Cultivating entrepreneurs inside BASF

About a year ago, BASF quietly set up a small business incubator in the town of Mannheim, just across the Rhine River from its headquarters and main chemical facility in Ludwigshafen, Germany.

Like other chemical firms, BASF invests in start-ups—often through participation in venture capital funds—to gain insight into new technologies vital to its business interests. Also like others, the iconic chemical maker supports third-party-operated incubators that are open to, for instance, clean-technology entrepreneurs.

The Mannheim incubator, though, is different. Called Chemovator and based in a renovated brick building in an industrial zone, it supports entrepreneurial employees plucked from BASF’s own labs and business operations.

A separate but related venture is trinamiX, a wholly owned BASF spin-off that makes scientific instruments. For the big chemical firm, trinamiX and the incubator are experiments to see if it can tap the creativity of its employees to enter new businesses or create lucrative spin-offs. Entrepreneurial employees with a vision get a chance to succeed on their own, but with a little help from the boss.

Other German chemical makers, such as Evonik Industries and Merck KGaA, also support incubators. Evonik’s “project house” program probably comes closest to Chemovator because it brings company employees together to put research muscle behind promising new product ideas. “But none of them do it the way we do,” says Markus Bold, Chemovator’s managing director. “What we want is a commercial incubator, not a technical incubator.”

“We look for people who are driven by a belief in technology but who don’t fit into BASF’s organizational structure,” Bold says. “BASF is great at building its core operations, but it doesn’t do as well dealing with disruptive new businesses.”

For would-be entrepreneurs working the daily grind at their corporate jobs, Chemovator is a “safe harbor,” Bold says, where they have up to 2 years away from their regular jobs to develop a new business while continuing to enjoy the financial support and security they are accustomed to as BASF employees.

To find its tenants, the incubator invites teams of two to three employees to pitch their ideas for new businesses at an event held at Chemovator every 3 or 4 months, says Incubator Operations Manager Lisa Schneider. If a single person comes to the incubator with an idea, “we will support that person in finding a team,” she says.

Teams must pass a two-stage qualification process. Chemovator judges, including business experts who do not work for BASF, listen to 10 min pitches from teams and then question the teams for 30 min. Those who clear that stage have 3 months to develop a more comprehensive plan. At that point, a team must pitch its improved concept and win the backing of Chemovator judges to gain another 21 months of BASF support for building its new business.

Business units have the option of nixing their employees’ hiatus at Chemovator. “It’s not easy for units to let people go. But we negotiate on the employees’ behalf to make their participation happen,” Schneider says.

Chemovator asks business units to cooperate in other ways too. Since Chemovator provides only office work space, the business units sometimes provide lab space for team members to advance product development. Teams may also work with academic labs, Schneider says.

The 2-year process does have a fail-safe mode for employees. “At any time, the teams can elect to go back to their old job,” Schneider says. Chemovator judges can also end a team’s efforts if they decide the project isn’t going to work out. Chemovator is trying to instill “a positive failure culture at BASF,” Schneider explains. Even if they fail, “team members still learn valuable innovation skills which they can bring back to their business units,” she says.

Chemovator has 450 m² of space to accommodate up to 12 teams at a time. Nine teams are now in residence—5 that are in or are about to start their 3-month trial phase and 4 that are forging ahead for the longer term. Chemovator advisers terminated 2 teams that failed to advance on their plans. Bold, the director, says 45 teams to date have presented their ideas for funding.

Bold would not say what Chemovator costs to operate. “We are a service group to the organization. We don’t see the money,” he says. The incubator places no restrictions on the types of ideas that teams may present, he notes, and Chemovator itself “is not aligned to BASF targets.”

Among the ventures now in residence at Chemovator are Sustragil, which is developing a formulation management software tool to support chemical product development; Teraktis, which is developing software to help builders with the construction process; and Contreed, which is developing new methods to control weeds, water evaporation, and soil erosion.

Another venture, FaCELLitate, is developing a synthetic polymer for use in cell and tissue culture. Véronique Schwartz, one of three FaCELLitate team members, says pharmaceutical and biotech firms need a consistent and reproducible cell culture medium with longer shelf life than the media now in use. A researcher with 5 years at BASF, Schwartz has a PhD in polymer science and no business experience.

Schwartz had developed a basic formula for the medium in a BASF lab and thought about what it would be like to further develop and commercialize the medium through a start-up. But then her boss told her about Chemovator. Now, she’s getting the start-up experience she says she hoped for—including researching competitors and reaching out to potential customers to see what their needs are—without the possibility of financial failure that often goes with it.

FaCELLitate might end up back inside BASF, Schwartz admits. “But strategically, it may be better to spin it out of BASF. It’s not a core business,” she says. Bold says four incubator residents are “spin-in” candidates, four are potential spin-offs that will hopefully attract angel investors with Chemovator’s help, and “one we are debating.”

One of Chemovator’s external advisers, Klaus Schollmeier, is an angel investor, adviser to venture capital firms, and former head of a number of biotech start-ups, including SuppreMol, which Baxter International acquired in 2015 for $225 million. “A lot of good ideas starting out in big companies just don’t get developed because they don’t fit into the company’s portfolio,” he says. That’s an opportunity not only for entrepreneurs but also for investors.

For those companies that do spin out of Chemovator, financing prospects should be good, Schollmeier says. He calls Germany a mature start-up market where money “is reasonably available” from sources ranging from small angel investors to large venture capital funds able to invest $100 million in mature start-ups.

According to the financial data-crunching firm PitchBook, venture capital funds poured $3.8 billion into 385 German start-ups last year. But chemical and pharmaceutical firms got only a small part of those funds. Of 1,397 firms the German Startups Association surveyed in its 2018 German Startup Monitor, only 2.7% were in chemicals or pharmaceuticals. Most were in the information and communication technology sector.

As for where graduates from Chemovator could end up once the first group completes 2 years at the incubator, they might look across the river to a modern industrial complex in Ludwigshafen that houses BASF’s trinamiX subsidiary.

Ingmar Bruder, the firm’s founder and managing director, says trinamiX is an example of how BASF is investing “creatively” outside its core petrochemical business.

Discoveries in Bruder’s lab led to the development of optoelectronic materials capable of making 3-D measurements through a monocular system. Called XperYenZ, the system can, for instance, replace 2-D fingerprint scans to unlock phones. Bruder’s lab also developed a chip-sized infrared sensor, called Hertzstück, that may be used in smartphones to measure such things as fat in foods or skin moisture to aid in cosmetics selection.

The start-up is rare in that it was launched and entirely supported by BASF, Bruder acknowledges. With that status it gets a deep-pocketed parent that, so far, has invested “double-digit millions” of dollars in its offspring. trinamiX will have about 100 employees by the end of 2019, up from about 80 at present.

Also by the end of the year, trinamiX will occupy 4,400 m² of space, up from 2,800 m² now. It holds 70 patents and expects to break even within 2 years.

“BASF could ultimately sell us or reincorporate us into their portfolio. They are patient but have high expectations,” Bruder says. Like the entrepreneurs at Chemovator, trinamiX employees have a shot at realizing business success they could not have experienced if they remained firmly in the BASF fold. Meanwhile, BASF gets to harness a start-up culture to access business opportunities far beyond its petrochemical foundation.