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CEO Spotlight w/ David Johnson - April 2024
Joe D'Cruz, Co-Founder & Managing Director, Catalyze Partners joins KRLD's David Johnson on this episode of CEO Spotlight to discuss Catalyze's model for transforming novel, market-ready technologies from Fortune 100 companies into long-term successful businesses.
Transcript:
David: Seems like over the last, especially, couple of months, we've been reporting a staggering number of spin offs. 3M got rid of their health care unit, it's Solventum or something like that. General GE is split up into three companies. They've got health care and power and aerospace. And part of the argument is the piece is worth more than the whole. But the other thing is these units are very profitable, neat, and they get lost in parts of bigger corporations. Of course, Catalyze Partners used to be Catalyze Dallas has been capitalizing on that for the last several years. We thought it's time to catch up with Joe D'Cruz, the co-founder and managing director of what is now Catalyze Partners. Good to have you with us.
Joe: Thanks, David. Appreciate it.
David: So is that a fair assessment? These sort of little incubators, these little companies sort of grow up inside these big companies
Joe: That's a great analogy.
David: And you take them out?
Joe: Yeah, we do that as well as we help them monetize, you know, most of these companies, G.E., for example, they spend billions of dollars in R&D every year. And so we're able to help them capitalize on that expense by taking either small divisions or technologies that were strategic, that because of shifts at the corporate level, at the senior level, they switch directions. So they've spent money on these assets and we're able to acquire those at a very favorable cost basis.
David: So you do you buy them outright or is there an equity ownership that continues for the mother corporation?
Joe: Yeah, no, no, it's a great question. Most of it is equity based or licensing based. So we're able to pull these companies out and either offer equity in the new company or we give them licensing fees.
David: So, give me some examples. I remember the last time we spoke there was a really intriguing company that had had application in in aerospace, and it was a coating that could be used in like airplanes and missiles. It was lighter and more efficient.
Joe: So yeah, that was Alpine Advanced Materials. It's a company that, Lockheed had developed material for the F-35 for a specific use case. And so, it's a thermal nanocomposite material that we were able to extract. And we pulled that out about 2019 and have since really expanded the portfolio of accounts and verticals that we can go after. So, it's originally designed for military aerospace, and we're now on jets, we're on weapons, we're making high end audio headsets,
David: Really? As an outgrowth of this company?
Joe: It's an outgrowth of this company. We're not the manufacturer and the factory, but our material is such that, it's so unique in the marketplace it actually sits at the pinnacle of your plastics and composites arena.
David: So, let's see with this wood for a better is an example. I know you got several talks of others, but so the idea is that you're going to develop this and then stay with it as an ongoing business. You don't sort of package it up and sell it off to somebody else or have an IPO?
Joe: Yeah, correct. So, what we did was when we first started Catalyze Partners, our thesis was we could extract valuable assets and build long term sustainable businesses, and we could augment that by bringing in different IP from different companies to make it more robust. Our intention was, you know, Tricia and I had both been in venture startups, had done our own deals, and then been in corporate world. We didn't like the model where you had to have a specific time to invest and a specific time to exit. So, we looked at how do we build long term sustainable businesses that could kick off cash as a distribution mode to our investors and then at an optimal point in the future, somebody would come in and acquire the business at a premium to the multiple that was on the market.
David: But there's no pressure to have that done right away.
Joe: Correct.
David: So that's a great example. I love that example that, that company, what else are you working on?
Joe: So, we just did, so, speaking of strategic shifts, you know, IBM a couple of years ago was really focused on SaaS and the cloud.
David: Remind me what that is.
Joe: So they were really focused on SaaS software and the cloud. So real big data infrastructure. A couple of years ago they switched and really focused on quantum and AI. And so they had developed their number one asset in their R&D labs, which they had 19 globally, was a company called Almaden Genomics. It was a bioinformatics company that focused on genome mapping. This is a company that had spent a lot of money on tens of millions of dollars to develop. They had partnered with BCG to get ready to take it to market as their corporate strategy shifted. And so it all of a sudden was left hanging in the air. And we were able to acquire that for a license fee and have taken that company and really driven it over the past 18 months. The big thing in biopharma is precision medicine, and that company actually has one of the first workflows for what they call single cell workflows, where basically you can take one person's DNA and genomic sequence and really fine tune a drug to solve whatever that dilemma is, whatever the disease you're trying to cure. That company has really exploded.
David: And actually, we started learning about some of that during COVID. Yeah, Moderna and some others sort of engineering specific drugs. That's neat. So, you never do mundane stuff like some new technique for glazing donuts, or?
Joe: No, no, no, no. We like industrials. We like light industrials and tech. So, we're looking at a number of new, we have a pretty healthy pipeline of new opportunities, which has been fun. And, you know, one of the things that's kind of unique since we spoke was we're about to be have an article written about us by UC Berkeley. So, you know, they've been doing a lot of study on the venture market and the dysfunction going on there. And they believe there's a new avenue for innovation that they're calling corporate innovation capital, and they're highlighting us as a prime example of this new alternative asset class.
David: Well, then your pipeline is going to fill up, I would take it if it's not already. So how do you do that? I mean, are you vetting these companies? Are you finding the opportunities or are they coming to you?
Joe: It's a combination. So in the beginning, you know, Lockheed Martin was our first partner, so we partnered with Lockheed almost ten years ago now. Actually, the end of this month, it will be ten years. And we got exclusive access to their R&D out of their, what's probably the preeminent R&D facility in the DOD, which is Skunk Works. And since then we've had engagements with Boeing, Textron, IBM, General Electric, etc.. And you talk about General Electric. We're partners with Renova Healthcare and also aerospace in looking at their asset base and their small divisions that don't really fit anymore. So we're getting a lot of traction with our established companies. And because of our success, we're starting to now have other companies reach out to us, top 50 companies going, “Hey, we'd like to understand what you're doing.” And we have a couple of consulting firms like BCG and others that are looking to partner with us, because what we do in the commercialization effort is something that most consulting firms don't do. They don't have operators on staff. So we can actually walk in and take an asset out of a business fairly cleanly and stand up a business almost overnight.
David: Wow. And you do this all from Dallas, Texas, from just the shadows of downtown. Is this where the money is or is this where you choose to be? Why? Why here?
Joe: Well, we chose we're down at Southside in Lamar, down in the Cedars. And we chose that for a couple of reasons. Number one, it's it's a good proximity for our employees to get to. It's a cool building, right? It's, you know, the old Sears warehouse, but it's also down in the heart of, you know, kind of some of the poorest areas of Dallas. And from my days at the Boys and Girls Club, you know, there's a there's a dearth of opportunity down here for kids to see startups. And so we work with Pat Walsh down at Cristo Rey and have their kids working for us as interns, so they get to see STEM in reality, and that's been fun, getting that community engaged, etc. And it helps employees do right because they feel really empowered and like they're giving back, which is obviously important for, you know, certain demographics.
David: And I think it keeps everybody on toes, too. There's nothing like youth running around to shake you up. Well, I can't wait to hear what you're working on next. But you worked on fun things. Joe D’Cruz, co-founder and managing director of Catalyze Partners. Good to have you with us.
Joe: Thank you, sir, very much. Appreciate the time.