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Is investment an indicator of future success?

success-small

The German football team is out of the World Cup. Was it what you expected? Unlikely. Had you predicted this would happen based on the players selected, Joachim Löw’s ability to coach, or the huge investments made to secure a top-tier national squad? Probably not.

As we published the ‘New Energy’ Business Model Service’s latest report, this got me thinking about who is investing in what within ‘New Energy’ and if how much you invest in something is really an indication of future success?

We've been researching the innovative business models in the new energy space for over three years now, and some of the key questions we are always asked are: Who invested in that start up? How much did they invest? Why would they do that? Why stump up equity or buy someone outright when some of these things are so new?

It’s clear that all the key market players in the new energy space - we identify six groups - are investing, small & large, partial stakes and whole acquisitions. Profiling ten illustrative companies within those groups has revealed a number of things: broad investment interests, future strategies starting to crystallise and a few innovators making taking a slight different approach to investments. Overall however, it’s fascinating and (un)surprising how they coalesce around five key energy trends.

Investment July 2018 1

Electric Vehicles are undeniably 2018’s hot topic and fascinating to oil companies porting their company focus from fossil-based pump-to-power, to renewables-to-EV roaming. Building on a legacy of understanding mobility and power, it’s a logical if weighty step for them. BP has just acquired Chargemaster, which is a good indication of how quickly the stories change, but the narrative remains the same.

So far, so logically expected? But what about another theme: Time-of-Use Optimisation. There has been huge interest in the aggregation business model in the last few years, with corporate investments and acquisitions, really starting with   and Flexitricity in 2014. Time-of Use Optimisation is perhaps an ideal win-win business model, where reduced costs for end users are delivered with better managed settlement positions for suppliers and the system. It’s still a  significant wager to buy an aggregator like Centrica did with REstore, whose model is still evolving  and revenue streams much debated. It’s arguably a much riskier investment.

Why do it? A way of quickly acquiring capability perhaps – a key factor in the new energy transition – be it technical IP or skills, a brand or a customer approach. We researched equity investment but have been looking at the role of internal investment in innovation (see diagram below).

Investment July 2018 2

The way established Product Development processes and newer “labs” or arm’s length innovation functions are working, in conjunction with integrating capability from investment vs innovating from within, is a fascinating one. EnelX is an example of focusing on this. Success may be ultimately dependent on how you incorporate these skills and ideas (internal or external) into your core business – if you have one in the next decade

It could be that that’s the motivation behind these investments: a fear of being left behind in the race for the next big things which will stop the outflow of customers. It’s hard to see how companies make good decisions if it’s this. Considering alignment to existing business units or planned operations is one way of starting to build a rounded strategy.

Coming back to the original question, at this stage, I’m not sure how much you invest is a guarantee of success but it’s a good insight into strategy and internal bets. Whilst my World Cup sweepstake bet may not be the most promising (come on Colombia!), will the smaller curveball energy player win out, or will the giant with historic energy prowess seize the day?  Follow the money but be aware of the team strategy underneath that.

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