NewNet Investor Profile: Ralf Schnell, Siemens Venture Capital

2 February 2009

Ralf Schnell

Siemens Venture Capital (SVC) is the corporate venture organisation for electronics and engineering company Siemens. SVC’s goal is to identify and fund investments in emerging and innovative technologies, focusing on energy, industry and healthcare.

To date, the firm has invested over €800m in more than 100 companies and 30 venture capital funds since 1999.

Before joining SVC as president and CEO, Ralf Schnell built up Infineon Technologies’ corporate venture capital activities since 1998 and was managing director of Infineon Ventures. Prior to that, he worked with Siemens for 11 years. In his last position he was responsible for a corporate venture nurturing program and coordinated a Siemens-wide innovation initiative.

Previously, Schnell held various positions in microelectronics and software development in the corporate division research and technology as well as in the corporate department corporate technology.

What is the background of SVC and its investments into cleantech?

‘Siemens is structured in three large sectors: energy, industry and healthcare. As the corporate venture capital organisation we focus on areas of interest for Siemens, on the operating side.

If you define the cleantech space, which can be applicable across a number of industry sectors, roughly 25 per cent, or €17bn, of all Siemens revenues in the last fiscal year were related to cleantech and sustainable energies. The company has a very aggressive agenda to build the solutions and product portfolio in the cleantech space in the next three years, up to €25bn. This area can only grow, as people and businesses begin to understand the benefits and scope of these new technologies.

We follow the needs of our operating companies. Energy efficiency has always been of interest for Siemens and we at SVC simply align our investment activities alongside the interest of the operating companies. So we were interested in cleantech before the term even came into being and have had cleantech-style companies in our portfolio already for some time. In cleantech we target venture capital and growth capital.

What kind of investments do you look for?

‘We are not a typical early stage investor. We get interested in a company when there is a product or a prototype available, and when there is customer feedback or even customer revenues.

We also invest growth capital, in companies and partners who are already in business, but who may need financing for expansion. There is something of a funding gap in cleantech, and we are happy to address this if the company, and in particular the technology, excites us.’

How do you find about potential investment opportunities?

‘Since we are a reasonable well-known player in the industry, we are approached by a number of companies. We also screen markets that we are interested in, such as smart grid. This is where much of our deal flow comes from, but also our colleagues in the technology, R&D and marketing departments in the operating companies are often very helpful in analysing prospective opportunities.’

Which areas are of particular interest to you at the moment?

‘There are some very interesting areas in clean technology at the moment. I think that we as venture capital investors in start-up companies can play a huge role in developing them.

Areas of interest obviously include the whole renewables space, and in particular energy distribution management, also known as smart grid. We see a lot of activity going forward there, and this has become of increasing interest to us, particularly with relation to Siemens’ wider activities in electronics.

A tremendous challenge for us is to handle the balance between supply and demand in the electricity grid as it is a global issue and extremely important for our customers. To make the system more reliable and predictable, we need to directly address it with new technologies.

Another important area is energy saving. The most immediate way to affect carbon emissions is simply by cutting down on our energy consumption. As this is something which has an immediate impact and gain a lot for our customers, and we are looking for anything that makes power generation and power distribution more efficient.

Other areas are lighting and mobility, and any kind of alternative mobility methods such as hybrid and electrical drives.

There are a wide range of applications across a number of industries. The attractive thing of looking at clean technologies is that they have such a wide scope.’

What do you look for in a company?

‘The answer is very generic and does not only apply just when looking at cleantech companies, it applies for everything we do in terms of investing. We have a strategy to support start-up companies to bring innovative technologies into the market, and has the potential to be a business partner of our operating companies.

We take an alternative or complementary view on the technology market. We look at what is going on outside Siemens and at the sector as a whole. We face the horizon to see what the new and interesting technologies are. We always like to work with companies that are amongst the leaders in their field.’

What are the challenges you face?

‘For me the most critical challenge is applying the venture capital model, which comes out of a certain time horizon, a certain amount of capital to be spent and a certain return expectation. If you take the communications or the internet industry, the innovation cycles are quite different and the money you have to place in order to break even for a start-up differs from the cleantech space.

The cleantech space is an industry where innovation takes time and a lot of money is needed. The biggest challenge in applying the venture capital model to the cleantech space is to carefully watch the timing and the money spent.’

Which geographies do you focus on?

‘We go where the opportunities are. Siemens is present in more than 190 countries all around the world. It is important, to be on the ground to get an idea of what it is all about.

Obviously the majority of them are in the US, followed by Europe. We are also seeing a massive trend of interesting opportunities in Asia, China and increasingly India.

Products that are built for the local markets, and companies that build products for the local market are of interest because the local markets are so huge. There is also a lot of engineering talent around in China and in India, and that is combined with a strong business sense. In China, in particular, there is almost an innate approach to business, that makes it such a formidable market. That combination gives a strong power for innovation and success and we are increasingly seeing more Chinese technologies, not only for local markets but also for the global marketplace.’

What is the biggest issue facing the clean energy space?

‘It is a good thing that we are attracting so much money to this sector, because we need to build up an ecosystem. However, in the long run, investors putting money into that space need to see the returns. All players have to be aware that they need to bring returns now, and consistent returns. We need to look around and find professional investors to operate in this space, because the business dynamics are different from other technology spaces.

Nobody can simply switch from being a successful internet investor to a successful cleantech investor. There are completely different market dynamics and capital dynamics. This has to be understood first, before we go forward.’

How can you see the industry evolving?

‘There is strong demand for innovation from a customer perspective. We need to solve fundamental problems such as in the smart grid area, where we have a lack of energy storage and look for efficiency increases.

To me this is quite a convincing argument that the cleantech venture capital investment industry is sustainable. There may be ups and downs, as in any industry, and we have to address the professionalism of some of the participants, but the long-term demand is the best argument for saying that the sustainable industry in the years to come.’

Copyright © 2009 newnet

Tags: cleantech, corporate investor, investor profile, R&D, venture capital

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One Response to “NewNet Investor Profile: Ralf Schnell, Siemens Venture Capital”

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