In this episode of The Committed Innovator podcast, we continue our series on Israel, talking with innovators from three large organizations about how they approach their relationships with start-ups. Roi Bar-Kat is head of Intel Capital in Israel, Neta-Li Meiri is chief of global tech innovation for Israeli food company Strauss Group, and David Schwartz is vice president of tech innovation for PepsiCo Labs. They spoke with innovation leader and McKinsey senior partner Erik Roth about the intersection of corporate and start-up innovation, and how the two functions can support each other. This is an edited transcript of the discussion. For more context on Israel’s start-up ecosystem, listen to the earlier episodes on your preferred podcast platform, or visit The Committed Innovator on McKinsey.com. For more conversations on the strategy issues that matter, follow the entire series.
Erik Roth: I want to start off with a question that hopefully will be an easy one, which is why are your companies and funds so interested in Israel as a source of innovative business models and technology? Why Israel?
Roi Bar-Kat: The obvious answer is all the numbers. I think there are 5,000 to 6,000 start-ups here at any given point in time. And you can find anything about anything—there are a lot of engineers here, and a lot of know-how, especially with the multinationals that are here. So there’s a lot of mutual learning.
Neta-Li Meiri: We do have tremendous talent here. As part of the robust ecosystem in Israel, it’s very easy to reach out to them because we’re geographically close to one another. As a corporate, when we need to find a solution, it’s really easy to find it here. Israeli start-ups are characterized by their rapidness. They’re very eager to succeed. So for us it’s also exploring new opportunities with them because they’re very eager to expand globally. It’s also an opportunity to leverage the Israeli part of Strauss in other geographies we’re active in.
David Schwartz: I’ll give three reasons which hopefully are adding value to what we all know. The first is that the technology works. It’s deep tech and it actually works, which is an advantage over many markets. Second is you can have an open conversation. We’ve had very candid discussions—you can go right to the point. It’s not about being nice, or being soft, which is being professional, but we solve problems.
And the third is that we solve problems quickly here. It’s not bureaucratic, it’s not going to be slow, it’s going to be really quick. If we want to be innovative, and we want to move quickly and have a candid discussion, we can.
Erik Roth: You all work for large organizations. Often the reality is that big organizations struggle to match up their timelines with those of start-ups. What is your experience in terms of what’s actually working, and where do you find the challenges that start to arise?
Neta-Li Meiri: You summarized it correctly. There are a lot of gaps between start-ups that want to run fast, validate their product, and expand, and corporates that work based on strategies, that have long-term programs, and are not really that open to improvisation.
However, they are more interested when they do find value. So for us as innovation managers, the challenge is to find the places where we can collaborate, where we can bring value to our company. We have to understand the needs of our company’s business units and organizational functions, because when we do find a concrete value proposition for them, when they know we understand their needs, they are more interested in listening. It’s not just shooting in the dark and saying we have a start-up for you, but rather focusing on their concrete needs.
It’s mostly overcoming these differences, but also communicating to the start-up that we’re not going to do this in a week, we know time is crucial for you, but you also need to find someplace in the middle so all of us can meet.
It’s mostly understanding the need to communicate better with them, not just to neglect them and put them aside, and maybe talk to them in six months; it’s showing that you are interested in collaborating with them. And it’s also communicating to the corporate that if we want to work with this start-up, especially if you want to become design partners, we’ll have to work significantly faster than usual.
It’s understanding who the change agents you can work with within the corporate are.
David Schwartz: Actually, in the last couple of months, I had two start-ups ask us to slow down because we were going too quickly for them. But it depends on which part of the business we’re talking about. If we go to emerging tech and we’re quickly testing things, we can move really fast. If we’re going to touch something like a factory floor, it has to be proven out in every which way, since this is food that goes in a human body, before we scale it to 300,000 employees.
We try to do two things really quickly. First, we try to understand the need in the business, so that it’s crystal clear for the start-up and they know exactly what they’re solving for. Then we can work much faster. Second, we look to test fit-for-purpose. If we’re testing the technology, the first step of the test is not necessarily to prove that everything will work, but rather to prove a simple part first, and if that succeeds, moving to the next milestone, then the next milestone. We find you can move much quicker if it’s clearly laid out.
Roi Bar-Kat: At Intel Capital, which is a corporate VC, we have a different perspective. We’ve been around for over 30 years and there’s this pendulum that shifts between different models. About five or six years ago, we shifted away from being a classic strategic investor, where sometimes things didn’t work to the extent that they could have. You had business units that wanted to invest in certain areas, and then priorities would change, the champion had left, or whatever. And you ended up with orphan companies. What we did was, not to say it’s the best model or perfect, we shifted things around to where we look to invest in the best start-ups, regardless of the business unit’s strategies. It’s sort of like that movie [Field of Dreams]—build it, and they will come. If we invest in the best companies out there, that will have its effect on the business units.
Erik Roth: Let me push you each a little bit. In the venture capital world, having a strong clear investment thesis really matters. So how would you articulate each of your company’s investment thesis as to why it’s a good source of capital for a venture?
If I were to challenge you a little bit on what you just said, Roi, the “build it and they will come” could be done by any number of VCs. Why is Intel disproportionately advantaged in doing that? For PepsiCo and Strauss, why is your investment thesis better than a venture going somewhere else for capital?
David Schwartz: If we look at a start-up, at least the start-ups we’ve met, there is one of three things they’re looking for. It’s financing, which as you said, is pretty available. Then there’s expertise and scale. Given that the money is out there, they see that more as a commodity. In our areas, what we’re trying to solve is more about the expertise and the scale that PepsiCo could offer.
We’re strategic, though. We’re not looking for the financial side. We’re looking for the strategic impact to PepsiCo. If we know our problem, we now test the solution and we see in terms of both scale and the expertise they offer us, and if it makes sense that they will impact our business, then it’s a pretty straightforward investment opportunity.
That’s filtering the companies—to actually invest in the company because it’s strategic. How we look at it is an entirely different lens. For example, could we accelerate the product development? Could we accelerate the geographic expansion? Could we bring new expertise combined with their expertise to bring a new level of capability that neither of us could do without the other? Then it’s a pretty straightforward thesis and they want our investment—not all of them, but many of them—because it’s laid out exactly how we’re going to work together.
That one underlying part is when we do an investment, the corporate itself and the startups actually want to see the other succeed. So instead of a vendor relationship, it becomes a partner relationship, which furthers that strategic objective of scale and expertise to build something new.
Roi Bar-Kat: To your point, you would need to differentiate between the internal perspective of how we operate in the context of Intel, and then how the entrepreneurs and the other co-investors view us. What I said before really touches on the internal aspect: How do we create strategic value for Intel in the long run?
From the entrepreneur’s perspective, I think the trick is—there’s a saying in Hebrew to be with and to feel without—to bring in the value that an Intel can bring, but without the downside. So we try to operate as any financial VC, not to weigh the company down or color them Intel, but to bring them the access to the customers and partners, et cetera.
Erik Roth: The number of CVCs [corporate venture capital companies] being started each year is just skyrocketing. A lot of folks may be considering whether this is a good idea or not for their organization. What would be the one piece of advice you would give on whether they should or shouldn’t start a CVC?
Roi Bar-Kat: The first thought that comes to mind is it’s not necessarily should or shouldn’t, but they have to make sure they understand it’s a longterm gain. If they want to have the opportunity to invest in the best companies out there—the companies and the co-investors—the ecosystem needs to know that it’s there for good or at least for several years going forward. There’s not a good or bad, it’s a must-have.
Neta-Li Meiri: Actually, we just recently established the IT innovation activity at Strauss Group, so we don’t have investments yet.
David Schwartz: For us, there’s food-and-beverage investing and there’s tech investing. I focus on the technology side. It’s being clear and consistent on your strategic or financial objectives. If they are very clear, and you stay true to them throughout, you have a lot more success than going back and forth.
There’s also an underlying way of working that’s much deeper than just venturing. For us, it’s being more strategic. It’s more about finding solutions that solve our needs and embedding them in the business. Venturing is one of the levers that helps us achieve that goal. But if we’re clear on our goal and we stay consistent on investing to support that goal, it has a lot of success.
There are many calibrations needed, especially with early-stage start-ups, because if you are a design partner, you are assisting the start-up in designing its solution.
Erik Roth: If you could offer advice to the ventures themselves as to what they need to do to make themselves more presentable to you, what would that be?
Neta-Li Meiri: I think this aligns with our previous comments on the question of how start-ups work with corporates. First, it’s understanding the different ways of corporates and start-ups. It’s not just a quick win—you do need to aim for the long haul.
In this aspect, it’s understanding which are the most relevant use cases you can offer to the company. Do your homework. Do due diligence before you reach out to a company, because sometimes if it’s related to specific milestones that the corporate has achieved, it’s much more relevant and the reach-out would be much more custom-made. We highly appreciate that the start-ups we speak with not give their generic blurb and deck and just talk about their company, but also talk with us about how they can be applicable for us. This is one of the main things we see as an advantage: understanding the competition.
Many start-ups are very interested in highlighting their solution, but not necessarily versus other ones. Having an articulate competitive analysis and a good landscape of what the other solutions are and what makes you better than the others is important.
What you do differently is also a very important thing, as in being open for criticism, because along the way, especially when you start to work together, there are many calibrations needed, especially with early-stage start-ups, because if you are a design partner, you are assisting the start-up in designing its solution.
It’s also understanding what the needs of the corporate are. Be humbler when you reach out because this process is going to be lengthy, it’s going to be challenging.
What we are looking for, it’s less whether we’re going to pay after 30 days, 45 days, or 90 days. It doesn’t matter, because we see the long haul. Once you understand the value proposition you can bring and you articulate it well to the corporate, we’re going to have a different conversation.
Roi Bar-Kat: I think the trick is for the start-up to understand when the point in time is where they need to make up their own mind rather than get convinced by whatever input the corporate is giving them, because they risk getting sort of strangled by the larger organization.
I think they need to take things with a grain of salt. In front of them there’s this huge opportunity, but then there’s a question of how much time and resources they’re going to invest before understanding they need to move on or whatever it may be. So be open with a little bit of skepticism as well.
David Schwartz: Also, a start-up needs to have integrity in two ways. One is honesty about where they are with their solution, and second is honesty about what they can and can’t share with us.
That was always the first bar, and I think with every start-up, maintaining that integrity is very important. Part two is a simple framework, relevance, and differentiation. How relevant are you to our needs and how differentiated are you from all the other startups who do almost the identical thing?
Erik Roth: Things are changing in the world around us right now. How is that affecting the way you’re looking at opportunities as well as perhaps your experience in the Israeli ecosystem, and Israel’s place in the world relative to entrepreneurship and venturing? Things are tough for start-ups these days. How are you seeing it?
Roi Bar-Kat: From the VC perspective, since COVID-19 started, we’ve seen rapid shifts up, down, and sideways. I think we’re all being very cautious. Most of our companies, even those that are very rich and well performing, are all at times tightening the belt. It makes a lot of sense, because from the investment standpoint, a lot of companies raised a lot of money, but at very high valuations—I’m not talking specifically about Intel Capital, but broadly as an industry—and those valuations would need to be caught up by the next round of financing. From the revenue standpoint, we’re seeing that a lot of enterprise customers are taking more of a cautious stance. It takes longer to close deals.
We’re seeing a slowdown in new revenues. And in terms of acquisitions, we’re seeing a slowdown. Again, it’s not news, things are tough. We’re talking with our companies about reaching 24 months of runway. I think it’s a pretty standard recommendation.
Neta-Li Meiri: I think for us as a company, we still need to keep our competitive advantage. We’re still looking for innovation. It’s a whole different process than investments in general. In my opinion, COVID-19 has created a significant digital transformation and an urgent and concrete need for us to better understand what solutions should be rapidly implemented in the company.
From our perspective, it’s mostly how we better interact and engage with start-ups. It’s a different way for us to analyze the overall condition. However, we are more cautious also about budget. We are mostly interested in the opportunities that are not necessarily low-hanging fruit, but the ones where we see more value and better opportunities for the business. So we cherry-pick our collaborations with start-ups.
Erik Roth: Given the macroeconomic conditions, many would say CVCs tend to invest later anyway, overpay, and are much slower. Does this economic environment, if you’re getting a little bit more conservative, exacerbate that, or does it just make you slightly slower?
David Schwartz: Actually, I see it as helping us. Our main goal, being strategic, is not to do as many investments as we can. With the macroeconomic conditions now, we don’t have to run and sign a term sheet and get a deal through in a week or two. That’s not our goal to begin with. Now we have the gift of time to have better due diligence and make sure there’s really a strategic fit with the business.
Erik Roth: So it’s created a little bit more of a safer space to take your time and do the things you normally do, as opposed to what you may have experienced otherwise where there’s a much more competitive churn for some of the ventures.
David Schwartz: Exactly. And let’s make the right decision for us and the start-up. I don’t want to invest in a company and a year later we pull out of the investment. It doesn’t make sense. This way we’re setting them up for more success, and we’re setting us up for more success. Because we have more buy-in from the organization, and we know it’s more differentiated and a greater fit and more relevant to what we need. So it’s a win-win.
Roi Bar-Kat: I agree. It’s a return to the norm we used to have before 2020—not doing a deal within 24 hours.
Erik Roth: Given the need for competitive advantage, given the time you’ve earned, is this a great time for enterprises to think about a CVC, if they’re considering starting one?
David Schwartz: It’s a great time if you’re clear on what you want. There’s a great setup for you to do projects with every major company, but if it’s clear what you’re trying to achieve, it’s a great time.
Erik Roth: I love what you’re saying because I think that degree of clarity, whether it’s strategic or financial, is not well understood for most enterprises.
David Schwartz: I’d go a step further. We don’t even call ourselves a CVC. When it makes sense to do an investment, and there’s a rationale, we have a committee and we do an investment. But it has to be clear on the objectives, and how we’re adding value to them and they’re adding value to us above and beyond a commercial agreement. There’s no reason for an investment if it doesn’t have a clear commercial value.
And most times we can negotiate through a commercial agreement. The goal then is to align the incentives. If we can have the incentives of our venturing—or investments, I won’t call it venturing—and the investments and the business both want the same success, which again, links to clear objectives and clear KPIs. But those executives who come to you, give them KPIs for the success of the investments and then see if they still want to do it.
Erik Roth: There’s a debate around whether you do this yourself, or invest as a limited partner (LP) in a different fund. That debate has gone on across companies for years, and there are different sides to it. I’d be really interested in your view as to, from an enterprise standpoint, which is better, or if not better, what are the advantages and disadvantages of each approach?
David Schwartz: I don’t think it’s right or wrong. The two models are different and they each have their pros and cons. If you operate as an LP in multiple funds, you may have broader access, but maybe not as deep. You can potentially be an LP in funds that operate in different geographies, different verticals, et cetera.
I think what we see with us is, we enjoy the deep access to the community and to the different technologies, the different markets, business models, et cetera, by being a direct investor, in what today is a pretty large portfolio.
Roi Bar-Kat: This is a personal bias. I won’t say on behalf of the company, but we shy away from investing in other funds, as we don’t see the rationale for it. In fact, I see a competitive disadvantage by doing it. For instance, you’re now biased to specific companies.
You don’t get a holistic view of the market. You could be perceived by other start-ups or venture capital firms as competing and they won’t share their full deal flow of what start-ups are out there. We’ve had these discussions, and it just makes sense to be apolitical, not focused on anyone, not overly committed, so we have optionality to always use the best technology to keep PepsiCo advantaged in the market.
Erik Roth: Let’s switch gears to you’ve made the investment. How do you make something scale inside the enterprise? Whether you’re incubating it from the start or you’re investing in it, one of the challenges we see time and time again is things just never scale to the degree intended. What are the tricks to getting that right?
Neta-Li Meiri: It’s a good question. I’m going to talk about it from the incubation acceleration perspective. I think that one of my main goals is not only to have a proof of concept (POC), of course, because just having a POC in order to say I have a POC is useless. We want to have a POC in order to further develop it and implement it eventually. But one of the things I find most interesting is not only implementing it at one specific business unit, but rather expanding it toward other business units or organizational functions within the company.
It’s understanding the bigger picture and how we can implement the solution in other domains. It’s just doing an internal scale-up of the company, understanding that, for example, if we want to work on an AIanalytics platform, it’s not just doing so in the confectionary business, but also seeing it in other departments and how we can make it become really our “home start-up.”
For us, it’s understanding—after we’ve done the due diligence process and the assessment, and after we’ve made sure that we’re satisfied by the solution—how we can continue working with them as vendors. I know that many start-ups are afraid of the word “vendor,” but for us, it’s a good thing because it means you are going to be our go-to solution and not only a one-time experience. For me, it’s mostly thinking about how we can make the collaborations with start-ups more sustainable, and broader within the company.
David Schwartz: For us, there are organizational processes, like, for example, we have an organization within the fund in charge of portfolio development. They have various activities to connect start-ups and the different business units. But other than the structured processes, to me personally, it’s really a matter of finding the right partners to tango with in the business units.
Again, it’s not a methodical way of doing things, but it just works. It’s finding the executives who look for the innovators within the organization, who are sensitive to the start-ups’ constraints, limited resources, time, et cetera, and are really able to move things forward.
Roi Bar-Kat: To me, it’s even a different question, which is how do you start off with the plan to scale? And there are two simple rules we have. First is, anything we look at is based on a need.
What’s the need in the business? We spend two months to really define the business need. Once we do that, we know that it’s going to be universal and we’ll get adoption. The second is it’s executive sponsored; we won’t start the program until the executive VPs say this is my problem, the experts confirm, and as VPs we’ll call the leaders who will drive it forward and ensure they are fully supportive.
Then when we’re piloting, testing, and updating them, they’re so on board and they’re telling everyone, the word gets out throughout the business. Then when it comes to the point that it succeeds, we have the KPIs we talked about. It’s so clear that it’s right for the business, and then it becomes a matter of explaining it and setting up for success.
The two KPIs we look at when we’re testing a technology are its underlying machine learning or its capability, and its user interface. If that works and it solves a problem, and it’s easy to use, it’s pretty straightforward to take it to the business.
Erik Roth: How do you measure success? What are the KPIs, either at an enterprise level or in the individual, whether it’s a venture or at the project level. What does success look like and how do you measure that?
Neta-Li Meiri: First, we’re setting KPIs with the business unit or organizational function even before we start the POC. Once we finish the POC and we get to see the metrics and whether we were satisfied by the KPIs, then we can move forward. For example, with AI analytics, if we think about a use case of promo optimization, how do we match the prices of our different products within the retailers properly? Just to understand whether giving a 10 percent discount or 15 percent discount will move the needle or not, for example. Once we aggregate a lot of data, because these are big data solutions, we better understand if it was a good decision for us to work with the start-up.
What were the results? And these are backed by numbers, so it’s much easier to see versus other solutions that might be less tangible. Once we see that there is a success, the holy grail is not only to keep it in one business model and continue working with it, but also present it to other business units, either in Israel or globally, and understand how we can give this start-up much broader opportunities within the company.
Once we see that it works, it’s much easier for us also to better articulate it internally. I think for us, there is a difference between the KPIs we set in advance before we start a POC, the ones we set after there is a success and before the rollout, and the KPIs we do with each and every business unit after we have the first deployment in a business unit.
Roi Bar-Kat: We have the classic leading-lagging indicators, which are all very interesting, but it really comes down to two simple things. Was it integrated in the business, and what was the business impact? And every year or every few months, I get asked the same two questions. How many solutions got integrated in the business? And what was their impact, from financial impact to sustainability impact? This theme is, keep it simple.
David Schwartz: But what about the longer-term strategic impact? Is that also one of your metrics?
Roi Bar-Kat: That’s a great question. That’s part of it. It’s current impact and forecasted impact. Because mostly, innovation doesn’t hit immediately. But when we sign up the business and they put it in their annual operating plan and their long-term strategy, with the financial number linked to it, then it’s impact that we’re currently making or forecasted to make.
Erik Roth: You just said a really important thing that I’m going to highlight: the business puts it in their plan. Your investment was in a strategic plan of a business unit. That is a rarity, I think, in the reality of this kind of activity.
Neta-Li Meiri: I will add to that because, David, you raised good points in that our work is not only top down, when it’s embedded within the strategy, but also bottom up, where we give the innovation managers the prerogative and mandate to scout and sometimes surprise the business units by saying, “We know your needs because we’ve been working together for a while and we’ve had our success and built trust together. Maybe this solution could be relevant for you.”
And sometimes it’s not even embedded. It’s very important for them also to keep an open mind about relevant and interesting solutions that might not be exactly the same ones written in the strategy. Of course, top down is the best way because it’s safer, it’s more solid, because it’s already written and you should embed it on top of the strategy, but also being open.
I call it the “appetite comes with eating” approach. It’s saying, “I know you, I know what you need and I can provide it to you even if it’s not officially written. And maybe it could also be a good match.” I think the ratio should be 80:20—the top down at 80 and the bottom up at 20, because there should be some wiggle room to leave some prerogative and discretion to innovation managers.
Erik Roth: So perhaps an insight emerging from here is, if you’re a venture, do your homework on the investment arm you’re dealing with, because if they really understand the enterprise, are networked in, are bottom-up, and can articulate that well, the probability of them being a good investment partner for you goes way up, as opposed to the meet-and-greets that happen where the investors from the corporates come in, fly by, meet a bunch of start-ups, maybe they come back, maybe they email, and who knows what happens after that.
I would imagine that a venture can learn a lot by just the nature of how they interact with you and your colleagues and other companies in terms of a degree of insight into how the company operates. Would you agree with that?
Roi Bar-Kat: I fully agree. Our whole model is understanding the problem, doing pilots, and only then having a conversation that might consider an investment.
Because we’re not calling ourselves a CVC; we’re building strategic relationships with the start-ups. There is no meet-and-greet and then let’s be opportunistic. It’s that we’ve looked so deeply under the hood, we know exactly your impact. It’s a setup for success for us, but even more importantly, for the start-up. For them, it’s make or break and now we’re setting them up for success as well.
David Schwartz: For the start-ups that are considering working with CVCs, I would even take it a step further and say, take all the meet-and-greets and all the potential value other than having their name on your website, whatever it may be, with a grain of salt. Assume it’s very soft, high-level business development efforts. Nothing is guaranteed. And make sure your diligence shows that as an investor around the table, they know what they’re doing because you’re going to need them in follow-on investments. Often a lot of the CVCs have board representatives. Do they understand what it means to be a board member of your company? That’s a tricky point for a lot of the CVCs.
Erik Roth: And some can’t really even be a board member of companies depending on how the financial structure is set up.
Roi Bar-Kat: Exactly. So make sure they pass that bar of being a good financial investor for you. Then everything that comes on top of that is a bonus.
Erik Roth: We have some questions for our panelists from our audience. The first is asking you to describe the best and worst investments you have made.
David Schwartz: In my 13 years of doing this, I think one of my takeaways, which is unfortunate, is that there’s a lot of randomness in what we do. A lot of really good companies struggle. A lot of companies are good, but you know, you wouldn’t have expected to get an acquisition offer so early. To speak of specific companies is a hard one. I love them all equally.
Roi Bar-Kat: It’s difficult to say, but those that have integrated fully into the business are the biggest successes because not only is it a challenge and an investment opportunity, but the impact has been millions of liters of water saved, for example. These are nonagricultural, too—the manufacturing and other parts of our business.
Of the challenges, with one solution, the technology ended up not being all the way to what we approved—this was before we had a rigorous pilot program. That’s part of what drove us to say, before we think about an investment, it’s all about testing the technology, and more importantly, solving the use case.
If it solves the use case, it’s set up for success. It’s the risk tolerance of corporates where you’re already there, there still won’t be a 100 percent success rate, but significantly higher, slightly more conservative. It’s more strategic in that sense.
Erik Roth: Our next audience question is about whether you view your work as being more innovation or corporate venturing. What percentage of your work is generating innovation on its own, separate from investment?
Neta-Li Meiri: I’ll talk a little bit about Strauss’s innovation structure. We do have The Kitchen, an incubation program, and we do invest there, but only in food tech. I’m doing the nonfood innovation, which means part of the IT innovation. I focus on cybersecurity, HR, and other enterprise software solutions alongside Industry 4.0, data and analytics, new business models, and so on.
First, we’re a brand-new activity. We were established in less than six months, so maybe this is the reason we’re still under the radar a little bit and we are being active in some areas and in some others we’re still trying to build this strategy with the business units as mentioned before.
We’re gearing up fast now. We don’t have a CVC, at least not an official one. We do have investments, as mentioned, through The Kitchen, but only in the food tech domain. For us, it’s mostly integrating and implementing innovative solutions within the different business units and organizational functions. This is what I’m fully focused on, and hopefully we’re going to start investing. We’re not sure whether we’re going to do it through a CVC or through working with a VC, as a limited partner. I think we’re going to have a CVC, but we’re going to discover it maybe in the plans for next year.
David Schwartz: We keep it simple. We have foodand-beverage venturing, and that’s more than 300,000 employees—we are pretty big. We have different groups. We invest in food-and-beverage start-ups. Our team is, as you described, tech innovation. We’re trying to get tech in the business. We never use the words “We’re a CVC.” We’re not. I say sometimes that we opportunistically or strategically invest in solutions when it makes sense for the business. But our goal is to land start-ups in PepsiCo that have an impact on our company.
Erik Roth: Before we get to the next question from the audience, one of the things I have noticed about a lot of corporations is they don’t reveal their needs very easily, nor how start-ups can navigate to meet their needs if they have a solution outside. Often inside, in their business plans, there’s a lot of discussion and a lot of debate as to what challenges they have and how they solve them. But very rarely do they think, “Outside is the first place to go versus my own capabilities, assets, skills, and experience.” And that’s an opportunity if you think about not only Israel, but also other venture hubs across the world—to help enterprises understand that solutions often are just a step or two away.
The next audience question centers on how to integrate a start-up solution with a corporate, and who the key stakeholders in the corporate need to be for this. Once you bring in a start-up or invest in it, who in the corporate needs to take the reins?
David Schwartz: We’re universal, we’re apolitical, we work with all of the business—legal, IT, procurement, data security. With every start-up, we go through the whole process. We’re a facilitator. We have laid out a parallel universe. There’s working with large enterprises and there’s working with them to do the full data security, the full check.
A start-up is small, they’re agile, and we’re doing a very simple test: Does it work or doesn’t it work? Therefore, we have a parallel set of processes that are so simple. A few questions. Does it pass the data check? We have a set of legal agreements fit for purpose based on the level of relationship we have. So I don’t think there’s that stakeholder as much as every one of the parts that will touch the start-up are involved from day one—but the right amount of involvement at the right time in the process. The second is where we started: the executive. The executive knows the problem. They’re rallied behind it. They’re the one who will facilitate it happening in the business.
And when they say they want to do it, we already have every part of the business knowing exactly what their role is, so it works easily.
Neta-Li Meiri: I will add that it’s very important for us as a corporate to have the stakeholders—the senior management—onboarded, because we want to have two main prerequisites in place. The first is ensuring a budget, because that is very, very important. We can sponsor the POC or even the implementation, but we want to make sure that they are part of us, that they are part of the pilot and that they have skin in the game. Put your money where your mouth is. It means that you do have specific interest because it’s already part of your P&L. The other thing is also to have a dedicated team, which is part of the collaboration between the corporate and the start-up, which means you’re going to have a dedicated PMO for the POC and afterward hopefully the implementation.
It’s also to ensure how serious they are and that they do not take it lightly, this collaboration. First, it’s having the due diligence and all the stops on the way, but also making sure that the stakeholders within the business units or the organizational functions are part of it. They’re aware of the risks, they’re aware of the benefits, and they’re eager to start to roll with us.
Roi Bar-Kat: I have two examples outside of Intel Capital, one more structured than the other. First, the structured one within Intel—there’s a very large business unit called Data Center and AI. Within that, there’s a smaller organization called Data Center Business Incubation Office. Their goal is to build the next billion-dollar business, but in the relatively short term. And they work with start-ups. What they do, which I think is an efficient way to tackle the day-two issue— they remind me of the Marine Corps—is they have their own resources, sales, marketing, engineering, and they’re independent. They don’t need to rely on Intel’s sales and marketing organization or Intel’s engineering. They have everything in-house and they’re able to build that “better together,” go-to-market offering with a start-up in a much more agile, independent way. That’s one example.
The other is Intel Ignite, Intel’s accelerator program. They’re based here in Israel, and in Germany and the United States. What they did was map engineers and executives from different places within Intel, people who are innovators and are sort of an intersection from which innovation can spread to a lot of different people within the organization. And they connect them with the start-ups very intimately and very deeply. It’s a way to get the start-up “virus” spread within the organization.
We see it as one of our goals to make sure the start-up doesn’t get pulled in so many directions as often happens.
Erik Roth: Our last audience question is how broad solutions such as a platforms can approach larger organizations when their solution is not a specific one, but rather a broad one that can address many needs.
David Schwartz: For us, it comes with a question. What’s your use case? If you have a clear use case, we’ll find you the right person to speak to or we’ll assess it as well for the team. But it has to be clear what that use case is.
Neta-Li Meiri: I mentioned top-down and bottom-up approaches—I think starting with some clear use cases is good, but also imagining together once you do see that one use case is applicable and relevant for us and it’s successful. Maybe we can think further about relevant ones, understanding the technology, because only after you test it, do you see the value of it. Maybe starting in one specific use case and then expanding toward others after we better understand the technology.
Roi Bar-Kat: We see it as one of our goals to make sure the start-up doesn’t get pulled in so many directions as often happens—you get a lot of people who have affiliation to innovation and they’re excited. But again, nothing happens on day two. So the goal for us as a fund within Intel is to find the right partners to tango with, et cetera. If you have the right access point, the right partners, they should be able to point you in the right directions. But I would say, unfortunately, often in our experience as a fund, having portfolio companies that often engage with innovation offices, is that the innovation offices have a hard time passing it on beyond their own backyard to people who have budgets and are able to productize.
I think that goes back to your point of proper diligence—making sure that the specific innovation office has the ability to eventually reach some sort of champion with budget and ability to productize and purchase, become a vendor, et cetera.
Erik Roth: The idea of start-ups having a library of needs is fascinating—really understanding your company’s use cases that are in need of solution, and who would be the right champion for that use case. That’s a great way to approach start-ups, as opposed to saying, “I just saw this great technology, maybe it can solve this problem we have,” and then you start the process.
Neta-Li Meiri: This is exactly the bottom-up or top-down approach I spoke about earlier. I think that the top-down is the one you dictate in advance and you have predefined requirements coming from the business units that you develop with them. And it’s sometimes easier, because, you have certainty. What are the next solutions you need to scout for and assess and have a process for, versus the bottom-up approach where you say, “Hey, I know your business unit, I know the solutions you’re seeking, I see interesting use cases that are not specifically written into the exact strategy and I’m interested in showing them to you.”
It’s understanding the needs. It has to do with budget, it has to do with personnel who should be onboarded with the projects, and the innovation POCs in deployments afterward. But you do need to leave some wiggle room for us also as innovation managers based on the knowledge we have, and based on the things that give us prerogative and our discretion, the “appetite comes with eating” approach.
David Schwartz: I agree. It’s really that we have a process for every step. But over 90 percent of the technologies are based on the briefs that were written and every step of the process defining the needs, meeting start-ups, deciding who to pilot. We have a backdoor to see if there’s something really creative. We now have the eyes and ears of the leaders so they can think more expansively. But our success rate when it’s anchored on a need and a clear use case is disproportionally higher than when it’s opportunistic. It’s easily north of 90 percent.
But we also don’t reach out to the start-up ecosystem until we’ve spent two months defining what those opportunities are. It’s such a rigorous process that it should be more or less identified except for those technologies we didn’t even think of asking about.
Erik Roth: There’s a development process going on, and at the front end of it, there’s a lot more flexibility and opportunity to shape the solution. As ideas, initiatives, and technologies move down the development process, the requirements get a lot tighter.
If you go and ask a business unit what they are looking for, if it’s down the funnel, you’ll get very specific requirements. I’ve always believed that the “not invented here” syndrome that people hear about isn’t as real as they think, because often the case is we’re down in the funnel, the specifications and requirements are tight, and there isn’t an endless array of solutions that can fit that use case.
So it bounces off. Or it takes the start-up in a very different direction in order to fit with the belief that something might scale. Unfortunately, often it doesn’t. But at the front end of the funnel where there is a lot more flexibility, there is a lot more solutioning, a lot more needs out there.
I think that’s where, to any ventures thinking about working with an enterprise, you have a lot more opportunity. And the use case identification can be really powerful because then you’re more in an open mode to find solutions as opposed to a really specific search to solve a very specific problem.
It depends where you are in that cycle as to how well the use case identification and prioritization work. And I suspect each of you have experienced some version of that.
Roi Bar-Kat: I completely agree. As long as you aren’t kicking the problem down the road. And the innovation office can, at a certain point, translate that into an actual project.
Erik Roth: I think you have to have someone such as yourselves, really strong and experienced, to do it. Because often you run into these little offices that are hanging off on the side that have a little bit of money, a little bit of a mandate, not a lot of exposure, and they meet all of you and it creates a slightly less than desirable outcome for everybody. Thank you all for coming. It’s been a pleasure getting to know you and getting a chance to hear from you as well.
Thank you so much for your time, your participation, your energy, and I hope everyone learned something along the way.