Give us a brief introduction to yourself.
I have been running BMW i Ventures since 2011, with a main focus on mobility investments. We started with $100m.
Introduce the fund and its relationship to the parent organisation.
We used to be a typical corporate fund from 2011 to 2016 – pretty close to the company, having to go through steering committees and just doing off-balance-sheet investments. This is now changing following a board decision earlier this year. The board gave us full autonomy on our investment decisions. That means we can take those decisions internally within the venture group, without the need to consult anyone in Munich. We are also setting up a formal fund based in Luxembourg, so this is going to change too. Another thing that changed is the investment amount. Initially we had a commitment of $100m. Now we will be able to invest out of a €500m ($540m) fund.
Give us the background to why the autonomous fund is the structure you have decided on within BMW.
A good company always reflects on what it is doing, and we have done the same thing. We discussed with our decision-makers in Munich, and shared with them that there can be an improvement in the setup of the funds, that it is better to make decisions autonomously, because you need to take decisions very quickly. We lost some deals because we could not take those decisions as quickly as needed, and that is a pity. And in general it is a good idea to give the fund some autonomy, because if you do not allow that to happen the fund will always be very closely aligned to the strategy of the headquarters. If that is not the case I think you have more ability to influence the strategy of the corporation.
In which key technologies and business models are you seeing opportunities?
Not only has the setup changed following the decision earlier this year, also the mandate has changed. For the past five years, we have been exclusively focused on mobility services – any consumer-facing services that make getting from A to B a better experience. Now that has changed because we have realised that there is so much happening around the car where external input is really helpful, especially software-related developments like autonomous cars, artificial intelligence, machine learning. The role of smaller, flexible startups is growing. One way of being able to integrate that into a company, or helping the company to tackle those areas, is by making investments.
We are doing the stuff that is currently very hip, very hot. The valuations are pretty high. So on one hand it is good because you can see that you are investing in an area that many people are interested in. On the other hand it is sometimes tough to accept the valuations.
How do you support those ventures in which you have invested?
There are different ways, depending on the companies. For some companies we are the original equipment manufacturer (OEM) voice, so we have lots of smart investors, entrepreneurs on the table, but none of them has ever worked for an OEM, so they do not understand the decision processes, they do not know why OEMs do some things and do not do others. So for some portfolio companies I am the one who can explain or can share what is the smart thing to do when dealing with an OEM.
Another way of influencing a company is connecting them, seeking business opportunities within the company and connecting them to those departments looking for support in those areas. That is ideally a win-win situation, making BMW a better company and also bringing something valuable to the startup and making BMW, for example, a pilot partner for the technology and at the same time giving people early access to technology.
Give us an insight into the experience and skills of your team.
We are currently scaling up a lot so we have to ask that question as well. What we are looking for in our new team members, for the more senior roles, is obviously substantial venture capital experience. I like that people have startup experience as well. So a mix between venture capital experience and someone having acted as an entrepreneur is definitely a plus. I like when someone has general technology experience, so we are not so much looking for someone who is an expert in one topic, but someone who is able to dig into different topics, on the basis of a solid understanding of technology. That is useful as well. But I think the most important thing is VC experience.
We have three offices – one in Munich where we have two people, and we will scale that up to three or four, one in New York where we have one person, and the biggest chunk of the team will be in Mountain View, California. Currently we only have two guys here, but we will scale up to seven or eight.
Do your team members sit as board members or observers when you have made an investment?
We are looking for being a board member because that is the best way to understand what the company is doing, to influence the company and to be part of the group that takes strategic decisions. We always try to get an observer seat or a board seat. It is not always possible but it is always something we are looking for.
What we have done recently is take observer seats with an option to convert them into board seats. That actually gives you, in effect, the same power and overview because you can convert it any time and your vote is taken seriously, and usually the conversion is not necessary because people already regard you as a proper board member. On the other hand you do not have to deal with many of the formalities of being a proper board member. So that is something we have done in the past when we were still closer to our headquarters. We need to figure out whether we do that as well in the future, but as of now we are accepting observer seats with the option to convert them into proper board seats.
How do your people in the venture fund work with the core business with regard to investment decision-making and working with the businesses on that OEM side? How have you dealt with that balance in the past and how do you see that moving forward?
Well if we see an opportunity to cooperate we encourage the business unit to do it, but it is not a requirement for us to invest. Sometimes we invest and we think the company has potential, and then we start those conversations later on when it is a little bit clearer where the company is going, when they are mature enough to cooperate. Because often, when companies are younger and have a small team, it would be wrong to push them into cooperation with a big corporation, which probably has more members in one business unit than the company has members in its entire company.
So it really depends on the stage – the later the company is the more likely it is that we can facilitate cooperation. But any time we think it is useful for the startup and for BMW, that is the moment when we are trying to encourage it. We have a strategic focus and a financial focus, so we are definitely trying to materialise those strategic benefits we would not see as only a financial investor.
How do you measure financial and strategic performance?
We have a goal to achieve a certain internal rate of return [IRR – an investment performance measure] before exit is measured on the basis of current valuations. We do one to two valuations for every single company per year, so you have got an idea where the valuation is going. Of course at the end of the fund the exits determine what the actual IRR is.
It is a little bit tricky measuring strategic value. We are trying to have close contact with our business units so that we understand their needs and we can tell them how we can help them. We try to establish a mechanism that encourages us to work with them, but we still have to figure out the details. So far we have presented the strategic value in our perspective to the steering committee, and then shared with them how we think we added value to the company, but obviously that is very subjective – it is pretty hard to do that objectively.
Give us a couple of examples of investments you have made to demonstrate some of the things you have talked about.
One investment was in RideCell, an on-demand mobility platform. Formerly it was a ride-sharing service pivoted into a business-to-business platform for on-demand mobility. RideCell built the back end for the ReachNow car-sharing programme for BMW, and our business unit confirmed that this saved them probably 50% of the time that would have been required if they had used their traditional suppliers. Quality-wise, it seems that the downtimes of the ReachNow service are a lot better than any previous solution. So we are very happy with the quality, we have the flexibility and the speed was great.
Another example is our cooperation with ChargePoint, the charging infrastructure company in the US. We are focusing in particular on public charging for electric vehicles. We had a couple of projects with them. One of them is putting 100 fast charges into the ground on the US west and the east coasts. This was a joint effort between Volkwagen and BMW. So we could use our portfolio company to lead a project that is really very significant for anyone who owns an electric vehicle, because fast charging is crucial when you decide to buy an electric vehicle, and efforts like that help build the infrastructure.
You can listen to this and other interviews on a podcast available at gaulesqt.podomatic.com
Andrew Gaule leads the GCV Academy, developing the capabilities and expertise of organisations leading open innovation, venturing and corporate venturing programs to drive strategic benefit. He also supports innovation programs and collaborations in “innovative new value chains” in global organisations.
To contact Andrew Gaule and for future interview ideas, email andrew.gaule@aimava.com or James Mawson, jmawson@globalcorporateventuring.com