E473 | Marcus Behrendt, BMW iVentures: Hedging the Future of Mobility, One Strategic Bet at a Time

0:00In the automotive world where Tesla, China and startups rewrite the rules, What happens when a century of expertise suddenly becomes your biggest obstacle? With all those new technologies, sometimes experience becomes a baggage. For BMW iVentures, managing partner Marcus, staying relevant means one thing. Move at a speed of disruption. We're changing our focus as fast as the industry or the development does. But in a world of quarterly pressures, how does a corporate venture fund find the patience to build what's next? We get dedicated, committed capital from a single LP, and then we're on a 10-year journey with each of the funds.

0:36The stakes could not be higher. Autonomous driving, electrification, AI, the automotive landscape faces its most profound transformation in a century. Times of things are changing, but I think the industry in itself is robust enough to take on that change. Their mission isn't just picking winners. It's architecting the future supply chain. We're building suppliers for the industry. That's a little bit our idea. And while Silicon Valley gets the headlines, Marcus sees Europe's innovation ecosystem ready to challenge global dominance. We have super universities, we have super smart people, we have actually a lot of entrepreneurs, and we do have a lot of money from early stage.

1:14Can a corporate venture firm outpace both tech disruptors and legacy thinking? Join us for a conversation with Marcus of BMWi Ventures as we explore the race to reinvent mobility in Europe and beyond.

1:30Here's a few words from our beloved sponsor. Make an impact with the bank made for the innovation economy. We always take a relationship-first approach, bringing passion, dedication and unparalleled international connections to everything we do. Our specialised, flexible solutions for founders, firms and funds are built on deep expertise that are designed to facilitate growth and enhance your prospects for success. HSBC Innovation Banking. connecting you with what's next.

2:13This 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 Easy Podcast. Today, as part of our efforts to try and bring together the ecosystem and showcase all the actors that we have here, we are bringing on another CVC podcast, of course, with Jabe as always, and this time also with Markus Behren, managing partner of BMW iVentures. Jabe, would you maybe say just a little bit about why you're excited to bring our dear friend Markus on the pod? I started with Maersk in 2018. My first visit to a CVC that are one of the most promising in the world was BMW iVentures in Munich.

3:02So one of my first baby steps in becoming an expert is based on the foundation that Marcus has been part of building. So again, I'm super humbled to have Marcus with us here. And I just look so much forward into learning from him and his journey. So you guys are up for a great job. Thank you so much. As we said, I'm Marcus. I have been with our fund now for over six years. But actually, I was not the one building it up. So the credit goes to the folks that admitted it. But I'm very happy to what I inherited. And we're trying to make it stronger, make it bigger and more impactful. That is our idea.

3:43If we should just recap the investment focus of you guys, you are, of course, headquartered in Mountain View in the States. And you write initial checks of up to 10 million to support Series A and B startups. You're focusing on both North America and Europe, including the UK and Switzerland. And then when it comes to the vertical, I almost want to leave that for you to cover because that's less just pure numbers than what I just said. Yeah, I'm happy to. Thank you, Andreas. Maybe one additional remark. We also have investments in Israel. Situation down there is difficult right now, but we have investments there, especially in the field of cyber security.

4:24So that is the geofence area that you talked about where our fund is active. As you said earlier, we were funded a long time ago. So in 2011, we started, but we started as a CVC, like many CVCs in the beginning, off-balance sheet investments with all the loops and hoops you have to spring through when you go and invest for off-balance sheet. You have to go through a lot of meetings. You have to get a lot of approval to your business, you're going to buy in. And in 2016, a very smart group came to the conclusion to actually change that into a real fund structure. and we see a couple other CVCs out there, but it's not too often.

5:01So we're having a dedicated fund structure. We get dedicated, committed capital from a single LP and then we're on a 10-year journey with each of the funds and we're in our second fund now. So the first one started in 2017, second, 2021. You rightly said we're interested in Series A, Series B. We've done a couple of seed investments. We also sometimes look a little later. It depends always on what is on the table, but our sweet spot seriously is series A and B. We can write up to 10 million initial checks. We always keep reserves as follow-ons because we want to really help our companies grow and become stronger over the years.

5:42And the fields, the search fields, as we call them, in which we are active is, of course, structured around automotive. It's fairly broad. So we've done some silicon investment, hardcore tech investments. We did some investments that were close to material resources. So mining, coming close to mining investment. So we're very broad. Whenever it touches the automotive realm, I say, then we're interested to take it closer. But to give you the real search fields, we do things that go into the car. So car development, we broadly call it as one of our verticals. We have a smart supply chain. everything that goes into the supply chain, smart production, and then point of sales.

6:26We sometimes call it digital point of sales because we also do fintech if it is applicable for our business, right? And underlying to these verticals, we have like horizontals that are, first of all, information technology. So we won't invest in anything that is not digital anymore to some extent, but sometimes it doesn't really fit one or two of these fields, but it's more in platform thought. it's touching more of them so then we have information technology as a as a search field and uh as the last one sustainability so we really believe in helping uh with frontier technologies to our company to achieve its co2 targets and maybe even the industry so we're looking for companies that really change the game that have an impact and try to help them grow and strive and hopefully make money with this as well awesome uh marcus just another thing for the listeners to do fund investments in BMW iVentures?

7:21So no, we do only direct investments. We do not do fund and fund investments. We have all the tools and prerequisites and the team that is capable of doing the direct investments. BMW iVentures is dedicated from the BMW group to do startup investments. We stay humble and only do the direct investment. One thing that I think is super interesting, right? So now you are investing out of your second fund and I can also see on the dates and so forth that you are in the process of your third fund in some way or form, right? But you always are, right? Everybody is, right? So if you go and look at fund one to fund two, what has changed in the investment strategy?

8:02What is new now? You know, times are changing. So in our first fund, we were at the beginning of electrification and the beginning of many of the sustainability aspects that we have. And we were not talking much about AI back then. It was just a nuance on the bottom of the page, basically, in our investment fields. And so therefore, you always, of course, because we're looking for new leading technology, we're changing our focus as fast as the industry or the development does. So if we might have looked at different things in the past, more like crowdsourcing maps. We were invested in Mapillary.

8:46The map space has become very saturated and organized and it's not so much new tech anymore, right? It's available. So now we're looking more into what I just mentioned, AI, of course, and how is AI shaping certain industries. So it's such a buzzword, but I think the application of the technology into certain areas is what is very interesting and critical. One of the investments in a very young company in the Silicon Valley is Athenic AI. So bringing AI into the business world, so not just the large language models for us when we replace it for internet search, but also in the business context based on business data tuned to business.

9:26right so robotics ai and autonomous driving is back right um so that was something that we looked at in the beginning that it kind of died down there was consolidation but there's a lot of things going on right now again in the space with the players that are still still available and are still playing and we see a lot of progress there so from that interesting opportunities will also arrive yeah that's that's my dream right to to drive an autonomous or not that's not what it's called, to sit in an autonomous car. To ride it. Yeah. Correct. Because you cannot drive it, right? You shouldn't. So I always say one thing that is very true about a VC is that we spend all our time living in the future.

10:09We're backing founders that are building the future, and we're doing that on the back of trying to live as much as we can 10 years from now, at least in our minds, so that we're then able to back those that are building that future today. I cannot imagine an industry that's in a bigger upheaval right now than probably automotive. You have Tesla that has been around for a while and has been challenging many parts of the status quo in the industry. A lot of the, you know, they of course like to call it the legacy car companies, but a lot of the traditional behemoths in the car industry have really been put to the test.

10:54Some say that the whole structure of not having fully vertically integrated car companies is dead. You've got to be building like that. That's obviously a Tesla invention and runs very counter to a structure like BMWs. And then you have in China, you have the rise of companies like BYD that also seem like they have in this electrification of the car industry completely taking us all by surprise. I'd love to ask you, where do we stand in the car industry in Europe? This is of course a very difficult answer because it's a very complex question. So first I want to really state I'm speaking for BMW Ventures, right?

11:38So I cannot make any statements on behalf of the BMW Group, which is I think very important to that I'm very much focusing on what you intro looking into the future, right? So I think we do see a major change in the industry. It's a change that has been going on over years, but actually every disruption goes on over years. You just don't really feel it to the point where it starts breaking things, right? So in the print media industry, everybody knew you could write in computers and you have to have digital files, but nobody cared. And then one day, basically, in one year, it really switched, right?

12:15Printed papers became just the lower end, and then you had the second choice, and then you had all the digital media coming up, and everything was churning around this. I, back then, worked in a company that did automotive research, and the research industry also completely changed, right? It was like you were filling out questionnaires and sending them in by letter, and then somebody was like working on them. From one day to the other, you could do online research. That was such a change. I think we see similar things in the auto industry. You always have a heritage and you work, the incumbents work in their patterns and they try to move and change, but they have so much heritage with them.

12:56New players don't have that heritage. They have the risk of failing. They have the risk of no experience. They have the risk of maybe constrained capital resources and whatever, but they're at least not carrying the baggage. This is what is so interesting in the automotive industry right now, that with all those snow technologies, sometimes experience becomes a baggage. So then you have to identify yourself, what do I have to let go of and replace? And what do I have to stay and keep? Because it actually makes the difference and makes my experience really valuable. Back to your question, where's the state of the auto industry and the European auto industry?

13:40I'm actually very sure that it will still be there tomorrow. And the reason is I think there will be consolidation. There will be changes. There will be major changes in the product and in the way we sell the product and the way we actually interact with the product. Maybe how the product interacts with us. Tons of things are changing. But the same is in the print media industry. Most of the companies from before are still there from the disruption. They have adopted and changed. Some will lead the market and some new will come in. But I think the industry in itself is robust enough to take on that change.

14:19It gets a lot of beating for sometimes being slow or being old school. But if we look at the electrification numbers in Germany, for example, So I think the market share of electric vehicles in January and February was really, really large compared to the months before. And it's increasing again. So people are actually willing to go out there and buy those vehicles. You know, it's maybe not the pace we were all imagining, but it is coming. And it is coming because of the new technology making it accessible, right? Suddenly the cars can drive much further. So range gets less of a problem. Charging becomes much better because of the interfaces of higher charging voltages and all these kind of things.

14:59So it creeps in and it will be just hard. There was a nuance in my question, which was this battle of the integrated car company versus the current or the old model, so to say. I think that one is very interesting to unpick a little bit because it has huge ramifications for the types of companies that can be built adjacent to the car industry. Because are you even able to be a supplier or are you not? Because they're going to build integrated. I'd love to hear your perspective on that if you have any. Or you think it's just we're going to have car companies that are vertically integrated and we're going to have some that are not.

15:40I think the latter. Because this is really up to what you're good at. and how you can actually achieve these integrations. There always have been the escape route for some of the car companies, right? I remember back then, I think Mercedes-Benz becoming a technology company and integrating aviation and all these kinds of things. And they worked like this for a while and then they just came back. So I think that it's not so much the distinction. I think it's more how good do you play in that market in which you want to operate? So do you want to supply solar panels or, let's say, battery storage yourself as a car company?

16:21Or do you just want to focus on your car and hope that somebody else will supply this and you engage in partnerships, right? So I think that is very, very interesting to understand for each company. And each company will hopefully find their ways of actually serving that portion of the industry. There might be nuances, and this is what we start to help, where there's transition phases. If public infrastructure is not fast enough, right, then we need to foster public infrastructure. So, for example, charging infrastructure, who's willing to do the investments if you don't know if the cars are coming?

16:56So probably the ones that are actually planning on the cars are the best to actually look into infrastructure, in the beginning at least. And just as a note, we were invested in the US in ChargePoint and also in ChargeMonster back in the day. Because we believe that we need to understand how charging works in order to understand how electrification and total will work. One of our thesis back then was to invest in these future technologies. Today, it's common sense to understand how this will work. If it's then vertically integrated or not, that is up to each of the single companies. But it's a perfect example, right?

17:35You need to understand the playing field of where you operate, right? I think a couple of things from my side, right? And this is not to put the auto industry in this bucket, right? One of the interesting observations of one of these, you know, you can get killed by a startup is Kodak, right? So they got killed by the digital camera. But when you search this, what you need to understand is that the development of the digital camera came from within Kodak. If you look at the Netflix Blockbuster story, Blockbuster had an opportunity to acquire Netflix early on. So I think there is something around the culture within a shoot organization like the BMW.

18:23And here it comes to my question, right, to you, Marcus, right? So the right to play also for BMW iVentures is how you harvest the understanding, knowledge, technology from within your core organization. Can you talk a little bit to that and how that influences your investment strategy? So a little bit back to the mission of BMW iVentures, right? So we're set up as a venture fund because the organization has learned or the markets have shown that if you're independently trying to find the companies that really scale, you probably also have a chance to find the players of the future. So if you only purely go strategic and say, this is what we're working on, this is why we invest as companies, might not be the winner in the future.

19:10Our assignment is to really scan the market a little independently from what our mothership is working on. So we really look at trends that are out there, and we're also allowed to hedge. BMW says this is the technology path that we are taking if we believe through our due diligence that maybe, you know, BMW takes the right turn. We're saying, hey, let's take the left turn. That might lead to something as well. We're entitled to do this. We're actually encouraged to do this, to stay close to that other technology that is developing or the other direction, and to live through that and work with them.

19:49And if the right term was the wrong one, hopefully BMW can still switch because we have been close with those companies. If we made the wrong decision, it's also okay because we all learned a lot and we're the venture business. So we take plenty of decisions and hopefully one or two following the power law will work out to repay the fund. But we've learned a lot along the way. We have some of those examples. So we invested early on in 2018 at a a company that was actually developing edge compute sensors, while the entire industry was talking about central compute. But we were so convinced by the story and by the founders and their vision that we said we want to understand this.

20:32And if there is a slight chance that they might be successful, we want to be part of it. So while the industry was moving central compute, vertically integrated, we were more going to the other direction, at least with this company for sensors. And it was not a wrong choice. We were wrong. At the moment, everybody goes for Centric Compute. But the company is still alive, is doing very well. They've pivoted a little bit. Their technology for this inference at the edge has proven to be very helpful for inference in general. They're really harvesting the AI boom right now. And we're probably making our money, hopefully, get a good return, help this company to strive and find the right way and enhance technology.

21:13but it didn't actually contribute to our mothership in this. In other cases, we supplement something to BMW where they have not had the time and not had the ability to take dual routes. They have their investment direction and we might explore one, two, three others. In Miami, they merge at a certain point. That's, I think, the beauty of it. When you do hatch against, So to say the wrong decision being made within the mothership, how do you make sure that most of the potential of making that hedge carries over? One thing is, of course, that you're hedged financially because you have a bet on their success.

21:59But I guess it's just as much about also being able to feeding back knowledge about how is this other technology moving and how do you do that structurally or organizationally? and make sure that it happens well. It's probably not hedging like in a financial, fully financial term. It's more exploring, right? Hedging, I mean, yeah, you're dedicated on one route and we look into others. How do we do this transformation or this exchange of information? I think that's a very important part. And this is something that CVCs should really, really focus on is we call it business development. So how do we help the companies that we invest in and that we work with to actually work with V &W?

22:39So I think we're independent. And that really means independent in the terms of we invest without business unit buy-in. We don't need business units to sign off on this. We have an investment committee separate from the corporate and we will make our decision. But the same freedom is on the corporate side, right? So if the business unit says, I don't like your completion, then they don't have to work with it. So there's no obligation. It's always voluntary. early. Of course, before we invest, we will check with our experts if it makes sense, if there's any merit to it. But we're not burdening them with this.

23:14We're just asking them. They can give us their true answer. And then we make our decision. And oftentimes, because we're early with those companies, those business units say, well, it could be interesting, but I don't have time for this. I have to get cars to the market. And then we can work three, four years with those companies. And hopefully they find a product, they have something that fulfills the mission that they were on. And then we can bring the two together again in our business development interaction. And with this, then suddenly we can explore if there's any benefit for the two companies to work together.

23:46And hopefully they will, our startups will be helped by our corporation in how to industrialize a product, how to market a product, how to build it to automotive specs. and also we hope that our corporations is inspired by the way how focused, how on target and how lead our startups often develop things. So it's like a win-win situation and if this works out well, we have a third win. That is our financial win because we have made that company successful. We'll have an exit someday and then we even make some money off of it and then fulfill the full VC spirit that we're focusing. So, Marcus, that is how you would describe ultimate success, right?

24:32Is that something financial, super powerful, and strategic at the same time? Yes. And I think the beauty in this, again, lies in the volunteer relationship, right? So nobody is obliged to do something. Everybody wants to work together. That's a prerequisite that you have some interest in each other. But then from there on, it is totally fine. And I put a little bit more to the extreme. We're building suppliers for the industry. That's a little bit our idea. And if any other OEM will be the first customer of the company we've invested in, that's good too. Because we showed it's automotive ready.

25:12For whatever reason, BMW might be in a different cycle, might have a different technology, might have a different package heritage. So they won't work with this company yet, but hopefully soon. But then we have proven that we have found an automotive champion that can deliver to the automotive. And with this independence, I think we're really powerful to what you said earlier. So one of the things that I often talk with corporates about, right, and also the VCs, is that I'm a super pro CVC. Everybody knows that, right? So I think the true value to a founder from a CVC comes from the access to asset, brand, customer data and expertise within the corporate, right?

25:54That's also why, you know, dependence on when I guide corporations on how they should do their CVC strategy is that, well, you need to go back a little bit, understand the culture of the big corporate and how they work. and then you actually have to figure out how you can harvest those elements, right? And I think, you know, so, you know, a lot talk about, you know, we need a distance to the mothership so they don't interfere. I'm a little bit probably more pro to engage with your core to understand what it is that they're missing, right? And as you talk about what you did before, right? Corporates, they have the most a three to five year strategy of how to innovate, right?

26:39The luck for all of us on this show is that we do 10-year bets, right? And we can be a little bit more ambitious in what we do, right? So could you talk a little bit more on, you know, how close are you to understanding the core and how do you even more leverage that, right? Because I hear what you say, that they don't have to engage, but you still need the knowledge transfer to do your job. Yes, we do. And we... And we do want to stay close. We carry the name in our brand name as well for the reason that we want to be identified with BMW for all the benefits that it brings, right? And one of this is, of course, that we understand and have a very close relationship on what our future targets are.