VC investment is all about the tech – and the ROI | Greenstreetsoftware.info- greenstreetsoftware.info

Global Tier 1 suppliers have supported, and in many cases driven, the development of new technologies that eventually find their way into new vehicles, with around 70% of a new car bought in from third parties. However, with industry ambitions of driverless vehicles and shared mobility, these players have had to adapt and evolve either organically or artificially to keep pace. Some have even seen it necessary to set up corporate venture capital arms in order to pick up talent and get ahead of the competition. Robert Bosch Venture Capital GmbH (RBVC) was formed back in 2007, with its first investments being made later in 2008. Greenstreetsoftware.info spoke to Dr. Ingo Ramesohl, Managing Director of the venture capital firm (VC), to find out why it was established in advance of the initial wave of so-called ‘future mobility’. Bosch is not the only supplier to have set up a corporate VC; Qualcomm Ventures was founded back in 2000 to invest in new start-ups, with a particular focus on virtual reality, Internet of Things (IoT), drones, automotive, Cloud and mobile health sectors. BASF, the global chemistry company, has had its own venture capital arm since 2001. ABB Technology Ventures launched back in 2009 to scout start-ups specialising in new ‘power and automation’ technologies. Other companies such as Intel, Cisco and Siemens have operated corporate venture capital arms since the early- to mid-1990s. “We can bring additional value in terms of our access to the start-ups, whilst operating more or less like an institutional VC” However, while many other companies had entered the corporate venture capital space far earlier, Ramesohl notes that Bosch was one of the few automotive players to do so at that time. The plan, he says, was to gain enhanced access to the growing start-up community, and thus new innovations. “This motivation hasn’t changed,” he explains. “We are still looking for the most technology-driven companies worldwide, which could have an impact and influence on the Bosch innovation roadmap.” RBVC started out in Germany, but has since expanded its footprint to other start-up hotbeds of Tel Aviv, Silicon Valley and Germany. A China office is set to open in 2018. One degree of separation The company operates as a separate entity to Bosch, but as with most corporate VCs, there are mutual benefits to both sides and direct links between the boards of management; Bosch Chief Executive Volkmar Denner is a member of the VC arm’s advisory board, for example. This dynamic allows RBVC to provide valuable insight into whether a start-up is eventually worth purchasing down the line. If there is a strategic fit to Bosch, the corporate VC arm is also free to consider investments in order to simply gain a better understanding of specific technologies, markets, and business models, and then exit the deal at a profit for the VC fund’s direct benefit. “We always try to set up cooperation between Bosch and the start-ups in our portfolio,” explains Ramesohl. “The only difference between a corporate VC and an institutional VC is that we can bring additional value in terms of our access to the start-ups, whilst operating more or less like an institutional VC.” “We are still looking for the most technology-driven companies worldwide, which could have an impact and influence on the Bosch innovation roadmap” For Bosch, its relationship with start-ups via a VC arm allows for valuable insight into markets, technologies or business models of interest. “Because of this, we try to connect these companies with Bosch, set up discussions, and create value,” he adds. But RBVC is first and foremost an investment firm, and as such must live and die by the same principles of any other VC; the fund is used to invest in companies with the expectation that it will eventually become successful. Extensive research, or due diligence, aims to ensure this happens more often than not. ‘Successful’ could mean that the start-up remains as a private company with high profitability, or develops market-leading technology that is eventually bought by an OEM or Tier 1, for example. However, start-ups have many options in terms of potential VC suitors, which means that in order to attract the best talent in the first place, the VC needs to have a strong business itself. “If we invest in an early stage company, we are very much focused on the financial return,” affirms Ramesohl. “But as a VC firm, we have to be successful to get good deal flow. It is a chicken and egg situation; if we aren’t successful, we will not attract the top start-ups, and this is fundamentally important.” As he puts it, promising start-ups today expect a VC to bring additional value outside of the initial cash injection. RBVC uses its ties to Bosch – one of the largest automotive suppliers – as leverage to good effect in this sense. “For the start-up, it is usually a case of making their company successful, and that’s what we do,” affirms Ramesohl. Exciting areas of investment For a company of Bosch’s size, it is almost easier to highlight the markets in which it does not operate; in the automotive space alone, the company is a global player in mobility, connectivity, autonomous driving, internal combustion engines, electric powertrains, aftermarket products and servicing, to name but a few. What, then, is the supplier’s VC firm targeting for future investments? “Any start-up should have a strategic angle in any areas where Bosch is active,” Ramesohl advises. “This is a precondition. We are looking for all kinds of start-ups in Industry 4.0, future mobility and in various areas of hardware, software and artificial intelligence.” “It is a chicken and egg situation; if we aren’t successful, we will not attract the top start-ups” This should ultimately not come as a surprise, but there are other areas that have proven enticing. Cryptocurrency, for example, is a rising topic in various industries, with both widespread support and scepticism in the market. There are various forms of cryptocurrency – a type of digital currency – in circulation already, with Bitcoin potentially the most well-known format. These currencies operate independently of a central bank, and are considered by many as a simplified form of payment, with the additional benefit of zero transaction fees in many cases. For the automotive industry, cryptocurrency could become relevant in numerous use cases. “There are tonnes of potential applications in the automotive sector, and wherever you have a pay-per-use model you could use cryptocurrencies,” says Ramesohl, “particularly in a pay-per-use model with very low payments per interaction. This is the principal advantage of this technology. And why not give a car a digital wallet and let the car pay for parking fees and any other payments?” Indeed, he points to truck platooning as another viable application, in which trucks can pay to join highly efficient conga-lines of trucks travelling in close proximity, maximising fuel efficiency and safety. At a February 2018 event hosted by Bosch in Berlin, this topic came into question. “Platooning is a business problem - an entity will be managing the platoon, people want to join, and there will have to be a contract,” said Dan Selman, Chief Technology Officer at Clause, a start-up focused on creating a platform for lawyers and developers to define and manage legal-tech contracts. “If a driver is benefiting from being in the platoon, the entity will want to bill him, and this needs to be done via on-the-fly contracts.” “We are looking for all kinds of start-ups in Industry 4.0, future mobility and in various areas of hardware, software and artificial intelligence” Ramesohl suggests that cryptocurrency payments could be used to facilitate these payments. “This is something we are experimenting with. In fact, all kinds of sensors could have their own wallet to make any payment or any secure data interaction with any other party,” he continues. “Payment is one use case, but it is also about secure, decentralised data exchanges, which is a significant benefit of blockchain technologies.” In December 2017, RBVC made its first foray into this market by investing in IOTA tokens, another major form of cryptocurrency designed for the world of connected devices under the so-called Internet of Things (IoT). At the time, this was described as a ‘strategic move’ to explore how distributed ledger technology can benefit the automotive and IoT industries. “The most interesting point for us is the technology and the use cases out of this technology,” says Ramesohl. “We are not interested in the currency itself; we are interested in the technology and how it could change the landscape of our relevant industries at Bosch.” The sentiment among many VCs today is that the automotive industry is not simply adapting to changes as they come, but actively pushing the envelope. Today, incumbent players are developing products that would not look out of place in the tech industry, and are in fact operating much like a fast-moving tech company. The dynamism and flexibility provided by a corporate VC arm could prove invaluable for many established suppliers and OEMs today, as innovation in specialised technologies becomes not only sought after, but vital.

VC investment is all about the tech – and the ROI

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