E538 | Julien Fredonie, Honda Xcelerator Ventures: From R&D to ROI: Inside Honda’s Venture Strategy in Europe

0:00When a legendary carmaker places its first venture bet, most expect electric batteries or autonomous driving. We invested in a very efficient small fusion reactor as a first investment. I think it sets the tone in terms of where we could go in the future. Honda Ventures isn't playing it safe. They're fast-tracking climate breakthroughs that could reshape entire industries. But moonshot investing comes with monumental challenges. Still, there are, of course, many challenges in terms of how to scale, how to attract the capital, how to have the local capital, etc. So how does a corporate giant navigate the gap between vision and reality?

0:33We see ourselves as hybrid investors, not purely financial, not purely strategy. We try to bring the best of both worlds. The answer lies in Honda's secret weapon, industrial scale meets deep tech expertise. We are a tech company by heart, 40 ,000 engineers and PhDs. But at the end, it's really in the DNA of the company. With Europe's climate race heating up, the stakes couldn't be higher. All the foundations are here, so we can still make it. I'm very optimistic. This is the inside story of how corporates are becoming the catalysts for tomorrow's breakthrough technologies. Can Honda Ventures prove that the future belongs to those bold enough to bet on it?

1:07Find out on the EUVC podcast.

1:13This is their final challenge. Tear down this wall. It's more than just an alliance. This is a union of values. Let'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. As you know, we are deeply committed to trying to bridge the ecosystem. And as such, we have our CVC series on which Jeppe is our dear co-founder and co-host. So Jeppe, please, would you do the intro to Julian Fredoni from Honda Innovations? I think what is super nice about Julian is that he's an ecosystem player.

2:02I see him in multiple places and he's a voice. So my expectations for today is that Julian will bring insights that we have not seen on the show before. And I know he will because he has been in the ecosystem for a long time. Julian over to you to explain, you know, who is Julian and where do you work and everything about Honda. Wow. Perfect. Thanks a lot. That's, that's already a lot of pressure. Appreciate. Uh, thanks, thanks a lot for having me. Thanks a lot for, for having us. Really enjoyed the show and really happy to, to join today. So maybe I can start, um, about, uh, what we do at Honda Accelerator Ventures, right?

2:43I'm the lead for Honda Accelerator Ventures for Europe and Honda Accelerator Ventures is the Open Innovation Department of Honda. We have three main activities. One is to execute direct investments. The second one is to support strategic projects and we also do a bit of fund of funds. So that's a global activity. We have operations in Israel, China, Japan, Mountain View, Canada, East Coast. And as I said, I look after Europe and Africa with my amazing team based in Berlin. For some reason, two friends based in Berlin working for Honda for the European activities. That's our setup. On the investment side, we would invest between 2 and 10 million.

3:40I would say would be our mandate. We have a global mandate. Four topics of interest. Sustainability, very broad already. Electrification, materials, energy storage, etc. Second topic is manufacturing. Honda being a leading manufacturing company, being able to identify breakthrough technologies in manufacturing is also very important for us. Third topic is of course mobility. Also here very, very broad. We see, we often call air, sea, land and space because Honda is involved in those three or four areas. And the fourth pillar is AI or advanced AI, advanced robotics and computing. We see only in Europe between two and 3 ,000 startups every year, both for the strategic investment and also the support for strategic projects, right?

4:38We have invested in a few great companies. Maybe you know some of them. IneraTech, which is a great sustainable aviation fuel company. 2.0, which is a great black mass recycling company. Silk, which is a great system on ship company. So a lot of great companies at the end. And let's say our sweet spot is definitely, I would say, a strong defensibility, deep tech, great founding team, able to transform some huge market and some forms of early traction. So maybe, yeah, deep tech that sells or something like that would be the sweet spot. Super interesting here, Julian. Great start. One thing and one fact, you're saying you do fund-to-fund investments.

5:30After this show is released, you will get a lot of inbound interest. No doubt about it, for sure, right? Because there is something there about getting corporates to invest into funds. That is where my heart gets soft because that means that we can combine the ecosystem, right? With CVCs being 25 % in volume, then it's awesome. So you have set the foundation, you are up for success with the Pure Foundation. One thing when you started out, you said a little bit about you also do strategic projects. Could you just, you know, one minute on what it is that your team assists with on strategic projects?

6:11Historically, maybe 12, 12 years ago, we started as a broad open innovation function, right? So the mandate of the team at the time was to look for amazing companies where some meaningful projects could be created together with R &D of Honda. That's an activity which is actually very complementary to the investment function. It creates, I would say, a very strong general culture of the startups, I guess, an ability to understand some trends, but also maybe even more importantly to monitor progress. So sometimes, actually many, many times we engage with startups for potential POCs, projects with R &D, maybe even years ago.

7:09When we look, when we assess at an investment opportunities years later, we of course have the, you know, understanding of the technology, understanding of the industry, but also we are able to see all the progress which has been done in the past year. So somehow those two functions are very complementary. Every year, I think we support between 70 and 80 projects globally, very strategic projects, and it can take different forms, can be joint development. Some can be very complex, some can take a lot of forms, right? that's two, let's say, different assets of the corporate, which bring a lot of value as well to the ecosystem.

7:53With that, when you then do your direct investments, is that then the same capabilities you use when you invest? Is it a must that the startups you invest into can work with Honda or is that something that is a maybe later on? How do you attack that? Yeah, yeah, that's a good question. So we see ourselves as hybrid investors, not purely financial, not purely strategic. So we try to bring the best of both worlds, which is on the one hand, understanding of the founding team, of the market, of the, you know, unit economics, etc. But also a main driver for us to invest is not only, I mean, that's already tough, but we find sometimes those nuggets, you know, great companies, great founders.

8:48You really want to believe in their vision and their ability to change the world, etc. And at the same time, we need to understand what would be the strategic value we would bring on both sides by being an investor and not only maybe a customer. So that's always something that we try to, I mean, we ask ourselves, we engage also with our business units to understand what could be the strategic value they would see, etc. And that's a kind of conversation which needs to be created very early on on both sides, right? Because this is also from the entrepreneur point of view, where they would see this relationship to lead, right?

9:32And is that something that is part of your daily job or do you have a team function that takes care of understanding what is the interest of Honda at any given point of time? So the way we are structured is I always say that we have the very easy job. We meet amazing founders, investors, we go to conferences, etc. We do the very easy job, we get inspired, we learn a lot, etc. And then we have an amazing team, which initially comes from internal business units, R &D. So they understand the roadmaps, they know the people, they understand the strategies, etc. And they are the ones which are enabling also those conversations.

10:19So sometimes it's very easy for us to understand what could be the strategic value. And sometimes we need to also find inside a huge organization the right point of compil. So we have a team to do that. And this is usually, I would say, definitely a best practice for our type of CVC functions to do that. So from my time at Maersk, one of the things that the founders that I invested into always kind of expected was that I could bring everything from inside of Maersk. right in front of them. When you look at your startups and your engagement with founders, you know, first, you know, what is it? Because a VC will say they are an active investor, right?

11:07And they will bring network, they will bring, you know, skills that are related to one individual. So what is it when you talk about Honda and what you do? what is it that you bring to founders that is special from your side? What is it that they get from Honda that they can't get anywhere else? Yeah, I mean, I don't want to be in a sales pitch, but I think what we have seen so far, which the entrepreneurs like, let's say, let's put it like that. What they like about us is the very deep tech focus, which is usually or actually, let's say, let's be like that, a lot of very PhD type of founders, tech founders, they like to go deep on the tech by definition.

11:57So this is something that we do. We are a tech company at the end. It's 40 ,000 R &D people in R &D, 40 ,000 engineers and PhDs, etc. So the center of the company is really on the tech. You probably know Asimo and the robots, etc. So we are a tech company by heart. So there is a strong alignment here, I would say, which brings also a lot of ability to support also on the tech side, but also on the manufacturing side, being a leading manufacturing company. When you work in hardware, capex intensive, first of a kind environment, etc., that's also very, very valuable. So this comes from an industry.

12:48I think from a culture point of view, the culture of the company is very positive, very founder friendly at the end. Bringing a lot of attention also to creating a win-win relationship. relationship, I mean, we call it in like value, mutual value creation, et cetera. But at the end, it's really in the DNA of the company to bring this kind of winning angle to the relationship. One thing when we talk to VCs, right, they, especially when we are in the deep tech investment space, they really like to see CVCs on the cap table because the trust and the value that you bring with respect to proven technology and so forth is normally very, very high.

13:40So, Julian, when you do tech due diligence on the startups, you look at how much knowledge do you harvest from inside of the Honda? And do you use external capabilities at the same time to understand the technology? or we do both at the end. We have very strong technological capabilities, but also as part of providing a clear, unbiased, clear decision report. In some cases, we might use some experts, right? So when we invest in Fusion, for example, we might not have the specific skill inside the company and we might need support. I think in general, I mean, to go back to your point, I think in general, that's a very clear statement that there is a need to have this very symbiotic relationship, I would say, between the CVCs and the VCs.

14:40I like to think in, you know, ecosystem, right? So here in Europe, we have amazing universities. Sometimes we create amazing companies. We have now actually a very interesting new generation of VCs as well, right? all the micro funds, very niche, you know, ex-founders, scientific type of founders. It's a new generation of VCs, which are very, very exciting, and they bring a lot to the table as investors. So the, let's say the CVCs, as you were saying, they are able to, or we are able to bring a lot as well in terms of being able to support, being able to be a customer, being sometimes patient capital, etc.

15:23And in addition to that, I think what I saw in the past, let's say five years is a very interesting new generation of family offices as well, which are really into deep tech. So they do, of course, they back more funds already, but, you know, because it's a new generation, they like this exposure to deep tech, to other type of asset classes. And now we see some very, very sophisticated family offices with an ability to bring a lot of strategic value and to be in very sophisticated deals, etc. So I would say, I mean, there was some reports recently that would be a kind of trillions that would be transitioning from one generation to another in the next years or in the next, I don't know, 20 years or something.

16:19So I think this new part of the ecosystem is also very, very important. And now we have a few co-investments with very amazing family offices. So that's also a new part of the ecosystem, which is, I mean, for me, very new in the deep tech part. Those families, Julian, when you describe them, you call them family offices, but am I right that it is, and I'm here, I'm just guessing. but based on what I know, these families are also still very active in their own businesses typically. Is it that type of profile that you're talking about or is it? Yeah, I think it can take, I mean, there are different categories.

17:03I'm not really an expert. I'm not fundraising, so I'm not really an expert in family offices. But what I saw is, no, no, I mean, just to answer, I think there are definitely a few categories. So I spoke to his family offices from, from top athletes, for example, they do all of the, you know, wealth management, et cetera. And they are very active actually in also the deep tech and VC space. I saw some family offices from, let's say traditional industries, some still being active and some which exited their businesses, which also get a lot of interest into emerging fund managers, VCs, deep tech, startups, sometimes with the climate and energy angle, but not only, actually, I think this new generation is very interested in breakthrough innovation and Europe as a place to grow this innovation, et cetera.

18:02So it will be interesting to see how they keep growing and being more active. You touched there on a point that I had noted down that I wanted to hear your take on, which is exactly where does Europe fit in all of this? Because you sit in Honda, the giant global conglomerate, and are looking over across the world with a specific focus to Europe and Africa. And then you do fund investments as well and you do directs. And it's very interesting to hear, for that reason, your take on how do you talk about Europe inside of Honda? How do you talk to your colleagues that's overseeing the other markets?

18:41How are you allocating to Europe? Are you seeing it being an increasing allocation within the entire structure or are you just keeping it as it is? And then you also spoke about new types of emerging managers coming in. Also something we should touch on, which I'm curious to kind of let you just run with this topic of where do you see Europe moving? Where are you excited? Where do you think that we maybe should pick up the pace or just not focus at all? because we're not going to make it in that. I mean, if we have time, we could even do like a three-hour podcast. I'm very, very open to that. No worries.

19:18But yeah, I try to keep it short. First, I see a huge shift, right? So I spoke with a few CVCs recently from Asia, and they start their global operations outside of Asia, starting in Europe first. So usually, historically, you know, typical corporate would start with a Silicon Valley office, and then maybe, you know, Boston, and then Israel, and then maybe some guy or someone in London, right? That would be a kind of typical scheme. And I think now it's changing a little bit for many reasons, right? Of course, geopolitics, blah, blah, blah. But at the end, Europe is also very, very attractive for global companies.

20:03Yeah, of course, the valuation is more interesting than in US. Okay, that could be one thing, but more seriously, the quality of the startups on all topics related to energy transition, carbon neutrality, new materials, etc. is highly demonstrated. we saw also that AI, and AI is broad, like the all AI value chain, has also some roots and some potential, some wins already in Europe, right from the SIP side to the LLM side, etc. So Europe has a role to play. So the quality of the startups now is highly recognized on a global level, especially on a few topics like that. Yeah, not mentioning probably, you know, dual use, etc.

20:56in addition, but there is a strong historical expertise also in industry and manufacturing, right? So all of this, this is very attractive for global players. And there is no, and Europe can be proud of the potential here, right? So still there are, of course, many challenges in terms of how to scale, how to attract the capital, how to have the local capital, et cetera. But all the foundations are here, right? So I think it's, yeah, I mean, we are still building, everyone is still building this ecosystem every day, right? You're doing it, you're doing your part amazingly with the podcast. And yeah, we can still make it.

21:43I'm very optimistic. So are we, of course. However, it is particularly interesting to hear from someone who does not as such have a stake in the success of Europe. And I put it like that because whenever we bring a European VC on the podcast that's fundraising actively for their fund, that will inevitably have some very strong bias towards talking about how amazing Europe is. But as the Hyundai family that, you know, you don't really have to. You could just say, well, honestly, we only do one thing in Europe and that's climate tech because the rest is not really standout. But you're saying the opposite.

22:21So that's why I think your perspective is so interesting because you have no reason to pick up Europe. So you described in the beginning sustainability, manufacturing, mobility is air, sea, land, space, and of course, advanced AI and computing as your focus areas. I'd be super curious to hear where are you seeing most movement, both in terms of within these sectors, but also within the individual cities and countries, hubs that we have in Europe. What is very fascinating with Europe is the innovation can happen anywhere. Right. So you can go to some very, very small places, 10 ,000 type of city and you have an amazing robotic company or an amazing company doing DNA data storage.

23:13Right. So that's the, one of the very specifics of Europe. Innovation is happening everywhere. In our case, we spend a lot of time in the UK, Germany, Nordics, etc. This is the usual suspects, I would say, in terms of deep tech. France is very actively catching up in terms of VC landscape and also the startups, I would say, on the deep tech and climate tech side, I would say. We see, I mean, one change that we see is, let's say the climate and energy ecosystem is getting more mature, maybe more challenged, but also more mature, right? So there will be probably a lot of companies which will not make it.

24:03But a lot of them have been able to create already customer traction and having a great positive environmental impact. but also business impact or a huge impact on, I don't know, production efficiency or energy efficiency or cost, etc. So having this combination of environmental impact and industrial impact, I would say is the kind of generation two climate tech companies that we are very excited about. Also around the biomanufacturing side. Recently, we saw a lot of very, very good stuff here in Europe. So Julian, with your focus area also on climate and energy, what is happening there, one of the big questions that is in the ecosystem is first-of-a-kind investments.

24:55Could you share a little bit how you use and all the capex needed to evolve these climate and energy companies? Until now, we have been able to meet with companies which are able to be very, very capex effective, right? So in a capex intensive world, it's very important to be smart, creative on how you spend your cash. Right. The thing I'm seeing is leveraging the corporates can help in terms of supply chain, in terms of manufacturing, in terms of bomb, bill of material optimization, etc. That's some expertise that a lot of CVCs hopefully can bring. I would say the third part is to navigate a very complex funding stack.

25:48Where are you, depending on where you are, etc. You have a lot of forms for a lot of access to non-degulative funding. So finding companies, experts, being able to navigate or to help you as a founder navigating this stack is very crucial and that can be a game changer, I would say. An interesting thing that I've learned from some other corporates, right? One of the things that they have done to bridge the folk gap is also to come out with off-take agreements or lit up. Exactly. Is that something you do inside of Honda when you look at your mature startups? Yeah, so I will not comment on the specific details for Honda, but in general, for me, that's definitely part of the non-dilutive capabilities which the entrepreneurs can bring, right?

26:44So the OfTech agreement is one of them. I mean, there are also even some forms of loans, very simple from local banks, right? Where people don't think about sometimes or founders don't think about sometimes, which can be interesting for maybe a first demo line or something like that. So, founders need to see a very complex but a very exhaustive, I would say, funding stack. When you look at your investment themes, you come with them, they're fixed right now. But as you are in the CBC space that is seen as a little bit more evergreen, where do you think you will go next? What's going to be next up for your investment strategy?

27:36What are you working on? What ideas do you have? What do you see? Yeah, so I will not disclose because I know some of our competitors might be probably listening to the show like I do myself. In our case, we support also the... At the end, we support the strategic or the corporate transformation of Honda. which is articulated into, let's say, two main strategic objectives. So one is zero fatality, and the second one is carbon neutrality. So that's very, very broad already, and very wide areas of exploration, I would say. Because one of the things that interested me a lot when I heard about, you know, that you're also looking at space, right?

28:31Could you put a few words on why you look at space investments in Honda? Just to illustrate and also to complement with the previous point, I think, our first investment was a fusion company. So we invested in a very efficient small fusion reactor as a first investment. So I think it sets the tone in terms of where we could go in the future. So that's already a good indicator. Julian, thank you so much for joining us for this podcast. We had a bit of tech hiccups along the way, so the episode got a bit shorter than normal. But I hope that everyone who listened in today enjoyed the conversation as much as Jep and I did.

29:15And then I can only say, Julian, I'm so happy that we've gotten to know you. And it will not be the last time you hear about Julian together with the EUVC and the EUCVC team, right? Because this is a guy that knows a lot, so we're going to hook up and keep him. Thanks a lot. It was a nice conversation. Thanks a lot for having us. This would have been a challenge. Tear down this wall. It's more than just an alliance. This is a union of values. Let's start acting.