In your role as CTO and president of GM Ventures, do you think is important to have responsibility across internal and external technology?
Each corporate venture organisation should identify the best approach that suits its industry and the company’s objectives. In other words, the best set-up for GM Ventures may not be transferrable to another industry or company. For General Motors, we decided to organisationally align GM Ventures with our product development and research and development (R&D) functions to provide an integrated approach to developing technology, whether it originates inside GM, with automotive suppliers or with startups. Having this type of integration also helps create opportunities for our own experts to collaborate with startups to help them commercialise their technology.
Investing in startups is part of our overall technology strategy. I believe there is a technology arms race going on in several industries. Certainly, that is true in automotive. So, more than ever, development of advanced technology will be critical over the next five to 10 years. But, unlike the past, some of the most significant technology will be developed in completely new areas and by companies that are new to a particular industry like automotive. So, having a venture activity with access to fast, nimble startups that can be sources of breakthrough technologies is important for companies to innovate and drive growth.
What are your focus areas?
Technology is changing rapidly across a number of areas so GM Ventures has identified five major technology focus areas that we use to scout companies globally:
- Automotive clean-tech – Technologies related to propulsion, including electrification, of the automobile. That would include technologies like batteries, electric motors, power electronics, advanced internal combustion engines, fuel cell technology and emission controls.
- Infotainment – Technologies that are at the intersection of the automobile, consumer electronics and the cloud. That would include technologies related to human-machine interface (HMI), voice recognition, cloud services, integration of personal devices among others.
- Advanced materials – Technologies that provide efficiency, performance, cost, mass or environmental benefits to the vehicle, including lightweight materials, eco-friendly materials, joining technology and materials with phase changing characteristics. In other words, the kind of materials that cars and trucks of the future will use.
- Other automotive-related technologies – Technologies innovations that address unmet consumer needs or solve technological challenges for GM. A specific area of focus in this area is sensors, processors and memory that enable autonomous driving, active safety features and improve the functionality of automobiles.
- Value chain and business model – Companies that are developing alternatives to the traditional automotive business model and opportunities to leverage our technology and assets to capture upstream or downstream revenue opportunities from our core automobile business.
Of course, there may be automotive-related innovations that do not neatly fit in any one of these categories. So, we do not let this restrict our focus to only these areas.
Give a brief introduction to GM Ventures.
GM Ventures was launched in July 2010. The intent is to boost GM’s ability to innovate by leveraging next-generation automotive-related technology that is being developed by startup companies and create a competitive advantage for our core automotive business as well as developing new businesses. We make direct investments in startups that are developing technology that has a longer-term horizon to maturity – greater than three to four years. Venture capital is a proven mechanism to develop early-stage technologies and bring them to market. So you can expect that we will develop a lot of new technology that is sourced from startup companies in the years to come.
We have made investments in startups in the US, Europe, Israel and Asia. So, we are not zip code investors looking only to invest in companies that are within the US. We are also stage agnostic, although we tend to favour later-stage venture-backed companies because technically and organisationally they have a greater level of maturity and are better able to work collaboratively with us or one of our automotive suppliers. Finally, a venture capital activity shows GM’s commitment to develop new technology, but more importantly, it shows that GM is looking outside itself for fresh ideas.
What type of venturing process do you use?
GM Ventures is a separate legal entity with GM as its sole limited partner [investor]. As a result, it is not necessary for us to formally create a fund. Rather, we establish a target each year in terms of the total amount of funding to be deployed and fund each investment from the company’s balance sheet. The most important concept is putting money to work but to do so wisely. So, the quality and impact of investments we make is more important than fully investing to an established annual target.
How do you govern the internal and external spend, and do you see the trend moving in a particular direction?
The budgets for R&D and GM Ventures are set separately. Over the past several years, the amount of funding for each area has not changed dramatically and I do not expect that it will going forward.
What are the typical annual external investment, investment size and current order of magnitude of investments?
Our investment policy, or style box, is as a minority investor, defined as having between 10% and 20% of the fully-diluted equity of a company. We are interested in access to a technology, not control. We invest with the objective to be the first automotive customer to a startup company. As a result, our focus is to identify companies where we have a reasonable confidence that we can incorporate a startup’s technology in our products or manufacturing process. In fact, we often concurrently execute co-development agreements with a start up to use our resources to help them commercialise their technology. An initial investment could range between $1m and $10m. The total cumulative funding will depend on whether a startup is working on a technology that is less capital intensive – software, for example – and will therefore have fewer, smaller rounds, or whether the startup intends to manufacture a product at high volume, which will be more capital intensive and require greater funding and more rounds of investment. Each startup has a unique set of circumstances that we take into account.
Give an overview of members of the team.
GM Ventures is headquartered in Detroit, Michigan, with a core team of seven people, including myself, that identify and develop potential investments. We also have support from other functions like legal and finance that support GM Ventures, so the total number people is quite a bit larger than just the core team. Most of the group is located in Detroit, although GM R&D has offices in Silicon Valley and Israel that scout companies to support both GM Ventures and our R&D organisation. Many of our core team have engineering backgrounds combined with a business degree. However, we also have recruited people from outside GM who have an investing background. Generally, we try to maintain a balance of experience and skills, rather than only focus on a single employee profile.
Is the team on standard corporate packages or venturing incentives?
Everyone on the team is aligned to corporate compensation ranges. We have not found that to be a problem and it makes rotating people in and out of GM Ventures relatively straight forward.
How do you measure the financial and strategic performance of your investments?
The simple measure of our success is that the companies we invest in today have technology that winds up in the GM vehicles of tomorrow, generating greater sales and better profitability. Some technologies, particularly those that reduce cost or completely replace an incumbent technology, are easier to quantify in terms of their potential impact. However, we do not get overly fixated on trying to precisely quantify the strategic value of our portfolio because so-called super scoring models often require forecasting years into the future and to a level of precision not particularly useful or accurate. We typically evaluate financial value of our investments as the cash-on-cash return, although we have also looked at other return metrics.
Illustrate what you have described with an example of a recent investment or collaboration.
We made an investment several years ago in a startup called Powermat which had technology for inductively charging small consumer electronic devices. We were relatively sure that Powermat’s technology would work in cars, but Powermat did not have the experience, manufacturing capability or financial strength to develop the system. In addition, the technology would have to be integrated into other components of the interior. So, we created a three-way collaboration between Powermat, a couple of very capable automotive suppliers and GM engineers. The Powermat technology is now in production on a number of GM vehicles. We have done the same type of collaboration with other portfolio companies. The point is, we do not close an investment and then wait to see if a startup is going to be able to break into automotive. We actively support them to the maximum possible extent with our own GM experts, facilities and suppliers to drive the commercialisation of their technology.
Lauckner will be presenting at the GCV Academy – Investment and VC Partnering Masters programme on June 1 in London. Full details at www.gcvacademy.com