BMW is the sole backer but the fund is a distinct unit, not working off the balance sheet. What this means in practice is that Ulrich Quay can pursue solely financial deals, but not solely strategic deals – financial value has to be there. Quay backs the financial focus of the fund, saying the goals are “on par with the top VCs in the valley”. He does not say that lightly, having worked with a different setup from 2011 to 2016 before the organisation was restructured.MW i Ventures is a €500m ($570m) corporate venture capital fund seeking financial and strategic goals in equal measure, aiming to give motor manufacturer BMW insights into the market and future business models, while also acting as quickly and effectively as a financial investor.
“We can see the difference – on the one hand, deal quality, but also the quality of the team. We have been able to hire very good people and have processes that are identical to the processes of financial investors.”
The structure gives Quay and his team full autonomy to make investment decisions, although Quay points out that just because they do not need business unit buy-in, it does not mean they do not leverage the business units for insight and experience. The fund interacts with parent BMW at two levels – a steering committee with the board that meets twice a year, and a more operations-focused committee that Quay calls the “sounding board”, which meets more regularly.
With a dual focus, BMW i Ventures is somewhat technology-agnostic. When asked how he prioritised deals by technology sector as a CVC unit whose corporate parent is an automotive company, Quay said: “We mostly structure deals around financial opportunity.” This seems to be at odds with Quay’s stated 50-50 split between strategic and financial goals. Quay added: “The strategic angle comes in once we see that as an opportunity with a very good financial upside.”
Quay is happy with the structure. According to him, the portfolio is doing “extremely well”, and BMW has exceeded its internal rate of return goals. The UK-based electric vehicle charging company Chargemaster, one of the portfolio companies, was sold to BP in what Quay calls a “very good exit for us”. Quay also points to US-based electric scooter-sharing service Lime as an example of success.
“Lime is growing incredibly – from stealth mode from the beginning of last year to raising a huge amount with a huge valuation in just 24 months. From a financial side it is our fastest mover.”
Strategically, Quay is a little more reticent, as both those deals have strategic elements to them, but both support the fund’s methods and set-up. The deal with Lime, from learning about the round to final investment decision, took just 10 days.
BMW’s dealflow is as one might expect, with a significant exception. The team has, as usual, inbound startups, a network and co-investors that all help to source deals. Quay also points to a system that scans the whole market and publications for investments within BMW’s sector of interest. Quay does not want to be surprised by a series B he has never heard about, so the system ensures the team sees everything, and can move on anything thought to be promising, such as the Lime deal.
Working for BMW puts Quay and the unit in an interesting position, one familiar to corporate investors, as they are supporting disruptors while trying to ensure BMW is not itself disrupted. Quay clearly enjoys being in that position. “I think it is an interesting opportunity for investors because there is huge market opportunity coming up. Me wearing both hats, trying to combine those two is an interesting and exciting task.
“It is a great time to invest in companies. Six to 10 years ago, nobody wanted to work with something automotive. Now lidar [light detection and ranging] companies are able to raise hundreds of millions of dollars, when five or 10 years ago automotive was very unsexy. Now people realise it is a big market opportunity. It is something that excites me.”
The fund has plenty to look forward to. The fund has another two years left in it, and after four years Quay and his team are thinking about raising a second fund. That means making sure BMW is happy to come back in, as well as bringing in other backers. Interest may not be hard to come by – Quay has not found it hard to justify his work with the success the fund has had. He puts a lot of that success down to the fund’s structure, and the work that went in to finding the right set-up. Quay and the team benchmarked the venture capital industry for best practices and standards, and then replicated them.
“If anyone is struggling to get by, I would encourage everyone to do a similar benchmarking study and involve guys from their corporations. That is my advice for anyone who is looking at an expansion or for getting more autonomy. It was surprisingly easy to do it, and BMW was very open to it, because it was best practice.”