Hitachi Ventures, the Germany-based corporate venture capital (CVC) vehicle formed by Japan-headquartered industrial and electronics conglomerate Hitachi, is considering launching its next fund this year, CEO Stefan Gabriel told Global Corporate Venturing.
The corporate formed Hitachi Ventures in 2019 with $150m in capital and a brief to fund disruptive technologies capable of integrating with Hitachi’s products. It announced a second fund in October 2021 with an added emphasis on environmental and healthcare technology.
The unit’s umbrella approach means a third fund could be on the horizon soon with a more diversified approach and a greater emphasis on what it calls New Frontiers: innovative technologies not yet on Hitachi’s radar, but which could be important in future.
“Our focus will change slightly with Fund 3, which we are already preparing and which could start soon,” Gabriel said. “We will concentrate on healthcare and the environment to the same degree, but maybe add IT and digital services, industrial automation, mobility and New Frontiers, which together represent almost the complete business portfolio of Hitachi.
Hitachi Ventures typically invests between €2m and €5m ($2.2m to $5.6m) per deal, with a limit of €20m per company, or 15% of each fund.
The vehicle participates in deals across Europe, the United States and Israel, and its portfolio leans towards digital technology. It celebrated its first exit in July 2021 when genomic analytics software provider Sophia Genetics floated in a $234m initial public offering.
Corporate venturers and VC investors in general are used to a longer fund cycle, but Hitachi Ventures’ first fund is now fully allocated – excepting cash reserved for follow-on investments – and it plans to steadily add capital to its reserves whether or not it is through a formal vehicle.
“We have an umbrella structure and separate funds – not one big fund – so we can be agile and flexible to react to global challenges, strategic needs and growth opportunities for Hitachi Group,” Gabriel said. “We review the corporate strategies year by year, so we prioritise and adjust the focus of the funds according to needs and opportunities.
“Environment and health technology now needs a bit more support and will be the main focus for Fund 2. For the next funds, the focus will be slightly widened and adjusted for strategic reasons, but each will be provided with similar funding.”
In addition to providing funding for startups, the unit is tasked with seeking out collaboration opportunities with Hitachi’s internal business activities, in collaboration with Hitachi’s Japanese CVC team, and is responsible for up to 50 a year.
The overall thrust of Hitachi Ventures is very strategic, and the team is in close contact with Hitachi’s top executives on a weekly basis, with its discoveries informing the parent company’s approach.
“So, we have a strategic discussion with corporate, R&D, or with the business units about why we should invest in a space right now that could be a multibillion business in 10 years’ time,” Gabriel said. “That is the valid innovation discussion where we can contribute.
“We offer a kind of strategic innovation advisory to all business units. On the other hand, we are a startup investor and that is a different mindset, and it differentiates us from other, purely VC-oriented investors or even CVCs.”
The model is one Gabriel believes will become more widespread as businesses seek more exposure to cutting-edge technologies that can in turn influence their internal research and development.
“I discovered there is a trend for more and more corporates to become more strategic, because the benefit for a corporate is not the multiples that you generate out of your investments, it is the learning and the growth potential in identifying which area to go and what will be the digital service businesses of the future,” he said.
“The world is changing very fast and big corporates need to speed up to some extent and welcome startup partnering and collaboration. The need is not only to acquire new technologies but about insights into new business models, and developing and hiring talent capable of new expertise, contributing to and growing corporate businesses.”
Photo of Stefan Gabriel courtesy of LinkedIn.
