PRINCETON, N.J. – German conglomerate Siemens AG is following in the footsteps of other large enterprises by creating a strategic-oriented venture unit.
Having already established a finacially-oriented venture group in Germany, Siemans has launched a U.S.-based strategic venture operation as part of the company’s Corporate Research Group. The research group will evaluate young innovative companies and then make investment recommendations to other industry divisions within Siemens, which have varying funds from which to make private equity investments, said Shahram Hejazi, who oversees the research department.
Stephanie Chiang, a former associate analyst at Goldman, Sachs & Co. joined the Corporate Research Group in March to handle the strategic venture activities. Chiang, who started at Goldman as a financial analyst, has no hands on experience in direct investing, although she occasionally assisted investment bankers and Goldman Sachs’ private equity team in evaluating or pricing deals, she said.
The new venture unit had not backed any companies by press time, but Chiang is scouting a variety of industries, searching for companies that will improve Siemens’ product lines or broaden its distribution markets, Hejazi explained. The company has a wide range of products and services in industries including energy, transportation, health care, communications and financial services.
Chiang initially will focus on building relationships with venture capitalists and incubators to attract deal flow. Siemens realized a couple years ago the importance of looking beyond its walls for innovation and saw the value of strategic partnerships with high-growth, entrepreneurial companies. To gain access to such companies, the group began making investments in venture funds whose portfolios contained companies related to Siemens’ business interests. The approach was less successful than Siemens would have liked both because funds wanted increasingly large commitments from limited partners – which triggered more complicated approval processes within Siemens – and because the most interesting funds did not need or want new limited partners, Hejazi said.
Chiang is fully aware of venture capitalists’ concerns about the length of time it takes corporate investors to decide whether to back a deal, so she guarantees a rejected company will be notified within 10 business days.
The Siemens decision-making process involves an initial evaluation of a potential company by Chiang and, if there is potential, she makes a recommendation to the head of the appropriate Siemans business unit. If Hejazi wants to pursue a possible investment in a company, Chiang conducts the due diligence and reports back to the division head who makes the final decision. Since taking the helm in March, Chiang has asked for supplementary information from only about a handful of companies, rejecting the rest.
Chiang examines companies in a number of industries, including health care, telecommunications – as it relates to products such as cell phones, not networks – and automation.
Hejazi said he would like to see Siemans’ back two to four companies in its first year of venture investing. For example, the group might back diagnostic imaging deals, home tele-health care or even a portable device that detects genetic mutations. Siemens will not invest in pharmaceuticals, however, because of its long timeline for developing products and the different nature of that business, Hejazi said.
The research group will invest worldwide in health care, but will restrict its non-health care investments to the United States because Siemans has other scouting units in Germany to handle non-U.S. investments in the other businesses.