Nine times out of ten, if you know what a company does, you will have a pretty good idea of what their corporate venturing unit invests in. That is not the case at Yamaha Motor Ventures (YMV), the investment arm of Japan-based motorcycle manufacturer Yamaha Motor. The team has invested in everything from robotic hands to biosensors that predict the ripeness of fruit.
“Because the motorcycle sales have been declining in certain regions, Yamaha is really focused on what can the next 50 to 100 of Yamaha look like and what do we need to invest in today,” says Anish Patel, managing director and chief operating officer of Yamaha Motor Ventures.
Mobility has been a major theme since the unit began in 2015 — investments like electric micro-mobility marketplace Ridepanda, mobile bicycle repair services provider Velofix and IoT platform for vehicles Veniam attest to that – but it has nothing resembling a monopoly over the investment thesis.
“The leadership is super forward thinking. They are giving us a lot of autonomy to invest outside of the mobility sector.”
Health and wellness and food and agriculture — its two other main themes — take up at least as much real estate in the portfolio along with verticals such as artificial intelligence, data analytics, automation and robotics.
The desire to eventually form an agriculture business unit, benefits to existing Yamaha biotech business lines and even Japan’s famously ageing population are among the drivers contributing to the company’s wandering eye. With an ownership target of 7-10%, the unit has made follow-on commitments to virtually every one of its portfolio companies.
Patel gives the mothership much of the credit for allowing them the bandwidth to look beyond the core business.
“What has been great is that the leadership is super forward-thinking. They are giving us a lot of autonomy to try a number of different things and invest in a number of different verticals even outside of the mobility sector.”
Launched in 2018 with a $100m war chest, the primary focus of its principal vehicle, the Yamaha Motor Exploratory Fund, is to invest seed to series A stages capital in horizon 3-focused companies. With the motorcycle sales slump, the venture unit is something of a periscope into the future, identifying potential new business lines that could eventually be created.
Patel, who had been a partner at the firm since late 2019, entered his current role at the firm in January this year, the same month that unit chief Kei Onishi took the helm after coming in from the mothership. The transition, says Patel, was a smooth one.
“It has been great having Kei on the team. He is super forward-thinking, he is always ready to try new things, he is ready to push the envelope,” says Patel.
“Our previous CEO, Jim is also involved, he is still the chairman of the venture group, so he also sits on our IC with Kei and myself.”
Fund II dives deeper into electrification
The first fund still has some $7-8m of dry powder left to deploy, but a second exploratory fund is already in the works.
The $100m successor is scheduled to launch towards the end of this year with a broadly similar strategic view as Fund I. It will take a deeper dive into sectors like electrification and supply chain and logistics, as well as a more software-driven approach.
“I think we’re going to take a broader view on things,” says Patel.
“We are adding fintech and insurtech to our thesis.”
“We will stick to some of the original kind of focus areas around mobility, healthtech, and agtech, but we are adding fintech and insurtech to our thesis as well.”
Similar to the first vintage, a portfolio of between 15-20 is expected, though that may get stretched out as valuations come down amid the market downturn. Against that backdrop and an anticipated increase in deal flow, the team is reassessing the metrics by which they evaluate startups to “set the bar a little bit higher” for the second fund, according to Patel.
On the flip side, the economic uncertainty means that the eventual exits from existing investments – which were not expected at least for another four to five years – will likely be delayed.
“I think with the up-and-coming recession, we are anticipating [exits] to slightly take longer as we have seen venture funds conserve capital or tell their portfolio companies to start conserving cash to get through the next 18 to 24 months.”
The CVCs remit has always been global, but most investments to date have been US-centric. As covid restrictions lift and travel is easier to other regions like Europe and Asia, Patel says those regions will come into focus as well.
Sustainability Fund — bigger cheques, longer view
In addition to the second exploratory fund, YMV also added another vehicle to its repertoire this year with last month’s launch of its new $100m Yamaha Motor Sustainability Fund.
With a slightly smaller portfolio in mind, Patel says the size of the cheques will be fatter than its exploratory series as they will also go in a bit later. It will take a longer view, with a 15-year horizon, than the 10-year exploratory vehicle.
“Some of us have battle wounds from cleantech 1.0.”
“When we are investing out of our sustainability fund, I think we are changing the thesis there in terms of what stage we are investing in because some of us have some battle wounds from cleantech 1.0.
“We know that getting some of these sustainable technologies or clean technologies into production into the market requires a lot of testing and validation. It is not simple, and so we are taking a more conservative approach that we do want to see more product-market fit validation before we invest.”
The later-stage focus – series B and beyond – and longer investment horizon required splitting the sustainability investments into a separate fund series.
“From a corporate level, as well as from the venture unit standpoint, I think we wanted to differentiate [the sustainability fund] investments [from the exploratory funds] because we know it will take a longer time horizon to actually implement those technologies,” explains Patel.
He does also say that the sustainability fund may still go in earlier at series A if an investment looks compelling enough and de-risked technologically.
Combatting portfolio brain drain
YMV does not lock portfolio companies into commercial agreements as part of any investment but does let them know that they would be ready to engage once they have the bandwidth and capacity.
Part of the problem that can face promising young startups is a brain drain to the larger companies that can offer more money, leaving gaps that can slow growth. The ability to bridge those gaps is part of the value the unit would like to bring.
“We have recently started a new program where we are bringing engineers from Japan to help our portfolio companies – whether it be in big data analytics, or just mechanical engineering or electrical engineering – because we have noticed some of our portfolio companies losing talent to the likes of Amazon and Google or Facebook that can pay double or triple the salaries.
And so, we are trying to bring some of our engineers to help our portfolio companies during this kind of talent gap or as they are going through the hiring process.”
Beyond a talent stop-gap, a corporate’s assistance, be it for engineering or software, can be a crucial part of a startup’s development in the early stages and is something Patel says all corporates would do well to extend to portfolio companies.
