Today’s world is built on mobility. But getting to the future faster is fundamentally shaking the transport and logistics sector that underpins the delivery of goods and people, leading to unusual corporate venturing partnerships.
Historically staid companies that have relied effectively on the same technologies and business models for decades are looking again at their roles and how technologies help carry them out.
Ecomobilité Ventures, a €30m ($40m) corporate venturing fund set up in November by four France-based companies – train operator SNCF, phone operator Orange, car maker PSA Peugeot Citroën and oil major Total – represents the range of different groups meeting in the sustainable mobility sector.
Fabienne Herlaut, president of Ecomobilité Ventures (see profile), in a Harvard Business School case, Investing in Cities of the 21st Century: Urbanisation, Infrastructure, and Resources, said: "Mass transit is becoming customised transit, customised to match the user."
She added: "Instead of moving people from station to station, a more relevant paradigm is moving people from door to door. To this end, SNCF is launching a number of partnerships with innovative startups, providing them with funding and market access.
"Today’s world of mobility requires partnerships. Competitors have to work together in innovative ways. The winning partnerships will be those that create the most giant and innovative transport systems."
The limited partners (investors) that committed to Ecomobilité Ventures typify how companies from different industries are looking at corporate venturing to defend their traditional business or to expand into new areas for their products and services, or apply their skills to a related, growing sector.
From roads to shipping to air travel, usage is expected to increase, with scheduled passengers on commercial aircraft worldwide climbing by about 10% to nearly 3 billion between 2010 and this year, according to the International Air Transport Association.
However, with more than 90% of all transportation fuel coming from oil, according to the International Energy Agency’s latest World Energy Outlook, and with the price of oil at record levels in the past few years, transport companies’ corporate venturing units have been investing in alternative fuels and vehicles.
Russian state investment company Rusnano and venture capital firm I2BF Global Ventures came into South Korea-based Hyundai Motor’s portfolio company Nesscap Energy, which makes energy stores called ultracapacitors.
Japan-based Honda has also backed fuel cell maker ACAL, having committed to a managed account run by external managers Atrium, while industrial groups, such as UK-listed GKN, have begun corporate venturing as a route into the transport sector.
In June, GKN invested £5m ($8m) in Evo Electric and formed a joint venture to develop, manufacture and sell a new generation of electric motors for cars and vans.
Volvo Technology Transfer (VTT), the corporate venturing unit of Sweden-based truck maker Volvo, in the past year sold its share of Transic, which designs, develops and sells silicon carbide transistors for various applications, including the growing market for hybrid vehicles, to US-based company Fairchild Semiconductor.
Johan Carlsson, head of VTT, which pursued only exits rather than investments last year, said: "We are careful in taking lead positions as we are in an industry that is resource intensive. It is also an industry that for the past 80 years has been basically the same and now is undergoing changes to electric, connectivity and so converging with the power and electric industries."
He also said Asia and China were "extremely important" for the vehicle industry and VTT would be trying to expand into Asia this year, either investing directly or as a limited partner with a local venture capital (VC) firm. China’s market size and lack of fossil fuels is encouraging the state to try to leap to the next generation of clean technologies and renewable energy sources by bringing in entrepreneurs from around the world.
In September, US-based Boston-Power raised $125m for its next lithium-ion battery plant in equity, government grants, low-interest loans and related financial and tax incentives from China after failing to win a $100m grant from the US government. It subsequently garnered a further $30m from VC firms GSR Ventures, Oak Investment Partners and Foundation Asset Management.
Christina Lampe-Onnerud, founder of Boston-Power, told news provider Technology Review, published by university MIT: "We are going against Goliath – [traditional battery makers] Sony, Sanyo, Panasonic, LG and Samsung. You need very large partners, [but] Boston-Power is partnering now with very large Chinese automotive companies.
"Panasonic will remain one of the biggest battery companies in the world. No question. They have fantastic research and development (R&D) facilities. Japan will remain a player. Korea will absolutely remain a player. But China is entering in a big way. And China is doing something that is so cool. It is inviting players from all over the world to be in their sandbox. China will be a force. No question.
"As a citizen of the earth, if you want to use that term, I am feeling very, very good, because China really needs this clean technology. They are hungry for this technology, and they are innovating around it."
But innovating in China means state control of foreign investment, and the occasional idiosyncrasy, such as the local cigarette maker that began venturing to make the Maestro car based on a former Rover model. The latest, 29-page list, published on the website of China’s economic planning agency, outlines sectors where foreign investors will be encouraged, restricted or barred, with foreignfunded automobile factories one of the unwelcome areas, according to newswire Reuters, given the success of domestic manufacturers Geely, Chery and BYD, among others.
As trade paper China Car Times said about the visit of TV show Top Gear to review its car makers: "Chinese cars are not exactly on a par with BMWs, VAGs [Volkswagens] or Peugeot Citroëns at the moment. They are getting there and, giving it a few more years, we will see some major [successes and improvements] in key areas – engineering, design and marketing."
Jon Lauckner, head of US-based General Motors’ corporate venturing unit, rated most influential in the sector (see table), said its decision to launch GM Ventures in June 2010 was a way for it to keep ahead of the technology trends and make sure the company was able to utilise them first (see January 2010 profile for more).
He said: "There really is remarkable technology out there and GM Ventures has convinced us there is a way to do venture to give access to a wider range of technology than GM could do or fund by ourselves or from our tierone suppliers.
"We had five sectors at the outset – clean-tech, infotainment, advanced materials, other auto tech and value chain business models, such as RelayRides. We tried to pick sectors that will see the most technology innovation over the next five to 10 years and with key leverage points for business.
"We are pushing the bow wave and have done as well or better than expected, with 12 portfolio companies and another six to close in the first quarter of 2012.
"As we are doing interesting things with technology we are getting referrals from top-tier VCs. But success for us is still looking at what we do and how corporate venturing can change the trajectory of technology at GM in the next generation of autos over the three to five-year horizon.
"That said, some portfolio companies are already being used for current generation, such as Powermat that could be in cars by the third quarter. We are also joining up portfolio companies with peer-to-peer car share RelayRides using the Onstar box that is easy to be used by any GM vehicle."
Other vehicle makers, such as Germany-based BMW’s $100m i Ventures unit, have followed GM Ventures’ launch.
Volkswagen is considering whether to relaunch its programme – see January 2011’s feature for a review of why its previous programme failed – having hired a consultant, and key Daimler staff have also been visiting the Silicon Valley in the US to test the appetite for a similar programme following an investment in electric vehicle maker Tesla, while Ford should open its Silicon Valley office this month.
However, while the market for hybrid electric and oil-powered cars rises with higher fuel prices, the overall market for electric vehicles is nascent.
In November, electric bike maker Ultra Motor filed for bankruptcy administration in the UK and sold its subsidiary, Ultra Motor Taiwan, to a group of European private equity investors. Russia-based financial conglomerate Alfa had been a backer of Ultra, while in the US search engine Google’s philanthropic investment in three-wheeled electric car developer Aptera closed down due to an inability to raise funds from private investors.
But in other transport areas, too much capital from venture-type investors has come in.
Kenneth Koo, executive chairman of Hong Kong-based Tai Chong Cheang Steamship, in an article for the local trade body, warned: "The last three years have seen our shipping industry go through the most incredible and unprecedented transformation ever. From a specialised industry focusing on the safe and reliable transport of seaborne cargoes, which demanded a down-and-dirty hands-on approach, [it has become] a glamorous commoditised and very sexy business.
"Shipping has undergone a huge change. Like the one-cell amoeba, shipping has split into two. The ship has disengaged from shipping … that has become a speculators’ heaven where hedge funds, venture capital equity, tax shelters, shipping initial public offerings and the like come in and order new ships at a frenzied pace equal to any property bubble in any major city around the world.
"And this includes speculating in shipyards which, in China alone, has perhaps tripled our motherland’s shipbuilding capacity."
The growth of shipping through globalised economies has affected global logistics firms already dealing with e-commerce (see innovative region for its impact on major trade routes that go through the Panama Canal).
Postal companies, such as the UK’s Royal Mail and France’s La Poste, have either set up a corporate venturing unit or have been fundraising for subsequent vehicles as they look for technologies that could offer new revenue streams to replace falling numbers of letters even as e-commercedriven delivery of parcels continues to increase.
Payman Saebi, head of the Royal Mail venturing initiative, who left at the end of last year to become head of strategy at phone operator BT, said the unit had set up an entrepreneurs-in-residence programme for logistics (Royal Mail), retail (Post Office) and Parcelforce.
Saebi said: "The Hooper report [into UK postal services] said we needed to look for new revenues, not just new technologies, as email means online bank statements and fewer letters, but parcel delivery is growing rapidly through e-commerce."
With China having more than 600 million internet users and a thriving e-commerce sector, a number of successful local companies are building their logistics venturing.
Online auction company Alibaba Group made investments in Stars Express and Best Logistics in January last year, committing $3bn to $4.5bn to construct a logistics system. Alibaba was followed by e-commerce peers 360buy.com, Dangdang, Vancl, Okbuy and Lashou.
A similar pattern has been seen in India, with Reliance Venture Asset Management, the coporate venturing unit of industrial conglomerate Reliance, funding reverse logistics service provider RLC.
The World Bank’s Logistics Performance Index defines both India and China as overperformers – countries with a higher score than would be expected based solely on their income levels – but the cost of transportation still takes up more than a 10th of gross domestic product.
In this light, corporate venturing investments in making people and goods more mobile at less expense will be a competitive advantage in boosting an economy.