High Tech Weighs Risks & Rewards of Moving Beyond China
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For 80 years, Molex LLC has specialized in wire, cable, components and connectors. Now, the iconic Lisle, IL electronics company is investing in a future that’s being built on wireless connectivity.
Molex was founded and run by the Krehbiel family until its $7.2 billion acquisition by Koch Industries in 2013. Molex has a long history of fostering new opportunities, said Lily Yeung, vice president, Molex Ventures, and wants to concentrate on highly strategic investments. In 2017 the company spun out its corporate investment initiatives to form Molex Ventures.
The primary driver of corporate venture capital (CVC) is to expand an existing business. But Molex has several goals that are equally important, Yeung said. “We are a wire, cable and components company that’s competing in a wireless world, and we have to provide products that continue to add value.” Additionally, she said, customer solutions are now being developed through business alliances – or ecosystems -- that support both products and services. “We are proactively seeking collaborations with startups that have developed a successful solution or concept and are ready to take their innovation and commercial growth to the next level."
Lily Yeung, vice president, Molex Ventures
Molex Ventures is seeking relationships that are closely aligned with broader business strategies in a wide range of industry sectors, including medical and pharmaceutical sensors, connected health and point of care diagnostics; automotive connected mobility, electrification and autonomous driving; industry 4.0 sensors, robotics and data analytics platforms; and electronics packaging technologies. “A successful partnership will align the goals of both companies,” Yeung said.
Why not buy?
A decade ago, said Yeung, a corporation’s technology or business gaps could be filled by a single company. “At that time, it made sense to buy a company outright,” said Yeung. “Now, market disruption is happening more quickly. We are seeing the development of ecosystems where one business depends on what the other companies are doing. CVC can provide early access to innovative technologies that help shape what the ecosystem will look like.”
Culturally, Yeung added, startups also help mature corporations to think outside the box. “A startup brings speed and innovation to the party,” she said. “We also look at the founders’ characteristics. Are they coachable? Are they open to new ideas?” Often, Yeung explained, markets don’t shape up the way entrepreneurs envisioned. “We want to see if they can embrace a different viewpoint and pivot if necessary. This is extremely important. They should be willing to change a product to make it more attractive to the market.”
Molex Ventures is currently looking at two types of startup companies: newly developing and transformative. “Developing companies may have no idea how their target market is going to shape up,” Yeung explained. “Our goal is to learn as much as we can. Transformative, or strategic investments, have a specific hypothesis, and we make sure their technology falls into [a Molex-aligned business] space.”
Three companies in the Molex Ventures portfolio fall into the “transformative” bucket. NuCurrent is embedding innovative antenna technologies into mobile device platforms. Ossia is expanding market access to the Cota Real Wireless Power Platform. Excelfore is creating integrated in-vehicle connected platforms.
“We make cable and power connectors, so wireless power is an area we want to test out,” said Yeung. “We make antennas, so we see a value proposition in a mobile antenna maker. Then there’s the increased electronic content in cars. This includes various types of monitoring, vehicle to vehicle communication, consumer applications and the IoT. There’s not going to be one solution in the wireless market, so we have to have a product portfolio based on the differing needs of our customers.”
Two-way street
Molex’s corporate VC strategy is designed to be a two-way street. In general, investors seek a return on their investment; new products; talent; or licensing opportunities. Molex Ventures brings its own skill set to the party.
“Manufacturing complexity and overall costs are common challenges for startup companies working to bring important technologies to market,” said Yeung. “Molex Ventures structures relationships that offer the resources needed to overcome barriers to technology integration and manufacturability. Relationships with companies developing technologies that complement Molex solutions may comprise a combination of engineering, manufacturing, intellectual property and licensing strategies.”
CVC often provides good results for startup companies. In recent years, according to Innovation Observer, corporate VC has been gaining traction. According to CB Insights, a tech market intelligence platform, the number of CVC groups making their first investment in startups in 2014 grew 28 percent over 2013 (and 208 percent over 2010); the number of existing CVC funds was expected to double in 2015. In fact, one-fifth of all venture deals in Q3 2015 included CVC participation.
Moreover, it was shown that CVC investment is particularly beneficial to startups: startups that had gone public, over the period of 1980-2004, after being funded by at least one CVC investor outperformed those funded exclusively by traditional VCs (as measured by average annual revenue growth, increase in ROA and stock price performance).
While traditional VCs invest capital with the sole objective of financial returns, CVCs often invest for strategic reasons, with financial return being only a secondary consideration, Innovation Observer said. Managers of CVC funds are typically compensated by a fixed salary and corporate bonuses. This may make them more tolerant to financial losses associated with investing in startups and thus more tolerant to startups’ failures.
“Strategic relationships must go beyond investments to create a whole greater than the sum of its parts,” Yeung concluded. “Molex Ventures can help innovators bring successful concepts to fruition and achieve demonstrable value by scaling up production and delivering on projects more efficiently.”
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