The first few blog posts by Sweden-based truck maker Volvo Group’s revamped corporate venturing unit indicate the questioning that incumbents in the transport and logistics sector are undertaking.
Volvo Group Venture Capital, renamed in October from Volvo Technology Transfer, has in its blogs concentrated on its global expansion and the business model and service level disruptions that might affect trucks, rather than the deals or technologies that could affect the vehicles themselves.
Johan Carlsson, president of Volvo Group Venture Capital since mid-2010 and a member of Global Corporate Venturing’s Powerlist 100 (pictured), asked rhetorically in one post: “Could it be so that the effectiveness of the information flow is as important to the total service time than actual work on the vehicle [making repairs]?”
And in another post, Carlsson said: “Volvo Group Venture Capital is on the look-out for the Uber, Lyft and SideCars [effectively virtual taxi companies for private cars] of commercial transportation.”
Volvo has usually looked at entrepreneurial companies in which it could take minority stakes or which it could back as part of a spin-out from the parent, such as fuel cell provider Powercell, focused in “upstream” areas with no vehicle integration, for example connected society and transport service, such as vehicle management, and “downstream” integrated with vehicles, including vehicle productivity and usability, such as onboard electronics and infotainment, and fuel efficiency, such as electrification and fuel systems.
Carlsson said its strategy had evolved with the revamp to include majority equity stakes in third parties and how the parent business, which is the world’s second-largest truck maker, can gain more from the entrepreneurial business and help the start-up.
He said: “We have been in the business of investing since 1997, but now we are putting in place an extended business model with a more firmfocus rather than brand new strategy. We build on the old but refine.
“When I took over this portfolio two years ago I looked over those transactions, trying to identify which ones had been more successful and where we have not added leverage to businesses or good financial growth. In hindsight it became clear to us we are good investing when we can combine the capabilities of the group with a company that has a new product ready for market and ready to be scaled up. This makes for a good investment for ourselves and other investors. That is where our venture model works best.”
Volvo’s corporate venturing unit has backed more than 50 investments and has traditionally reported an internal rate of return (IRR – a measure of investment performance) of more than 10% a year off the back of strong exits, such as Illuminate Labs to software provider Autodesk and Transic to Fairchild Semiconductor.
As with the clean-tech sector more broadly, however, a number of earlier-stage Volvo-backed portfolio companies have struggled to deliver financial results, including Effpower, which declared bankruptcy last year, and Vaperma, which was reportedly sold for nearly $500,000, or less than a 10th of the invested money.
But after the appraisal and hiatus in new dealmaking for the past few years, Volvo has started backing entrepreneurs in line with its revised approach.
Last month, Volvo invested an undisclosed amount in Sweden-based Steelwrist, which increases the efficiency of excavators.
Carlsson said: “We invest in companies with market-leading products and services, and where an investment from Volvo can accelerate growth for both parties. Steelwrist has a strong product portfolio as well as a leading position in the fast-growing global market and we are excited to engage in driving growth of Steelwrist’s business.”
Earlier in the year, Volvo reinvested in ChromoGenics, a Sweden-based provider of smart-tinting windows. But Carlsson said the group’s ambitions were now broader than Europe.
He said as part of the review “we also came to the realisation that everything good does not happen in Sweden. So we have expanded our reach into an international business, which led us to open an office in San Francisco. There are a lot of things happening in the bay area right now affecting the industrial business model”.
Volvo Group Venture Capital posted investment manager Jonas Landström to the San Francisco bay area in California in October.In his blog post, Landström said: “The transportation sector is more than ever converging with other industries, such as power electronics, telecom, software and the trends of connectivity, electrificationand servicificationare both huge threats and opportunities for Volvo.”
Carlsson added: “As consumers, we follow the social media revolution and convergence of communication channels such as TV, internet and telecom. We also experience higher degrees of automation and intelligence in equipment such as mobile phones, web services and home appliances.“
“The same trend follows in the transport industry. Vehicles are getting electrified and connected in networks. In addition, the vehicle is becoming more closely integrated with all types of equipment you choose to fit it with, and finally, new services pop up, which drastically changes business processes for vehicle owners as well as users. We want to be at the forefront of this revolution and look for partners in leading the transport industry into this new age.”
Carlsson is also looking at how the team can strike deals or work with venture capital firms in Asia from this year.
He said: “The majority of growth in commercial vehicles, excavators and rollers comes in Asia, so we are looking at how to engage our investment model over there.”
Key facts
Key people:
Johan Carlsson, president
Jonas Landström, head of US office
Charlotta Modig, chief financial officer
Investment directors:
Per Wassén, Ulrika Everingham, Stig Fagerståhl
Investment managers: Tobias Elmquist, Erik Hedenryd
Founded: 1997
Assets: €110m ($150m)
Current portfolio
Four undisclosed funds
Name Date of Investment
Aditro Group 2007
Chemrec 2007
ChromoGenics 2005
Coherix 2008
Cross Border Technologies 2009
Datachassi 2008
Elforest 2006
I-Tech 2008
Lamera 2005
Magnetic Components 2008
Powercell 2008
Proxio 2007
SDC Materials 2009
Seeing Machines 2007
Steelwrist 2012
Terracastus Technologies 2008
Vinngroup 2008
Volvo Merchandise 2008
Recent Exits:
Jensen – trade sale to Bourns (2012)
Vaperma – sale (2012)
Effpower – bankrupt (2012)
CPAC Systems – trade sale to Volvo (2011)
Transic – trade sale to Fairchild (2011)
Illuminate Labs – trade sale to Autodesk (2010)
Outsmart – trade sale to Catalyst (2010)
Exits 2005-07:
Wireless Car, Volcano, Tradimus,
Spotfire