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Case Study: General Electric (GE) Equity |
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Main data source: "Venture Catalyst", Donald L. Laurie. Executive summary by Vadim Kotelnikov.
"Less and less GE value is coming from 100 percent-controlled companies and more and more is coming from businesses that we are a significant influence on, but do not control" – Steven Smith, Managing Director, GE Capital
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GE Equity's Goals GE Equity invests approximately $1bn annually in growth capital for private companies exhibiting strong growth and established business models. GE Equity's initial plan was only to invest in areas unrelated to GE, with an eye toward making some money. Having understood how equity investing and growth are converged, the top management of GE Equity changed the company's strategy. It was decided that GE Equity should make investments in companies, technologies, and distribution channels that could further the strategic interests of the various GE businesses. Today, GE Equity's venture investment goal is to build a world-class, global, private-equity business. The second goal is to extend GE's management and operating systems to the portfolio companies.
Value-Added Investing Ventures associates with GE Equity benefit immensely from GE's value-adding capabilities. They gain credibility as a GE partner and get access to GE's wealth of industry-specific knowledge and research, marketing, sales, and distribution capabilities. GE Equity also created Community.com as a portal for the companies in which GE Equity has invested so they could come together and interact. Using this web-tool, the companies are able to sell to one another and take advantage of GE's purchasing power. GE often works out a licensing agreement for a portfolio company with General Electric. It can also help start-ups over some trouble, sometimes charging prevailing consulting rates for its guidance. GE equity does not seek to dominate the companies in which it invests. This approach characterized by support and respect for smaller enterprises as well as willingness not to seek control is an important aspect of the company's success. On their part, entrepreneurs see in GE Equity a value-added opportunity to get where they want to be more quickly than they could with a venture capital firm, that provides only cash.
Highly Disciplined Business Management System (BMS) BMS is central to GE Equity's management and its venture activities. Each potential investment undergoes a rigorous examination procedure developed by GE Equity top management and carefully selected probability-and-decision theory experts. GE Equity developed a systematic investment approach based on decision and probability theories, and it is also known in the marketplace as having the most onerous due-diligence checklist in the world of corporate venture investing. The due diligence report explores in depth and provides information on:
Portfolio Management.. Qualities of Top Managers Critical To Success... Financial Management System... Case in Point Venture Investing by Nortel Telecom...
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