How do you set up a corporate venture capital initiative to be successful — both financially and strategically?
BMW i Ventures, based in Silicon Valley, is one role model. The Germany luxury carmaker has been investing in startups for roughly a dozen years, and it announced a $300 million fund in 2021. i Ventures invests in startups focused on transportation, sustainability, manufacturing, digital sales and service, and the supply chain. Its portfolio page includes a handful of startups that have gone public or been acquired, returning money to the company’s coffers.
As part of our recent research initiative on corporate venture capital and new ventures, we spoke with Managing Partner Kasper Sage, who has been with i Ventures since 2016. One topic we explored: the “valley of death” when the parent company starts to suddenly scrutinize returns from its corporate venture capital unit after two or three years of making investments.
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Are you making investments for strategic alignment reasons with BMW, or financial return, or a hybrid?
It’s more like both. We have been around for 12 years. The first five years were pretty much what you would expect — off-the-balance sheet investments — the typical stuff of a corporate venture setup. Learning how to walk before you run, if you will. I joined at the end of 2016, when this became an independent fund.
We’re [independent] in the decision-making process. We invest in things that are relevant to the automotive ecosystem as a whole.
BMW has decided to do what other VCs do, which is create a typical GP-LP structure with one LP. [General partners choose investments on behalf of a VC firm; LPs are the limited partners who supply the capital. BMW is the sole LP involved with i Ventures.] Clearly, we have financial goals. We operate as a financial institution and we invest in things that are relevant for BMW or the broader automotive ecosystem. We need to create financial returns and deliver strategic value to the company.
We invest in early to mid-stage [startups]: Series A or Series B is our sweet spot. It’s a way for an organization like BMW to get access to technology early. In automotive, you have product timelines that are very long. For automotive, if you decide something today, you’ll see it in a car like four years from now.
How is your team set up, and where does BMW i Ventures sit in the overall organization?
We’re about 12 investment professionals. We are independent. We’re not in a line function. We’re in a separate organization.
We’re like a VC firm, with the difference that we are affiliated with a large manufacturing company and so therefore, we can provide value beyond just the investment, and you [as a startup] have an exclusive relationship with BMW.
Our secret sauce is that we can tap into tens of thousands of engineers and experts in the field. But they don’t need to be in our team. In our team, we need people who know how to structure deals, how to negotiate terms, and how to maximize financial value.
What are the hot areas that you’re investing in in terms of automotive?
In our second fund, our focus is a lot around sustainability. We started investing in sustainability in 2019, before the major hype.
It’s everything around electrification. EVs are the key centerpiece of what’s happening in the automotive industry. That has a lot of ripple effects. The supply chains aren’t designed for that kind of demand and that kind of volume.
Sustainability has become such a key centerpiece of BMW’s overall value proposition. It’s not just a marketing thing, it’s like really an internal north star that guides every operation.
So, we did a lot of raw material investing in lithium refining, direct lithium extraction. We invested in Jetti, which is a new way of processing copper and copper mines to get greener copper. We also invested into battery technology companies. We invested in Solid Power and Our Next Energy. We also invested in natural fiber welding as a plant-based alternative. Or BComp, a plant-based alternative to carbon fiber.
Sustainability has become such a key centerpiece of BMW’s overall value proposition. It’s not just a marketing thing, it’s like really an internal north star that guides every operation.
It used to be simply cost, because automotive is a very budget-constrained environment. It is now cost and CO2 footprint. Every single component and every single process gets reinvented to be able to see whether there’s a better way of doing it, and one that consumes less CO2.
What about anything in charging infrastructure? What do those efforts look like?
We have invested in two companies recently. One is called AMPECO, a software back-end solution for charging operating providers. If you imagine in Europe, for example, a lot of local utilities build out their own [charging] networks. To be able to do that hardware agnostic, they use AMPECO as a software layer in between.
So, it is white labeled. The end consumer sees only the utility name as an example, but they have all the features and functionality and the same feature set across all the different hardware vendors.
We also invested in HeyCharge, which is a Munich-based company. They focus on charging in situations where there is no network connectivity, like a lot of underground garages. [They can] enable transactions in those scenarios [where there’s no wifi or cellular, like in an underground garage.]
Who would you point to as an interesting case study that might have lessons for other people in the corporate venture space?
We have in total eight companies that went public. That’s quite a testament to the overall success. We have invested in Blackmore, for example, that is a LIDAR company that sold to Aurora. We had literally like, guys from the technology office join us in the meeting. So we flew together to the company, they brought in all their measurement devices, and then we basically measured whether the stuff actually works. If you look at PowerPoint — often what’s under the hood is very different.
What financial investors say about CVCs, [often] they say, “Be careful with these guys, because they might come with all kinds of hairy terms.” We have seen some of those ourselves from other players in the marketplace, like a right of first refusal, or most favored nation pricing, or warrants and things that are tied to revenues.
That’s not how we operate. For us, the thing is, when we invest in a company, we want to help it to become as successful as possible. This works, because our incentives are aligned. In some other cases, you have corporate venture units that also do M&A. Then, you have a very different set of actual goals, because if you want to do M&A, then you do not want the company to be as successful as possible. You want to buy it…when you can still buy it for cheap. You have a very different set of targets.
How do you connect with BMW? How does that collaboration happen? And what is the point of reporting?
It’s two different things, reporting and collaboration. We have a platform team. These are two people whose dedicated job it is to create the connection between the business units and our portfolio companies. There’s this real operational work and exchange. [They have] a lot of connections inside the organization, which is very helpful.
We do report to a steering committee. So this is basically five people. This is like the head of purchasing, CTO, head of development, and then finance. These are board members that are a part of the steering committee, and then we have corporate strategy in there, and [others…]
This is who we report to twice a year. It is not on an investment-by-investment basis. We go there, and it’s like an LP meeting. We report what we’ve done, and how we’re performing, and also highlight wherever we have companies that are working with BMW or have added value to the organization.
Then, we have a second entity that we meet with once a quarter, which is all major SVPs. This is not for reporting. This is more like an exchange, where we present new ideas, where we say, “Hey, we have seen this very interesting company, and we’re not sure whether we should invest, have you guys seen similar things?” It’s more like an exchange forum where you can talk about ideas and also concrete projects — where you might need help, or portfolio companies might need help.
What have you learned over these past few years?
We have a pretty ideal setup. It takes a lot of convincing for most people to give freedom to the operating until that is doing this. It’s absolutely crucial.
Often, what happens is, you have this valley of death. Most corporate venture units get dissolved after like two years.
Before this, I was doing investments for a large media company in Germany, also here in the Valley. They were very corporate. Our investment committee was the CEO and the CFO and one other guy. They were taking the decisions. So you have a situation where it’s impossible to be successful. You go out and try to negotiate a deal, you get to terms, and then you go back and have them vote on the deal. They’re like, “Oh, yeah, but I don’t like this term.” Then you go back to make a modification to the deal terms… Then, it’s a completely different deal, and that’s not okay. You can’t be financially successful [that way.]
If you want to do venture capital investing in a corporate institution successfully, in my opinion, you have to give the freedom to execute to the people who are running the firm. Often, what happens is, you have this valley of death. Most corporate venture units get dissolved after like two years. This is basically because in theory, people understand the J curve, but then they don’t really. What you will see is people start investing, and then after year two or year three, controllers will come and be like, “Hey, so where are the returns?” And you’re like, “We are investing in an illiquid asset class that usually sees returns after seven to 10 years. So no returns yet.” That’s what often just kills things before they come to fruition. And then obviously, if people then try to sell those assets, good luck. They sell them for pennies on the dollar.
We don’t have that problem, because we have been around for long enough, and we’ve been successful. We have wired money back. I can give that as a recommendation… If you actually have real money to wire back, it will change how people see your initiative.
Just to add to that… follow-on reserves [are essential.] That’s absolute 101 for venture capital investing, but a lot of corporations don’t take that seriously. They run into massive issues, because they think of an investment as one investment, and that’s it. But it’s a process, it’s a partnership. Ideally you double down. That’s where the returns are — doubling down on the winners. That’s something a lot of corporations don’t do.
