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PAO Severstal, one of the world's leading vertically integrated steel and mining companies, is pleased to announce that its subsidiary, Melsonda Holdings Ltd., has invested in Pangaea Ventures Fund IV, LP (“Pangaea IV”). Pangaea IV is managed by Pangaea Ventures Ltd., the leading advanced materials venture capital fund in the world. In parallel with this investment, Severstal has established a new corporate division, Severstal Ventures, to develop venture projects involved with new production technologies and materials. This twin approach – investing in high profile funds and working with start-ups directly – will give Severstal access to innovative technology and projects with high impact potential.
Andrey Laptev, Director of Business Development and Corporate Venture Projects of Severstal (previously its Head of Corporate Strategy), commented:
"Innovative technologies can significantly disrupt the processes, products and business models of global industrial companies. Therefore, it is crucial for businesses to actively monitor breakthrough trends, identify and implement potential opportunities and mitigate any possible risks. This requires a systematic approach. Investments in venture capital funds provide unique access to a vast range of projects. In addition to investment income, we expect to receive value add benefits, mostly through introducing interesting technologies which will enable us to maintain our leading cost position as well as develop unique products. Our focus will be on technologies that are ready for rapid implementation and we will aim to collaborate with these start-up projects at an operational level. This could be done in several ways including, "pilots", licensing agreements and direct investments. We believe that Severstal’s approach is unique to the global steel industry, although it is common in other major industries, such as the energy sector."
A preliminary market assessment has revealed that Severstal will be able to look at a pipeline of more than 3,000 startups a year and in 2018 the Company plans to identify and begin to test at least 30 technologies for potential investment.
Chris Erickson, General Partner of Pangaea Ventures, commented:
“Pangaea is pleased that Severstal has invested in Pangaea IV and chosen it as the first venture fund to work with globally. While the steel and mining industry is traditionally quite conservative, Severstal Ventures has an entrepreneurial team that values new technology. We look forward to working with Severstal.”
"Our ultimate goal is very simple - we believe it is strategically important not only to preserve but also to strengthen our global leadership in cost control. Our target is to achieve at least a ten per cent advantage in the cost of our main products compared to our competitors. This can only be achieved by having access to the best technologies, and being able to implement them ahead of others. In addition, we will look at technologies that will help us develop new products that will enable Severstal to add 5-10% to its market share in certain sectors," Andrey Laptev explained.
Severstal will continue to take a cautious approach to investing. It is expected that the investments of Severstal Ventures will initially amount to no more than $20-25 million a year.
"We also understand that, in order for us to be able to implement innovative technologies in the most efficient way, the Company still has a long way to go in terms of restructuring and streamlining all of its business processes, and our entire team of top managers is currently focused on this,” – Andrey Laptev added.
In addition to the corporate venture investment department (Severstal Ventures), headed by George Gogolev, the new directorate will include a Business Development department that will focus on business model innovations, primarily on the development of downstream, new services and secondary resources processing.