Venture Investments by GE Equity
Established in 1995, General
Electric (GE) Equity, a business unit within GE Capital, invested nearly
$4 billion in 300 businesses by 2000; of those 60% represent
opportunities that emerged outside GE; two-thirds of ventures sell
products and services to GE. Currently GE Equity invests between $1.2
billion and $1.5 billion annually in ventures.
Following its strategy of a
lot of small bets, GE Equity invests an average of $3 million to $5
million in each of companies, and it gets somewhere between 5 and 11% of
The segments in which GE
Equity invests include financial services, business services, health
care, telecommunications, media and Internet.
GE Equity employs more than
200 people and makes more than $120 million in net income for GE.
75% of GE Equity's investments
are qualified as strategic.
The key component of GE
Equity's plan is co-investment program that requires GE Capital or
individual GE businesses to match its investment; in 2000, 85% of GE
Equity's investments were done either jointly with another GE Capital
business or jointly with one of the GE company businesses.
Missions of GE Equity
– using corporate venture investments to help GE businesses grow.
Ideally, each and every of GE Equity's investments adds value to both GE
and the start-up. Before investing in a venture, GE Equity determines if
relationship between the venture and one of more of GE's businesses is
– investing with the expectation of a 30 to 40% return within three to
Top Managers Critical to Success
they are visionary
aiming at building a world-class, global, private equity organization
each of them is a remarkable
hybrid of corporate executive and venture capitalist
they practice and lead a highly disciplined
approach to project selection and portfolio management
Financial management system,
which is a part of the business management system (BMS),
to monitor financial
to allocate investments across
industries and stages of investment (early-stage, later-stage,
to anticipate liquidity events
to ensure GE Equity's ability
to deliver specific quarterly results to the parent company
GE Capital, Equity is a leading source of
innovative private equity solutions. GE Capital, Equity provides equity
capital to mid market sponsor and lending relationships and to companies
with differentiated technology in GE's core industries. GE Equity maximizes
the return on GE’s investment capital by combining deep equity investing
experience with GE’s industry expertise, operating experience and global
From 1995 to today, they've had over $5 billion
of assets under management. GE Equity invests in private companies
exhibiting strong growth and established
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
2 Business Growth Strategies
3 Strategies of Market Leaders
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
checklist in the world of corporate venture investing.
The due diligence report explores
in depth and provides information on:
the investment rationale and
an industry and company overview
company's marketing strategy
key risks and uncertainties.
Financing: Key Documents
The BMS also includes a portfolio
management system that monitors the performance of companies and assigns
them ratings of green, yellow and red. Companies in the underperforming red
category are subject to in-depth monthly review by the GE Equity top
management, whose decisions can call for action that range from offering
assistance to the troubled venture team to exiting the investment.
BMS, which can be accessed online,
includes and tracks not only every investment but also every prospective
investment. Top managers can look at all GE Equity's deals, their status,
who's involved, who's on the team, who are the managers and what's their
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
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.