How has “investing in the new Industrial Revolution” worked out so far for GE? If the lack of success with its venture arm is any indication, not so great. GE is reportedly looking to sell off GE Ventures and its portfolio of more than 100 start-ups. The move comes as part of a broader restructuring effort by GE in a bid to reign in a debt problem that has spiraled out of control in recent years.
GE Power provides equipment, solutions, and services across the energy value chain from generation to consumption. It is an industrial conglomerate, with material operations in the power turbines, aviation, and healthcare industries that operate in more than 180 countries around the world. GE Power equipment produces one third of the world’s electricity, equips 90% of power transmission utilities worldwide, and manages more than 40% of the world’s energy.
So what happened with the electric industry titan that is forcing it to scramble for financial stability after accruing a staggering $110 billion in debt and why is its cleantech startup arm flailing?
Money, Money, Money — Oh, Yeah!
GE Ventures was created in 2013 by Sue Siegel, who serves as GE’s chief innovation officer and CEO of the GE Ventures arm. It was an effort to consolidate GE’s various startup investments which span sectors ranging from healthcare to renewable energy.
The group’s 100+ venture holdings have been for sale since early 2019. It has been in conversations with other venture firms as well as groups of limited partners who invest in those funds, with investment bank Lazard reportedly handling the process.
The GE Ventures portfolio includes:
- Grid Net, an operating system that enables machine-to-machine applications
- HealthReveal, which uses AI-based clinical analytics platform and evidence-based clinical models to predict adverse events, identify major avoidable chronic disease complications, and recommend interventions to optimize care and related costs
- PingThings, which combines big-data and its innovative machine-learning solution for physical systems to transform the management of electric utility grid and high-value industrial assets
- The Hive, an online startup data forum that provides information to help with funding and networking for startups
The primary dilemma that GE Ventures faces as it tries to sell its portfolio is that any buyer will have has to assume ownership of both market-viable and struggling companies alike. GE is looking to shed the entire portfolio in one fell swoop. That is a big ask for a portfolio as diverse as it is, spanning so many disparate industries.
The Big Kids At GE Are Struggling, Too
To make matters worse, it is not just GE Ventures that’s in financial hot water. GE’s own financial difficulties haven’t been solved by CEO Larry Culp’s planned “multiyear turnaround.” GE stock is down 23% over 12 months — and is actually in much better shape now than it was earlier in the year after a 43% rally. The company has reduced its assets by $1.1 billion in this period while concurrently being under investigation for its accounting practices. The Securities and Exchange Commission probe included a $22 billion chargethe company took in the 3rd quarter related to acquisitions made in its power business.
Motley Fool looked at how GE blew its legacy value as an iconic, storied company, highlighting several key failures that led up to this point:
- The industrial giant allowed its financial arm to expand well beyond its primary role of providing financing to GE’s industrial customers.
- When the 2007-2009 recession hit, GE’s exposure to things like mortgage lending took a painful toll on the company.
- The company resorts to a cycle of write-offs, asset sales, and dividend cuts when financial troubles appear.
- Long-term debt makes up around two-thirds of its current capital structure, including non-controlling interests in shareholders’ equity.
- GE is selling from a position of weakness and it seems everyone knows it.
“During this time of transformation for GE, we are evaluating strategic options for GE Ventures to continue delivering returns for our shareholders and partners,” said Megan Newhouse, a GE spokesperson, in a statement to CNBC. “While we can’t comment specifically on that process, we remain committed to supporting our portfolio companies, business units, and partnering with the entrepreneurial ecosystem.”
GE is in the process of selling many of the businesses that consumers most closely identify with as part of the company’s identity, according to CNN Business.
- GE’s 100+ year old railroad division has been sold to Wabtec (WAB) for $2.9 billion in cash and a stake of nearly 25% in Wabtec.
- Its BioPharma unit, which makes instruments and software used by drug makers, sold to Danaher (DHR) for more than $21 billion.
- GE will reportedly slash its stake in Baker Hughes (BHGE), the oil services firm it acquired under Immelt just 2 years ago.
- Current by GE has already sold to private equity firm AIP, with the acquisition closing on April 2, 2019.
Cleantech startups try to leverage the power of technology in order to thrive in the business sector through a variety of inroads: solar, wind, geothermal, water purification, electric vehicles, energy storage, energy efficiency, software, materials, data –the list seems to grow everyday. Their attempts to solve the real world challenges of access to clean energy come through innovation: increasing sustainability by reducing energy usage, developing more affordable renewable energy solutions, introducing greener mobility solutions, and even changing the ways we produce food.
As startups, these young companies need to balance seeking capital and growing their businesses with prudent forethought. While tracking down the trends in the renewable energy sector can be thrilling, cleantech development can have long lead times, are expensive to scale, and often focus on commodity markets with lots of competition and low margins.
Moreover, not all cleantech startups are the same. GE’s sell-off of its Ventures unit is a hard-won realization that investing in next generation energy solutions and utility-centric startups is not for most traditional VCs. For example, Mercom Capital Group found that in 2018, a combined $2.8 billion was raised by battery storage, smart grid, and energy efficiency companies. The figure represents a noteworthy increase from the $1.5 billion raised in 2017. These are not the usual domains of legacy energy companies.
Staid companies like GE that charged into the world of venture capital along with its peers were willing to accept the risks that inherently came with acquiring startups. They have since learned that the challenge comes after the initial acquisition as GE Ventures was forced to find ways to integrate the dynamic young companies into its centuries old hierarchy.
Village Capital, which focuses on democratizing entrepreneurship, suggests we should be asking questions about how we can guarantee good sight, live, and work at a comfortable temperature, and move from point A to point B. These fundamental end-use questions are intended to break the stranglehold of the status quo, instead leading the way to the genesis of innovative new solutions in day lighting, new building materials, and hyperloops.
At GE, the painful lessons it has been sorting through in its most sweeping restructuring may be indicators that it has not been focusing on the opportunities inherent in its clean energy investments. Instead, it may have been focusing too much on trying to force fit its VC acquisitions into its existing corporate structure.
Source: Clean Technica