Ken: Good day, and welcome to episode 184 of our Momenta Digital Thread podcast series. Today, we're going to kick off a new series on Industrial Corporate Venture Capital. For this series, I'll be partnering with Michael Dolbec, our Managing Partner of Ventures at Momenta, who also happens to be the former Exec Director of GE Ventures. For our first speaker, we're pleased to have Thurston Cromwell. He is the Vice President of Development and Innovation at Emerson, where he also leads Emerson Ventures, the company's corporate venture capital arm. Emerson Ventures is backed by a $100 million commitment to invest in early-stage companies and technologies in discrete automation solutions, industrial software, and sustainability. Before his role with Emerson ventures, Thurston led acquisitions and divestitures as a member of Emerson's corporate development team. Prior to joining Emerson in 2015, Thurston served as Senior Vice President and General Counsel of Cartesian, a NASDAQ-listed software and services firm in the communication sector. Thurston, welcome to our Digital Thread podcast today.
Thurston: Ken, Michael- I appreciate the opportunity.
Ken: As well. I appreciate you being willing to be the first on this new series; we've always worked very closely with corporate venture capital. In some sense, Momenta operates as corporate venture capital as a service for some LPS as well. We thought, what a great time talking about the different investment thesis for the various OT leaders- of course, Emerson being among those in the space and benchmarking a little bit. I appreciate you being the first to offer that. Of course, I always like to start this with a brief background on yourself. We'll call it the Digital Thread. What would you consider to be your digital thread? In other words, the one or more thematic threads that define your digital industry journey.
Thurston: Great question. I guess my digital threads started when I joined a company called Cartesian in 2006 as their general counsel. Cartesian was a NASDAQ-listed consulting and software firm serving the communications and media industries. Over that time, I worked with a great group of folks, many real luminaries in the industry- one of my former colleagues, Howard Watson, is now the Chief Technology Officer of British Telecom Group. It was a group of people and technology serving a very exciting industry in the early to mid-2000s, in the telecom sector. We had a unique software platform for operations and business support system for the telecom industry. Immersing myself in that business and working with those teams ultimately led me to become an additional general counsel and general manager of a business that we started from scratch. At the time, the mobile device world was a highly subsidized model, and the carriers with cell phones- due to your contract commitments- it was the beginning of the transition from that model to an alternative financing model for cellular devices and smartphones.
We came up with a solution leveraging our software platform that was a 'management software as a service that helps telecom operators manage the recovery of devices and build the residual value of those devices into an alternative model. It was an exciting time to work within a business that was starting a new technology and moving into a fast-moving sector.
Leading that initiative for Cartesian was my first step into the digital realm. After my time at Cartesian, I came to Emerson. I joined Emerson at an exciting time when it was implementing what was called the 'top of the pyramid' strategy. The top of the pyramid strategy was the idea that Emerson had a dominant position in devices. Then above that device layer, it has a dominant position in the controls area. Given our unique position via devices and controls, there was an excellent opportunity for us to expand our data management position. We were, at that time, on the M&A team looking for acquisition opportunities to help effectuate that top of the pyramid to data management strategy. I got to work on a series of exciting acquisitions that were helping us make a digital migration. That would be my precursor digital thread that led up to in November, taking over the full-time initiative of our Emerson Ventures.
Michael: Hi, Thurston, Mike Dolbec here. Thanks once again for joining the podcast. Emerson, of course, made this huge splash with the majority position you took in AspenTech. What inspired you to make that move? How has it worked out so far?
Thurston: The transaction closed on May 16, so it's fresh, but it's been very well received. Emerson's now a 55% owner in a new AspenTech that remains a NASDAQ-listed company. We contributed to our transmission and distribution, digital business, OSI, and geological simulation software business. It gives us access to an industry-leading software company with immediate scale and relevance in a fast-moving, evolving market- which is very exciting for us. We see great synergies working with Aspen; as announced, we're calling for an enhanced commercial partnership to bring both sides of the two great companies together. We think it will be a great platform for our future digital investment and M&A.
Ken: The transition from the M&A side to the ventures- you guys recently formed Emerson Ventures. What inspired you to establish that, and what is its purpose?
Thurston: Before forming Emerson Ventures, we did dabble in venture investing when I was purely doing the corporate development and M&A work. We saw it as a powerful tool for what we have coined 'access to innovation.' What that means is that there is great new product development and other initiatives to build organic technology innovation within Emerson. But the access you can get to that innovation DNA by working with early-stage startups in relevant technology areas has multiple benefits. After seeing the success of some of our one-off venture investments- when we had a change in leadership last year with Lal Karsanbhai taking over as our CEO and Ram Krishnan, our Chief Operating Officer, I was asked to develop and articulate a thesis that we could do venture investing on a more full-throated effort.
We came up with a proposal that was very appropriate for Emerson's culture, approach, and management process- one that recognized the need for close collaboration between our business units and the companies in which we invest, and we came up with something we call the Emerson Ventures Value Creation model. There's a great opportunity if we can execute that model correctly to capture a lot of value for ourselves and help create a lot of value in early-stage, highly relevant companies to us. The way we go about it is- with every Emerson investment comes the commitment of a relevant Emerson business and the dedication of a subject matter expert from that business to do a deep dive engagement on a long-term basis with the portfolio company. Through that engagement, we seek two things; one, we seek to put our thumb on the scale of the portfolio company's success by bringing Emerson's resources, perspective insights, and guidance to the portfolio company, but on an informal basis. We let that occur organically; we don't try to force anything. At the same time, we seek for that person who serves as our emissary to the portfolio company on an advisory or observer board level to come back to their organization and share the observations and insights, and understandings of threats, disruptors, trends, adjacent markets that is the thesis behind much of corporate venture.
Michael: Thurston, that's a very insightful answer; I want to follow up on this. You just mentioned the access to innovation imperative previously. I smiled when you said value creation because I think that's the real secret to corporate venture capitals- making sure you land impact. I think you just ticked off several very thoughtful things about preconditions that you set up so that the impact happens. Can I peel the onion a little bit? Do you have a way of measuring downstream what the impact was? It usually starts subjective, but does it eventually become something you can measure. I know every corporate group I've been part of struggles with this one. I'm curious what your experience has been.
Thurston: Your question is, how do we measure those intangibles to bring those innovation insights back to Emerson?
Michael: If you do- of course, it usually isn't tangible at first; what do you count? As it becomes more tangible someday, what do you count then?
Thurston: The quick answer is we don't have a metric for strategic return. Yes, strategic return. But at the same time, I can look at our portfolio. I could give you a case study of every company in which we're invested and tell you how we have put our thumb on the scale, are actively engaged, and created value. One of the best stories we have- we participated in a very exciting OT cybersecurity company called Dragos. We got on their- Series B. We thought that this was an area where we needed more exposure. We need to understand where companies like Dragos are going due to its highly relevant connection to what we do and the power, water, and other sectors. But we had no roadmap for how we would add the value of Emerson to Dragos. It took us over a year of serving on their advisory board and having that just organic interaction with Rob Lee and his team to figure out that this would be a good product to integrate into the Emerson Ovation DCS system for power and water. By the time we participated in their Series D last year, I believe we were their number one OEM reseller, which was never part of the plan. We never negotiated any commercial agreements associated with our investment; we never would do that. But what we would do is allow for that organic, natural evolution of us understanding the portfolio company, the portfolio company understanding our needs- because, at the outset, we determined that it was of a high strategic value, that's how it became an extremely successful partnership.
Michael: I got it, that sounds- totally rational and very familiar. Each investment has no standard playbook that you can always run with. It's a situational thing that evolves over time and presents itself as an opportunity. Then it's either something that your company wants to execute or not, but it sounds like a very organic process.
Thurston: To that point, we are very systematic and work with our businesses before we invest. Even though the investments are made at corporate held at corporate, I am not out there playing Warren Buffett or trying to win the lottery for us on make or break, high risk, high return investments. When we go about it, what we do is we start with two things that the business and I sit down and do together. One is a uniform score carding system, which is the second gate after they determine that there's a potential high strategic relevance. The scorecard system, which has both a quantitative and a more important qualitative component, requires the business to articulate the strategic rationale and other points such as technological advantages, competitive advantages, market, etc. Once we like what the scorecard process tells us, we then create a very in-depth strategic rationale deck largely led by the business units in support of the investment. That really articulates what the vision is and what it could be if it's early stage and not known yet. We do that with an eye toward- in every instance, could this technology, could this company, help Emerson deliver a better solution to a customer in the future? That's the litmus test behind the development of the strategic rationale.
Michael: Got it. Thank you.
Ken: Thurston, remind me what you consider the ideal investment in terms of sector, location, company stage, investment stage, etc.
Thurston: We developed a very clear vision of where we wanted to be. It was based on and matched our overall portfolio positioning strategies. If I had to put it in three main buckets- we would call it disruptive, discrete automation solutions. These are such things as sensing machine vision robotics. The second category we look at is industrial software, enterprise asset management, field service management, and manufacturing execution systems. The third would be sustainability with a heavy focus on electrification, transmission and distribution, the tie-ins to our power and water solutions business, OSI business, environmental testing, and certain opportunities related to carbon capture hydrogen. Those would be the three main buckets that fit well with our businesses. Then, we look across all three of those main pillars for enabling technologies: cybersecurity, analytics, artificial intelligence, and machine learning.
Ken: Along the same lines, what about the stage? What stage would you consider to be an ideal stage for you guys?
Thurston: Our sweet spot is that Series A, that first price round that an early-stage company is doing, they've gotten past their Series C, they've gotten some degree of commercialization. We liked the Series A because we feel that under our thesis and approach, where we're trying to be a value-add strategic- we can deliver the most value and have the most impact at that stage. We will certainly also look at a Series C, and we will certainly enter at a series B, but that A is our sweet spot. Once we're invested, we take a long view; we look to be a partner throughout the funding lifecycle of a company, so when we invest, assuming everything's going to plan, we want to be there and participate in our pro-rata through each subsequent round.
Michael: Thurston, following on the point you just made about Series A being the optimal place you'd like to join, because Venture Capital is generally a team sport, and you syndicate risk with others, how has your thinking evolved? Which other investment groups do you collaborate with? For instance, when you joined Dragos, they were unfamiliar with that company's history; there's a syndicate that you were joining. I think about other corporate Venture Capital firms as well as institutional firms.
Thurston: Under our approach, we love to partner with top tier financial VCs who have seen the best opportunities early stage, who have the expertise and pricing, those who have the expertise and serving on fiduciary boards, serving on compensation committees- deciding what the employee option pool should be recharged to at each round. That's just a level of expertise. That's a level of bandwidth that we don't have within the Emerson Ventures arm. We like to come in if we can find top-tier financial VCs that lead rounds. We want to articulate our value-add proposition, which we find in touch with industrial technology to be a compelling message to financial VCs. Our desire to put our thumb on the scale help the performance. Add that subject matter expert to the advisory or observer board and look at ways that, if the path exists, how can we incorporate this technology into Emerson solutions? That's our first approach. Our second approach is about other corporate venture arms; we greatly enjoy partnering with the CVCs of our customers. Before COVID, I went to Germany and had a great series of meetings with BASF Ventures. We've had a great relationship with Shell ventures. We see a very good opportunity, even though one hasn't come to fruition yet- to partner with our customers' VC arms, and sit at the table with them, look at emerging technology, look at how it could positively affect their business and ours, and what the opportunities are for collaboration around that technology. That, to me, would be an ideal situation that we would love to find whenever the chance arose.
Michael: Great, got it. Let me change gears and ask for a quick, off-the-top-of-your-head answer. Our perception is that every industry has its digital disruptors. For example, Tesla has had quite a prominent effect on the rest of the participants in the automobile industry, and so has SpaceX for commercial space exploration and exploitation. When do you think we'll see such disruptors in industrial and process automation? A friend of ours calls these- "who's the rabbit?" is the question in the sense that dogs chase rabbits, I guess.
Thurston: I wish I had a great answer for the early-stage company that's about to be that rabbit because I would knock on their door tomorrow and see how big a check, I could write them.
Michael: Yeah, me too.
Thurston: Not to sound too self-serving, this is a genuine answer- but when I look at what Emerson is now positioned to do with a leading software company in the industrials process space like AspenTech, I think you're going to see a fair amount of disruption from us. It's a self-serving answer- maybe, but I'm a little excited about what the future holds considering this.
Michael: Okay you are Babe Ruth-ing the answer here. I like it. Thanks.
Ken: Along the same lines, you mentioned how you guys have your thematic setup. I'm curious, what trends or startups are you generally tracking at this point?
Thurston: One of the things that I am most excited about is our emerging presence thanks to the OSI acquisition, which was one of the deals that I got to work on the M&A side about where this macro trend of electrification, grid digitalization, of trends such as demand management. This year, we had an investment in very exciting demand management distributed energy resource company called Virtual Peaker. We see this pretty compelling through-line that goes from generation to transmission and distribution, to the meter to behind the meter, and the implications that that can have for modernization of grids, power networks, and all the positive sustainability elements of that. That's one area where I am extremely excited and see a ton of opportunity, and we're looking at a lot of things right now. Cyber continues to be an area of focus for us. In addition to Dragos, we see things needed for critical infrastructure and OT. We are looking intently at that. Then things like Go Wireless Industrial Solutions have huge relevance to Emerson's business- Edge, AI, ML, and then data solutions. We have a great investment, a German company called Inmation that does industrial information management software. Things that build around those ecosystems are exciting to us.
Michael: Thurston, I just wanted to ask- I applaud the list because those are the same things that excite us. One of the things you mentioned, I want to follow up on. You mentioned cybersecurity; I'm sure you've had great success with Dragos. What do you see in terms of protecting critical infrastructure and the trend toward zero trust? What the federal government seem to be imploring critical infrastructure people to comply to?
Thurston: Yeah, it's interesting. We have in the process of building our network of firms with which we want to work. I don't know if you're familiar with the group out of the DC area called Cyber Capital Partners. They're a VC firm that is a trusted partner of the Department of Energy and some other government-related labs and helping to get some of the technologies from the lab to business models. Through our relationship with them, we realize that there are so many different areas where cyber is headed, especially in the critical infrastructure OT realm that- one of the things we did under Emerson Ventures but in partnership with Emerson's Advanced Design Center, which is a corporate support function that helps us think about technologies as they evolve and what might be over the horizon, we commissioned a strategic technology and innovation management process whereby we're doing a six or eight-week study of various cyber applications that are relevant to Emerson. Then, what are the buckets we want to focus on as we see these investment opportunities arise, and then what areas are we going to jump in wholeheartedly or maybe reserve a right to play or avoid completely? We're in the mites of that process, so it's a relevant question, and I probably don't have the black and white answer for you yet.
Michael: Yes. But it sounds like you're investigating the trend in case there are startups worth partnering with, an innovation worth collaborating on.
Michael: We have an investment in a company called Xage, which is spelled x-a-g-e, so it's hard to find unless I spell it out. I think they're pulling on the same thread. The idea is to well, how do you translate the concept of zero trust into a protecting cyber-critical infrastructure, where the endpoints aren't always PCs and the attack surface has been left relatively unprotected because they're a couple of decades behind in cybersecurity. I'm very familiar with that area, and I'm glad you focused on that.
Ken: Now, as a final question, Thurston, where do you find your inspiration? What are you reading or watching these days?
Thurston: I'm a very avid reader, but a lot of history and biography. Listening to your podcasts and knowing that this is a wrap-up question- I've given it some thought, and I realized both from time and doing acquisitions for Emerson and now leading Emerson ventures, the ability to meet founders and to talk to them and understand what their path and what they've gone through and how they've gotten a business to the point where an Emerson is interested in acquiring or investing. These are some of the most fascinating conversations I'd like to have. I'm a fan of that NPR podcast, "How I Built This." I don't know if you're familiar with that one. It interviews founders, but I feel like, in my day job, I get to do that, even in things we don't invest in, just hearing that management presentation of how it went from idea to the point where we're looking at them, I find that extremely inspirational and probably learn more from those conversations than any other conversations I have.
Ken: We can certainly empathize. One of the most fun aspects of being a venture capital is constantly being exposed to new ideas or new pitches for existing ideas many times. Since you like history, maybe I can offer you a book. I just finished reading something called "The Power Law: Venture Capital and the Making of the New Future" by Sebastian Mallaby. I think it was published earlier this year. It's the history of venture capital, the things that we take for granted in terms of structures and approaches, and even the disruptions from people like Tiger Global and Softbank- a good history book. Given your CBC and VC background, I would promote that as an interesting history that may be interesting to you.
Thurston: I'm writing it down now.
Ken: There you go. Thurston, thank you for sharing this time and insights with us today.
Thurston: It was a real pleasure. Thank you.
Ken: The pleasure- believe me, was all ours, on Mike and I's-
Michael: Yes, thanks.
Ken: This has been Thurston Cromwell, Vice President of Development and Innovation at Emerson and Head of Emerson Ventures. Thank you for listening. Please join us next week for the next episode of our Digital Thread podcast series. Thank you and have a great day.
Connect With Thurston Cromwell
What inspires Thurston:
I appreciate reading and listening to NPR's "How I Built This" podcast series. I can see this in action in my present role, and it's a privilege; hearing how a company began out as an idea and grew into something we get to evaluate is fascinating to me.
About Emerson Ventures
Founded in 2000, Emerson Ventures is the corporate venture capital arm of Emerson Electric and is based in Saint Louis, Missouri. The firm prefers to invest in seed-stage and early-stage companies operating in B2B, industrials, cleantech, cybersecurity, energy, the internet of things, SaaS, manufacturing, and technology sectors based in the United States.