We had the privilege of sitting down (virtually) with NGP Capital VP, Ossi Tiainen, to hear more about the fund and how they see themselves fitting into the complex landscape of corporate venturing.
Ossi Tiainen – Vice President
About NGP Capital
NGP Capital was founded in 2005 with the ambition to offer entrepreneurs something new; A support system of funding, feet on the ground in the world’s largest markets, deep thematic expertise and access to vast networks as well as a technology corporate. They believe growth-stage companies deserve long-term, loyal investors that have both the ambition and the discipline to create significant financial and strategic value.
They invest in high growth companies with a largely global remit that have demonstrated product-market fit, sustained strong customer engagement and have a proven business model. Their typical initial ticket size ranges from $8-12M with extensive capacity for follow-on investments.
One of the more unique aspects of NGP Capital is their use of Q, their predictive AI platform. It operates at the very core of the fund by automating their global investment workflow. It can scan, rank, and quantify 1,800,000 companies based on more than 300 different growth indicators, helping them surface the most promising companies in real time whilst reducing decision making bias.
“NGP Capital is structured as an arms-length fund, like any other VC investor. We like to lead rounds, take active board roles, and support our portfolio companies on their journey.”
When you first speak to a founder looking for investment, how do you describe your fund to them?
“We consider ourselves an early-growth-stage venture investor with a global presence. We are financially driven, and have a close relationship with our LP, Nokia. This enables our portfolio companies to access Nokia’s network of 100k+ experts globally, and to pursue opportunities for having Nokia as a partner or a customer. That said, NGP Capital is structured as an arms-length fund, like any other VC investor. We like to lead rounds, take active board roles, and support our portfolio companies on their journey.”
Looking back at our initial article suggesting new CVC classifications, which category do you think best suits your fund? And how much, on a scale of 1-10 (1 being not a good fit at all, 10 being it absolutely encapsulates how we see ourselves)?
A reminder of our three suggested classifications:
- CVC – old school, classic corporate venture capital. Balance sheet investing, strategic alignment necessary
- SVC – strategic venture capital. Maintain the necessary strategic alignment, but operate more like a VC fund
- cVC – more autonomous corporate venture capital (the lowercase c highlighting the fact that they are not so corporately aligned). Investing for financial ROI. Operate just like a VC fund.
“I would say that the cVC definition in the swiftraise article applies very well to NGP Capital. 10/10. Traditional CVCs have been balance-sheet investors with a focus on investing in companies that are strategically relevant to the corporate parent’s existing business, and exerting control over them. However, while NGP Capital does have a financial mandate, the industries and technologies we focus on need to be relevant for Nokia in the mid to long term. In essence, NGP Capital serves as Nokia’s eyes and ears on new trends and innovation.”
We don’t want people thinking cVCs don’t ever help their portfolio with procurement or network help, but as a percentage of investments made, how often would you say you do that?
“Approximately 75% of our portfolio companies engage, in one way or another, with Nokia, guided by us. There is a wide spectrum of ways in which a portfolio company can engage with Nokia, depending on the strategy of the portfolio company.”
How much of the team is made up of people with a background in investing and people with a background in the parent company?
“Our team at NGP Capital has a wide range of backgrounds. Some team members have had extensive roles with Nokia in the past, but the majority have backgrounds as VC investors, consultants, or entrepreneurs.”
Do you still have any executives from the corporate as part of your investment committee or
“NGP Capital makes independent investment decisions. However, we work very closely with many layers in the Nokia organisation, from R&D to the business units, for insights and partnership opportunities.”
“We believe our model marries the best of independent financial rigour with the benefits of reach and network that come with the backing of a large, multi-national corporate.”
Did you initially begin by investing from the balance sheet of your corporate?
“No, NGP Capital was set up in 2005 as an independent fund manager. Nokia has been active in venture longer than that, sponsoring venture investments through a variety of programmes and funds since 1998.”
Was investing from a fund an easy decision to come to?
“There was a lot of evaluation and analysis behind the decision, but NGP Capital pioneered this model with Nokia with our first fund in 2005, and we have been working with the same structure across 6 different funds since. Most CVCs are NOT arms-length, as we are. We believe our model marries the best of independent financial rigour with the benefits of reach and network that come with the backing of a large, multi-national corporate.”
What is the main advantage you see in investing from a fund versus the B/S?
“Venture investments have a long time horizon – easily running 5-10 years. Balance-sheet investors risk being beholden to the quarterly ups and downs of a large corporate, which can be quite limiting in the longer term, as strategies change and evolve quickly.”
How and why did you settle on your stage focus (e.g. Seed, Series A) and ticket size?
“Originally, the notion was that the companies NGP Capital would invest in would need to be sizeable enough to partner with Nokia. Over time, our stage and ticket size have been adjusted slightly to reflect market evolution.”
If there was one area you currently don’t invest in that you wish you could, what would it be?
“The financial services industry is undergoing a major revolution, and the healthcare industry has some long-term cyclical changes that will favour increasing use of technology. However, the Digital Industries, Edge Cloud, Digital Transformation, and Cybersecurity sectors we currently invest in are very large hunting grounds in themselves.”
Firstly, we have to say a huge thank you to Ossi for being so generous with his time helping us with this piece. But also to the fund for agreeing to speak to us and engage with us on this topic.
It definitely seems as though our cVC subcategory has a good fit with NGP Capital. They raise funds, although in their case Nokia is still the sole LP, and they have the ability to invest purely for financial ROI (i.e. being “arms-length investors”).
What we have seen with focus areas is that they still maintain somewhat of a focus on Nokia, serving as their “eyes and ears on new trends and innovation”. And perhaps that helps us frame an important consideration across Corporate Venturing – it really does depend on the kind of corporate. A broad sector focus can at first look as though a fund is investing far away from the corporate’s main area of business. But if the company, like Nokia, has a wide range of business areas (they don’t just make phones), then you’d expect that, because the very disruptions the fund are looking out for often come from the technologies and places they’re least expected.
With such a high percentage of their startups engaged in some form with Nokia (3/4 in fact), they seem to perfectly blend the line of being both a Strategic VC and a more autonomous cVC. By keeping that watchful eye on emerging tech, but acting in the way a VC fund would to execute their deals and bring financial returns to Nokia, they are a great first case study that it’s not such an easy task to put all corporate VCs into just 3 boats.