E427 | Ann-Sofie Ekberg, Volvo Cars Tech Fund: How to work with corporate stakeholders

0:00This is why it's so important to have two hats on. I mean I have one hat as the tech fund and that's being the owner of the company right and then I have the hat that I want to make sure that my mother company is successful together with my portfolio company but I need to make sure in board meetings and with discussions with the company that they must have other customers than us and I really appreciate when there are other industries than automotive as well in the startup's customer base. Here's a few words from our beloved sponsor. Join over 500 LPs and GPs at 0100 Europe in Amsterdam from April the 2nd to the 4th.

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1:25Let's start acting. This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Welcome back everyone to the European VC podcast. Today we're doing another CVC conversation. Anne-Sophie is joining us from Volvo and my dear partner in crime when we're talking to CVC, Siapahoyer here as well. Welcome guys. Thank you. Thank you for having us. and Sophie I always normally try and do an attempt at giving an intro but I don't want to do that in these CVC episodes because there are some some words that should be picked more decisively and there's a broader range than what I have normally in our venture episodes so I'd love to ask you to just tell us about Volvo cars how the trucking business and then the normal person car business works together and that type of thing when it comes to venture.

2:23Yeah, great. And this is something that we need to clarify every week. Volvo. So I am working for Volvo Cars, which is a separate company from Volvo Group, who makes all these other beautiful large machines, trucks, excavators, marines, etc. So we're completely different. So what we are doing is manufacturing and selling cars and services around it. and there I am leading the corporate venture and our name is Volvo Cars Technology Fund if you want to have it a long and beautiful name Tech Fund is probably the short version of it And Sophie, am I right that both Yab and I will be seeing you in Gothenburg in a couple of days?

3:07Yes, so I'm based in Gothenburg and we're super happy to be partnering up at Go West which is run by the Gothenburg University venture site. So we will be seeing each other there and we are looking forward to the event. Some of the things that are interesting when we have these corporate venture podcasts is also, so what does it entail for Volvo Cars when we talk corporate venturing? What is it that you do? You invest from the balance sheet. and who helps you take the decisions. Could you talk a little bit about that? Sure. So I'm happy to start, and maybe I'll start with a little bit of our history and where we are today.

3:56So we were founded in 2018, so we've been around for more than six years now. And from the very start, we had the mandate to invest in startups that are strategically relevant for Volvo cars. So we're not here primarily for the financial return, which I think no CVC really is. But it's very clear for us. We have the mission to look for disruptive technologies. And that could be for the car, for manufacturing, for the consumer, for internal efficiency. So we have a kind of a broad scope to look at. And to help us to take those decisions, in the end, I have a board. So we are run as a separate company.

4:42We are investing on the mother company's balance sheet. And for decisions, I have a board which constitutes some of our senior leadership. So with that, we take decisions for investments. And when I do those recommendations, I always have a sponsor, an internal body that we bring with us. Why this is an investment that is relevant strategically. and what we will do next with it. But that's interesting, right? So an internal sponsor, can you share what that then means? Does that mean something on the collaboration post-investment or what does that mean? Yeah, so it definitely means something post-investment.

5:30So my sponsor is sort of responsible for leading a collaboration or exploration with a startup after we've done the investment. it's usually a senior leader as well to make sure that there is budget and there is priority for this collaboration to really happen because sometimes obviously you can think oh this is a super cool thing but we have so many other things operationally that that for example the engineering community need to do so let's put this later down the line no so here we really want to make sure that we get speed and also priority with the investments that we're doing. And that's a constant job, right?

6:13Yeah, for sure, for sure. But it's also one of the important things, right? It's some of the things that the startups look for, right? It is the collaboration and it's Volvo Cars as a potential customer. And Sophie, you do seats Series A and Series B. We've had on this CBC podcast quite a few saying corporate venturing is really for series A onwards because at the seed stage you oftentimes the founders or the companies the startups are not ready to engage with the corporate so for that reason any involvement there tends to end up with missed expectations for the for the founders and a lot of mess inside the mothership tell me a bit about why you do do seed Also, especially because you hear mentioned the sponsor and the importance of having everything aligned with the agenda of the mothership.

7:06So first, we don't have so many seed investments. So I agree with you. What we normally want to see from a startup that we are investing in is that there should be some kind of material, some kind of algorithm, some kind of product available for us to at least start to try on. So it has to be a little bit more mature than just an idea. And I agree with you that if there is a very early startup for us, it's more for exploration and maybe not to have a super crisp plan of this is a product that we know that we can take into production, for example. I hope that tells a little bit, but we are not excluding it because we also realize that to lead in automotive, in sustainability, in safety, etc., that we really have ambitions on, there has to be disruptions.

7:57And maybe those disruptions are really coming from a really early stage where we can help an influence. So that's the thesis around it. You said in the beginning also that the investments are first and foremost strategic, like you think almost every corporate. I'd love to ask you, how does that impact how you think about the portfolio model of your firm, of the venture arm? Because you have a very clear model in mind if you're just targeting financial returns. then you don't want to go too far out of what you expect and what you've modeled. And you'll always be looking back to what the financial model really stipulates or requires that you do.

8:50But since you have a strategic motivation, you know, I imagine there's a bunch of levers there that you actually are very happy to maybe do things that from a pure financial sense, It kind of skews your portfolio model and you wouldn't do it if that was your only thing. But standalone, this investment is important for strategic reasons. I guess what is important first to point out is that the financial of a portfolio company or from an investment target is still important. So we obviously look at the financials and making sure that it's a healthy business, that there is a good team behind it and which other investors are there, for example.

9:37So we don't skip it. And then we are really long term into it. And that's also why I think we can say that we are strategic. So we don't look to have financial returns in coming three to five years. if it would be screwing our portfolio? I don't think so. I think we have a pretty diverse portfolio today. Different regions, different technologies, different stages, different ages on the companies. But do you and Sophie have a portfolio model in place that says that over this, so Normal Venture Fund would have, over the next three years, We're going to invest into 25 companies. They're all going to be seed stage tickets ranging from 500 to 1.5 million.

10:27We expect to have this many that will be maybe in the higher end of that, this many in the lower end of that. And then we expect to be doing 12 follow-ons in the next stage and then another five in the stage after that. And that is the model I am trying to hit. and when I then meet someone who's exciting but is outside of that model, I would typically not do it. I would say, I wish I had a fund where this matched right now, but given my life cycle, I can't do this investment because either I don't get the ownership that I've modeled or it's too late. It's actually, for that reason, a bit out of scope, those types of things.

11:10So you can look at many investments that from a pure, if you only did one investment, it would make a lot of sense if you looked at it in isolation and the financials look good and all that. But you don't do it because it doesn't fit your portfolio model. I think there have been cases like that. That's the super short answer. But I guess if we elaborate a little bit around it, we do have KPIs. We do have certain items that we want to achieve, both in number of investments, what areas, what kind of follow-on we think would be reasonable to do in order to continue to get the financial good return in the end as well.

11:55So there are definitely some of those criteria that me and my team are working with. And that leads to us saying no to things that are interesting but are a little bit outside. Yeah, but can you talk on the broader perspective of how a CVC typically thinks about portfolio modeling? So there are many different ways of doing this from a corporate side. It often depends a little bit on how you see the balance sheet investing side, right? So, and Sophie, maybe before I go deeper into this one, so how does it work for you? Do you have a fixed number every year or do you have a number that needs to cover multiple years?

12:40So we have a mandate that covers several years. So that also gives a little bit of freedom. I don't have to spend my budget within calendar year. And still we know that we have enough money reserved to do investments down the line. So I think that helps us a little bit. And I'm grateful for that freedom that the mother company actually gives us with that. Yeah, no, and I think also, as you know, the discussions we have had in the past, and so she, it's also, you know, you look at your investments, you know, they're going to be follow-up investments. You have an idea about when they come, do the reserves.

13:21And I think then, you know, sometimes you build that into a model also to your question, Andreas. And sometimes you kind of have it on a budget level. That is a little bit what I believe and Sophia has here. so it's not a structure it's not a 150 million euro budget and then you have to be within that frame to actually get your budget maybe every third year and Sylvia I got to ask you a big question and we should dive much more into also the journey and the building of the fund but now we're talking to someone in automotive and specifically private cars. We are definitely hearing a lot about the death or potential death of the European automotive industry.

14:14If you follow the US tech guys, what are you thinking when you hear all that? So first of all, I guess all of us see that there is fierce competition on the market. and we are a premium brand with high ambitions of electrification. And with that, we are still taking market shares. So I think that's the first statement that I can do. We have good products right now. However, as you see, electrification comes also with digitalization. So, you know, competitors have really made cost-effective cars with batteries and with central compute and a lot of cool tech. and some legacy OEMs where I guess we are sorted into that bucket obviously have right now a mix of older technology versus newer technology.

15:11And this is the challenge to make sure that you're profitable but you're investing in the right things going forward. Then you add geopolitics into that and you add customs and tariffs And obviously, this mix becomes quite uncertain going forward. So I would guess a lot of senior leaderships around OEMs in automotive are really looking at many different scenarios because it's really hard to say this is the only scenario that will happen in 25, 26, 27. If I look at what I can provide from the Volvo Cars Tech Fund point of view, it's obviously insights in what kind of technology is really out there.

15:59What are startups doing? What are other investors looking at to get also insights to help us take the right decisions for technology that's going forward? But it's also, I would say personally, a super interesting time to live in. So I'm very grateful to be in this business during this period of time. We don't have a dull moment whatsoever. And you can probably see that, you know, there is a lot of stress in the system. But as I said, I think it's also a challenge and a great time to be courageous and to take decisions that will be sustainable for the next decade. and I think it's interesting with the geopolitics as you name them right there's stuff going on in the US but we also see a huge inflow of you know cars coming out of China right so fierce competition right but it also you know in the end it should give us all better gas absolutely you're both mobility investors or yeah but you have been at least we often hear about the platform that is the car industry has completely changed and is only getting more changed.

17:21Can you put a few words to what that means from a venture lens and the opportunities that you then pursue and that you wouldn't have maybe have pursued as strongly or the mothership wouldn't have been as interested in five years ago versus today? I think a platform thinking, start to think like the car is now a computer or wheel. And with that, you add a lot of different modules on top, hardware and software. But software will really define both the performance, the experience and the safety of the car. For us in venture, I think it becomes easier than if you have very specific models and you can only work on those models.

18:07And then that model is end of production and, you know, bye-bye. With a platform, you can actually add things much quicker and in a more modular approach. So for us, for example, I think we have a greater opportunity to implement startups and to scale startups at this period of time than if we would have looked at this and had this conversation 10 years back when we had a more car program and not really platform. So it helps, I think. I think what I learned back in time, right? In the beginning, I did a lot of marketplace investments because I thought from a trade perspective that was super interesting.

18:48What then became very apparent is that you need to go into a vertical. So when you look at, from my perspective, when you look at a Volvo Cars Tech Fund, you know, for me, it's not, you know, it is finding the elements around, you know, the production of the car and make that excellent, you have to go in and find some of these verticals. And I fully agree with N-Sophie, right? It's the software side of things that are super interesting, right? And because, you know, yes, what will happen to development in batteries, they're going to become cheaper, right? But it's not like a major thing is happening.

19:28Then, of course, some of the interesting places is how do you then envision a car and its battery playing into a more sustainable future, right? And I am super impressed about the early thinkings from Volvo, right? Where you could actually use your car as a battery, also supporting your house, right? And everything going on in there, right? So there has been some visionaries around Volvo and in the early days of the electric car. Good. Thank you for saying that. I appreciate those positive comments. I mean, for us, can we talk about sustainability a little bit? Is that a good topic to continue?

20:10No, no, that's off topic. We never talk about sustainability. Please two hands, Sofia, of course. I think if I could circle around the buzzword of sustainability, Volvo Quartz is on a journey of going into electrification, which is obviously super helpful. And we're also targeting to be a circular company by 2040. Very, very high ambitions. And I think we can say we don't know exactly how to come there, what needs to happen. We know that we have a marketplace for sustainable cars and people are asking for a sustainable journey, right? So everything that we are doing in the tech fund is actually around sustainability.

21:00You can talk about it on sustainable materials. We can talk about it with electrification, good charging, faster charging, more efficient charging experience, for example. That's a sustainable topic. Software instead of hardware, that's also sustainable. And then you look at efficiency in the company, you know, energy efficiency, making sure that development loops are faster. that we're looking into that area. But that's also sustainability in the broader picture. So I think both me and my team, we are really excited about being part of a larger group who has sustainability on such high priority.

21:47There is, of course, in venture, climate tech and certain of those buzzwords. But for me, it's all over. and Sophie can I pop a question for you so a lot of my friends they talk about you know what is the footprint of electrical car versus you know a standard car as we know it do you have a number for that I don't have it on top of my mind there are a number of papers that my friends from the sustainability team have published around biodiversity impact on CO2 impact, etc. So I don't have it on top of my mind, but I can say like this, the most impacting materials that we have is steel, aluminum, and the battery materials.

22:42So those are the major industry changes that have to happen. You need to have green steel, need to have green aluminum, need to have good solutions for the battery materials. Maybe tying it into a little bit into your investment hypothesis, would you do an investment into a battery developer? Right now, we are implementing batteries in our cars. So it really would need to be something specific and strategic. No, it's not because we had Nicolas Subash from CDK Ventures on the show earlier and he had done an investment into fission nuclear, right? And they are, you know, a hardware producer, right?

23:31So it's interesting also to see, you know, how different corporates go about their investment strategy and how far away from the core strategy you can go, right? Because as you say, you are a strategic investor, right? Then it's also, you know, strategic. Could also be where is Volvo Cars in three, four, five years from now. And I think that we are looking at the timeframe for implementation of the startups. Best case, three years, two years if it's software, but otherwise it's five to 10 years down the line. That also makes it possible to do a little bit of outside of the core today, because the core maybe will be different tomorrow.

24:19How many of the investments you've made are you actually customers of today? Yeah. And what is the KPI there? How do you think about it? I think if I remember correctly, we have now 23 or 24 public portfolio companies. And we have collaborations with approximately 70 % of those. What does collaboration mean? It means that there is either exploration ongoing to really understand the technology verified in our environment, or there is a true collaboration agreement, which will lead into a commercial contract, which would mean, you know, implementation in the car or installed in a factory or used in the development system, for example.

25:11So I think we have a quite high hit rate. Maybe you can share your view, but I think we have a quite high hit rate on those. And I think it's also natural that, you know, some of the investments we thought we would be able to do something. And, you know, for different reasons, we have changed strategy. The company have changed, diverted, etc. So it's not strange that we're not working closely with 100%, I would say. But help me if you have other data on that. No, I think for me it sounds high, right? I had in my past, right, two of 25 that actually did collaboration because it's hard to do it, right?

25:54And I think what really helps you is the sponsorship part. Yeah. It is the integration of the tech fund into Volvo Cars as a corporate, right? And that is where, you know, depending on the birth of the corporate venturing entity, it really depends out whether you hand that match or not. So maybe that could also be a little bit interesting just to jump into that and how you then collaborate with those partners and how you build the culture around Volvo Cars Tech Fund. So we are all into collaboration. I think that the main theme in the culture is collaboration. So that helps with the startup. What is the challenge with a large company versus a startup?

26:42is obviously speed and priority. So we are probably seen as slow sometimes and there the tech fund can help out to be the messenger in between the startup's need and why it's important to do it with a certain speed or certain timeline and also be the translator back to the startup saying, okay, this is important for you to understand because there is quality standards, There are other certifications. There are, you know, these things in the system that also need to work together. So I think the connection here is helping and supporting the collaboration for the company in the end. Setting the expectations, right, towards the startup, what they should expect, right?

27:34Because they need to learn that it takes longer time with a big corporate. It does. And I also would like to say that one of the largest challenge for any company that is growing is obviously scaling at the right time. So we need also to understand that the startup can actually scale with the volume that we need. It's not only us being slow, it's actually also the company being able to scale with quality, which is another, or which is a super challenge. It comes from both sides. Expectations from the corporate and from the startup, and then find the middle ground where you can actually work on this one.

28:17But sure. Well, can you try and break down super concretely? Because I do think the 70 % sounds like a very high number. And I'd be super curious to hear, like, very concretely, what do you do? What happens from the point of the startup going into the due diligence or where you're at that phase where the sponsor starts to be engaged or the mothership starts to be engaged? Yeah. All the way up to that investment and value add afterwards. Yeah, so we developed a model that I think is working fine in our culture. So we assess the company's TRL level. And then we assess Volvo Cars readiness level.

29:06So we put the companies into some kind of matrix selling. Okay, if it's a high TRL level from the startup and it's a low level of readiness at Volvo Cars, it's probably not a good match. We need to have some kind of matching point that we are ready to go together with some kind of timeline and speed. So this is important also when doing investments. If we are not ready to take it on, then we will not be the right customer and we will not be the right investor to help the company. So this is important. But when we do find those companies where we, Volvo Cars, has the right timeline and the startup seems to have it, then we are investing.

29:52And after that, we really try to get into a collaboration that comes into the normal process of development. What does that mean? You have a number of milestones that you need to hit at a certain period of time in that you also end up in a normal RFQ phase and hopefully winning a contract. So we're really measuring and trying to push and be the translator for the startup to really end up with a high TRI level themselves and a high Volvo readiness level. And when I say high, that basically means you are implemented in production to some extent, right? And this is a model that I think helps us also internally to get our engineers understanding.

30:42aha okay so we can actually work pretty much the same with a startup as with any other partner that we have so it's not so unique what is unique is that technology maybe needs a little bit more verification and the product needs help to to to be qualified maybe a little bit more because it hasn't been done before, for example. But it helps that it's not anything which is totally outside of the box. How do you try and help and make sure that Volvo and the Volvo involvement doesn't end up being too much of a guidance or relying? You have this problem that startups sometimes when they engage closely with a corporate early on, they end up building almost for the corporate rather than from the market.

31:40And so how do you help the founders navigate through this and also keep yourself in check and the mothership in check because you have an investment that you want to make sure is strong without Volvo? This is a great question, Andreas. And I think this is why it's so important to have two hats on. So, I mean, I have one hat as the tech fund and that's being the owner of the company, right? And then I have the hat that I want to make sure that my mother company is successful together with my portfolio company. But I need to make sure in board meetings and with discussions with the company that they must have other customers than us.