A new way iconic brands like Procter & Gamble, Nokia are cashing in on R&D moonshots
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A picture taken on July 26, 2018 shows a view of the headquarters of Finnish telecoms giant Nokia in Espoo, Finland. Mikko Stig | Afp | Getty Images

For over a decade, the research arm of Nokia Bell Labs in Finland had been working on a cooling and energy efficiency technology for data centers and mobile network equipment. In June, that R&D effort took a big step outside its corporate parent. Innventure, which finances, operates and manages companies spun out from multinational corporations, formed Orlando-based Accelsius to house the Nokia innovation as a stand-alone startup. This approach to giving corporate R&D a life of its own is becoming more common. Co-founded by former Walgreens CEO Greg Wasson and his family office Wasson Enterprise, Innventure accesses the innovations inside corporate R&D labs with the goal of building businesses externally at less startup risk than the venture capital route and ultimately having that former parent company as a key customer. Since its formation in 2015, the industrial innovation investment firm has reviewed more than 100 technologies with multinational companies, vetting disruptive technologies that can solve critical needs and have the potential to create $1 billion or more in new enterprise value within five years. It finances the new firms through its Innventus Fund with additional strategic investment and debt.

Private equity and 'venture clienting'

For at least a decade, many big companies have created their own corporate venture capital arms to invest in promising startups that may be disruptive threats to their businesses as well as potential acquisition targets. The Innventure model of innovation is another approach that is working far outside Silicon Valley venture circles, with corporations leveraging their internal R&D by bringing it together with external startups to be commercialized, and then become a client of an innovative business from the collaborative effort. It's not multinationals alone that are pursuing this approach. "We're starting to see some of these deals where a private equity firm comes in and helps a corporate carve out a startup. This could develop into a trend," said John Garvey, global head of financial services at PwC in New York. He added that so far it is largely being done by smaller, specialized private equity firms looking for quality assets in a frothy environment where there is immense competition for deals. "If the firm is willing to put in the sweat equity to build the company, it is a way of working with a fixer-upper, and not at a premium price," he said. Several large companies, such as BMW, Siemens, and Bosch, have adopted another method to make key startup connections, known as "venture clienting." "Corporations can be a great resource for technology, and through outside partnerships and startups can make use of it without owning a stake in it," said Gregor Gimmy, founder and CEO of Munich-based consultancy 27pilots and developer of the BMW Startup Garage, the venture client unit within the automaker. "The beauty of this is that the corporation makes more money from using the technology rather than owning a majority stake in the startup, and without the enormous cost and risk associated with corporate venture capital investing." Using this venture client model, BMW integrated machine learning camera technology into its vehicles as early as 2007 from Intel's Mobileye (which had been a stand-alone Israeli company before being acquired by the chipmaker and is intended to become a stand-alone company again through an IPO planned for this year) and started installing smart sensor software that detects roads conditions from Haifa-based Tactile Mobility beginning 2021. "This is a way to leverage startups without the enormous cost and risk associated with corporate venture capital investing," said Gimmy, who estimated that only one out of 10 corporate venture capital investments done in a conventional way with equity actually results in a strategic benefit. The Nokia-born Accelsius was Innventure's third collaborative company, but the firm's initial partner is giant packaged goods company Procter & Gamble . Well-known for brands like Tide and Ivory, the Cincinnati-rooted company – formed in 1837 as a soap manufacturer – has been venturing outside these core businesses in recent years.

Procter & Gamble corporate headquarters in downtown Cincinnati. Getty Images

P&G is taking patented inventions from its research and development labs, which have a $1.9 billion R&D budget, and teaming up with startup incubators and investors to create entirely new businesses and categories. The goal is not just about a financial return on investment, but maintaining access to technology innovation, said Valarie Sheppard, former P&G treasurer and company transition leader who had responsibility for the global business development for several years before retiring in March 2021. Startups, meanwhile, can leverage large, resource-rich, well-capitalized corporations to gain market access, customers, facilities, and industry expertise. The departure from the conventional model of corporate innovation was championed by Tom Cripe, a retired P&G executive who was a gatekeeper of its leading edge research and today heads up business development at Innventure. Cripe says he realized it made sense to reverse a long-held R&D process at P&G. Instead of startups and outside investors pitching P&G on scaling up new tech, the company would create the inventions, then turn them over to investment experts to nurture.

Rust Belt R&D

Two startups to recently emerge with P&G innovations as a catalyst are located in its home state of Ohio and focused on environmental sustainability and plastics recycling – PureCycle Technologies and AeroFlexx. Located in the former iron-producing town of Ironton in southern Ohio, an area that needs economic revival, PureCycle launched in 2015 using P&G's proprietary process to transform the most commonly used and least recycled plastic wastes into a renewable, purified resource. "P&G deserves a lot of credit for having an R&D budget to develop something completely new that even big players in plastics didn't come up with," said Mike Otworth, PureCycle's chairman and CEO, who also is a co-founder and board chairman at Innventure. "For a company whose core business doesn't involve plastics, this is truly remarkable. This new recycling innovation could help fix our broken trash system," Otworth said.

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PureCycle's first product with P&G made from its recycled plastic is a shower dispenser that P&G's EC30 cleaning products line introduced late last year. It was made from trash in bins collected from U.S. stadiums. PureCycle has begun working with U.S. sports stadiums to recycle and repurpose their trash. This July, PureCycle plans to recycle tossed-out souvenir cups from the home stadium of the Jacksonville Jaguars team, which follows a deal with the Cleveland Browns last November. Long-lasting, rigid polypropylene such as waste carpet is the most common type of plastic worldwide, but less than 1% of it gets recycled. By contrast, about 30% of other more common plastics like those used for bottles and consumer goods is reused. PureCycle Technologies is aiming to eventually recycle 10% to 20% of the tougher plastics. At an industrial site along the Ohio River where a Dow Chemical plant once operated, PureCycle plans to begin churning out recycled plastics at full scale by the end of 2022. But that's about two years behind the original timetable after delays in raising financing and further tests of the technology at a pilot manufacturing plant. PureCycle broke ground for a second plant in Augusta, Georgia, in March 2022. "They have the innovation and now they need to scale up," said Steve Alexander, president and CEO of the Association of Plastic Recyclers in Washington, D.C. By 2030, PureCycle aims to have 80 recycling operations worldwide, Otworth said, including one in Japan where it has an agreement with Mitsui & Co. to develop a plant. PureCycle has been gearing up for $800 million in annual revenue by 2024 and $2.3 billion in 2027.

P&G's multi-pronged approach to innovation