to increase deal flow by plugging into the collected wisdom of the 200 or so mentors it has put together in its Henkel X network.
The fund is looking for startups creating marketplaces, deeptech, direct to consumer, IoT and 3D printing. You don’t have to be on track for unicorn-level hypergrowth to grab Henkel’s interest, adds Kress.
“I am not shying away from unicorns, not at all. But in addition to that, there are brilliant entrepreneurs who deserve a chance and while they may not be completely disrupting the industry, if they can make a difference to our core business we are interested.”
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Will it have impact?
Henkel, whose products include Persil laundry soap and Loctite glue, has been keen to revamp its business in the face of stagnating sales. But what are the chances that a new-look corporate venture unit will have an impact? Just 5% of corporate-startup collaborations work well, according to a recent study by Boston Consulting Group.
We are calling it working at arms length, but the big question is, how long is that arm?
In Kress’ view, the secret is getting the balance right for the venture fund. The VC unit must be far enough away from the main company to make independent decisions on investments, but close enough so that portfolio businesses can get help from the corporation.
“We are calling it working at arms length, but the big question is, how long is that arm?” says Kress.
It is something many corporate innovation professionals wrestle with, a constantly cited reason for why corporate venture funds fail. Corporate investors either smother their investments or starve them. [These articles explore the topic a lot further: Why all corporate fail at venture capital and 5 reasons for failure of corporate venture capital.]
There is also the problem of corporate management losing interest. “Suddenly a new CEO comes in and questions the money being spent on startups and the venture fund finds it is being wound down,” says Kress.
Swart believes Henkel will stay committed — at least for now — and is blunt about why. A slowing consumer market is ratcheting up the pressure to innovate.
“The market dynamics we are in — Germany is already in a recession — is forcing everyone to take a hard look at their business and ask what we could do differently,” says Swart.