Nike Betting on Venture Capital in Effort to Step Up Innovation
Nike Inc. (NKE), the world’s biggest sneaker company, is taking a page from Silicon Valley’s playbook in an effort to cut production costs and foster a new generation of green-technology businesses.
The company is setting up a venture-capital offshoot called the Sustainable Business & Innovation Lab to back startups focused on alternative energies and more efficient approaches to manufacturing. The lab also will seek out companies that promote healthy lifestyles, according to a description on Nike’s site.
Nike is counting on innovation to help it cope with the economic slump and supply constraints. The Nike Free, a lightweight running shoe, helped boost sales 18 percent to $6.08 billion last quarter, topping analysts’ estimates. The company also has sought ways to lower expenses amid rising costs for raw materials, labor and transportation.
More companies are working on these kinds of projects, said John Taylor, head of research for the National Venture Capital Association in Arlington, Virginia. In the past, it was mainly technology and pharmaceutical businesses starting venture arms, he said. With research budgets getting cut, a wider range of companies are now looking to startups to help them maintain their innovation.
“We are seeing consumer companies looking at venture capital,” he said. “They feel there’s an opportunity to look for fresh ideas.”
Early Stages
Nike declined to say how much money it will devote to the project. The effort is in its early stages and hasn’t made investments, which would need to be approved by management, said Mary Remuzzi, a spokeswoman for the Beaverton, Oregon-based company. “Leveraging innovation in sustainability can be a vehicle for growth,” she said in an e-mail.
The risk is betting on companies that don’t pan out. In 30 percent to 40 percent of cases, investors lose most or all the money they put into startups, according to Shikhar Ghosh, a professor at Harvard Business School. Seventy to 80 percent of the time, investors don’t get their projected rate of return.
Nike’s lab will primarily make equity investments in young companies focused on alternative energies. It will also finance partnerships with government and nongovernment organizations, according to the company’s website.
By pursuing new sources of energy and sustainable production, Nike may be able to make its products more cheaply. It also helps the company appeal to environmentally minded customers, furthering an effort already under way. Last year, Nike introduced soccer uniforms that use recycled polyester made from plastic bottles.
Online Exchange
In 2009, Nike helped start an Internet project with Best Buy Co. called GreenXchange that promotes sustainability. The idea is to let patent owners collaborate online to find more eco-friendly ways of doing business.
Nike has tapped venture-capital and private-equity managers to run the new operation, including Avi Sahi, who was hired last December after working at the buyout firm Perseus LLC. John Hull, a long-time venture capitalist, also is working as a partner. He previously served as managing director at Marquam Hill Capital LLC and Intel Corp. (INTC)’s venture arm, according to his LinkedIn profile.
Nike is considering adding more staff to the effort, including a principal to evaluate investment opportunities and conduct exploratory research, according to its website.
The company isn’t the only sneaker maker pursuing venture- capital investments. Adidas AG has backed Hydra Ventures, a fund started this year to focus on creating new consumer brands in apparel, footwear and sports-related areas.
The rivals are following in the footsteps of technology giants such as Intel. Its venture-capital division, Intel Capital, has invested more than $9.8 billion in more than 1,100 companies since 1991.
To contact the reporters on this story: Olga Kharif in Portland at okharif@bloomberg.net; Matt Townsend in New York at mtownsend9@bloomberg.net
To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Robin Ajello at rajello@bloomberg.net
Nike Bets on Venture Capital in Innovation Push
Jin Lee/Bloomberg
Nike sneakers are shown at the Niketown store in New York.
Nike sneakers are shown at the Niketown store in New York. Photographer: Jin Lee/Bloomberg
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