November 5, 2018
One of the unique features of our new fund, the Chrysalix RoboValley Fund, is that it operates as an “Innovation Club” rather than a traditional VC for like-minded Limited Partners (LPs) who want to work together on external innovation solutions for resource-intensive industries (such as energy, mining, manufacturing and automotive). Chrysalix sources intelligent systems deals (driven by technologies like AI, IoT, sensors, robotics and blockchain) to solve our LPs’ pain-points and innovation needs. Through the Fund, we will invest in startups with platform solutions that will enhance the value of the overall systems in our target industries, instead of focusing on single purpose stand-alone technologies. That is a different investment thesis than you will typically see in the B2C world of Silicon Valley startups and venture funds.
Many of our industrial LPs who traditionally wanted a strong link with Silicon Valley have started to conclude that innovation activities outside the Valley may have more relevance for them. That thinking builds on what the Economist wrote in its recent articles: Why startups are leaving Silicon Valley and Silicon Valley is changing, and its lead over other tech hubs is narrowing. The second article quotes Peter Thiel: “There are probably a dozen cities that are just as promising (as San Francisco in which) to start a tech company today,” and goes on to say that as tech firms set their sights on disrupting industries, they may find that it helps to be based in cities that claim deep expertise in these areas.
Our experience is that most of our LPs are looking for innovative B2Bsolutions that fit into their overall systems. In line with the Economist article they have found that the best systems solutions for them are not necessarily coming from Silicon Valley. They may be more likely to come from geographies with deep knowledge in specific industries. Hence, there is an advantage to tap into these geographies. The following table summarizes the pros and cons of a Silicon Valley presence for innovation for traditional resource intensive industries:
Working together in an ‘innovation club’ like Chrysalix’s new RoboValley Fund with representatives from relevant areas all over the world provides a strong value proposition for many large industrial companies that have step-change external innovation identified as a top priority. One strong indication that they are onto something is that the location of the companies on the Cleantech Group’s Cleantech 100 list seems to support the need for wider geographical attention:
And a recent report by Cambridge Associates found that: successful VCs are increasingly coming from outside traditional hubs; the best deals are increasingly international; and no single hub will dominate.
The innovation world is becoming a global village. A globally focused VC like Chrysalix has access to a diversity of ideas and innovation, including broader dealflow, a unique global academic network and a strong brand to attract the best ideas. Some of those ideas will be directly adopted by our LPs and other large companies for near term innovation, while for the more ‘step-change’ innovations and new platform technologies, the club will evaluate them together and have Chrysalix do the first seed or Series A investments in selected startups.
Chrysalix’s transparent communication with its’ LPs allows them (as club ‘members’) to basically look over the fund manager’s shoulder to see how early stage risks (in technology, market, finance and people) are being reduced while the companies mature to the stage where LPs become comfortable and ready to get more directly involved through joint ventures, follow-on co-investments or acquisitions. Chrysalix seems to be on our way to building the international innovation club of choice for large resource intensive companies.