Nils Wagner (REHAU New Ventures): REHAU's AI rollout, from AI Academy to AI Factory

0:00We were kind of like, well, are we completely missing the boat here? And late last year, we then tested a model, basically a platform working with a third party to bring basically access to all LLMs to our employees in a environment that is meeting all enterprise security demands that allows us via APIs to integrate real Ray Howe company data. We did a soft launch now in January, and by end of April, we had already reached 10 % of our installed user base. And mind you, this is only the soft launch. We haven't really started what we call wave two, which will happen later this month. We also have the AI factory, which is a tool of experts when it comes to more complex workflows.

0:42That's where your average user then quickly hits a limit. Plus, that's where you start to incur additional token costs. So you need to be careful before you build a silly workflow that does nothing but costs a lot of money. We are currently working on a more complex workflow-based use case. We call it the touchless invoice project. We're having our business service center handling thousands of invoices every month. And just imagine, I mean, this is an email. The email has a PDF attachment. The PDF attachment is an invoice. You have someone that actually, you know, entering data from that invoice manual into SAP.

1:15Kind of crazy, but that's the reality. And I'm sure that's the reality across thousands of organizations.

1:19Andreas Munk Holm:Hi, everyone, and welcome back to the EUVC Corporate Podcast, where we explore how Europe's leading corporates are building, investing, and partnering for the future. Today, Jappe and I are joined by Nils Wagner, CEO of Rehau New Ventures and part of the third generation of the family behind the Rehau Group, a global leader in materials, polymers, and advanced manufacturing. Nils's story is one of both continuity and reinvention. He trained as an architect, led Rehau's business in China, and now spearheads the company's external innovation and venture strategy from Zurich. His journey mirrors how many industrial giants are redefining innovation and how Rehao's pivot from venture building to corporate clienting is one of the most candid accounts of what actually works.

2:03This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured.

2:09Andreas Munk Holm:Nils, Jeppe and I are so happy to have you on the podcast. Thank you, Andreas. Hi, Jeppe. Great to be here. Milt, your career didn't start in the family business. You started architecture, a creative but different path. What made your return to Rehau and how did you, those early years outside the company shape how you think about innovation today? Well, you know, you kind of grew up with family business. So yes, I did initially want to do something completely different, but then I think it was a sense of responsibility that kind of brought me back into the fold. My education as an architect didn't happen to be way off either.

2:44We do about 60 to 70 % of our business with building and construction materials. So that in the end effect is relatively close to home. And, you know, as an architect, at the end of the day, what do you do? You define a vision and you break that down into work packages. You assemble a multidisciplinary team. And, you know, ultimately you want to lead that team to success. So that's pretty much what we deal with in business as well. So I did feel rather comfortable there.

3:16Andreas Munk Holm:And then tell me just a little bit about what China taught you, because China is definitely a different place from Europe and the rest of the world. Definitely different. I do have to say, though, you know, I mean, we have much more in common with people in other parts of the world than we actually have differences. But there are some, let's say, significant market differences. Because being in China and coming from a company that's been successful in Europe and North America for many decades, we had to learn and understand that we need to adjust our product and service offering in order to meet the local market.

3:55So really making products and services fit for use, fit for the local requirements, required re-engineering, required innovation. So we couldn't just copy paste our successful models. And also in terms of go to market, we saw that there's actually a lot of potential in coming up with new or disruptive ways to bring our products to clients. A big difference compared to the very mature market environment that we see in Europe. Additionally, the whole topic of digitization. When I moved to China in 2012, I really kind of landed in a nation that was absolutely embracing digitization in all aspects of life.

4:41So the impact of digitization on our business was actually significant from day one. And so that also was a stark contrast to what you saw at the time in Europe and still see in Europe. very much more hesitancy, very slower to adopt new technologies. So I would say those aspects really kind of stuck out in terms of difference.

5:05Andreas Munk Holm:And now you're back in Zurich and you're leading external innovation. Of course, having that experience from seeing China up close is absolutely important and seeing how fast innovation actually can happen. I'd love to hear just what does it mean to lead external innovation at Rehal? I mean, at the end of the day, what we're trying to do is relatively simple. We're trying to bring the benefits of technological developments, of digitization into the company. That's definitely what we're trying to do. So hoping to impact the way we work, hoping to increase our success in the market by embracing new technological trends.

5:47So that's definitely what we started off with. But it's been quite a journey and we can get into that now as well. We started somewhere completely different to where we are today.

5:59Andreas Munk Holm:And then if we go back to where you, when you started your venture efforts, you began with venture building. Can you talk a bit about why you thought venture building was the right place to start? And yeah, I'll of course also ask you about your take on that as an external observer of many CVC units. My grandfather founded the business as a tech startup more than 75 years ago. I think that's very much in our DNA. And we grew organically over more than 75 years. So I think building things ourselves is just something we like to do. And frankly, we also thought, you know, being present in quite mature conservative industries, that there would just be a lot of potential for disruption.

6:39So our natural approach, I think, was really to go and say, hey, we can build new businesses ourselves and ultimately thereby capture new growth opportunities for Reha. So that was our initial thesis. I'm happy to discuss what didn't work out so well in that process also.

6:59Andreas Munk Holm:Yeah, but maybe you can comment a bit about this trajectory from not having any corporate venturing activities to then starting to have them and why you often see corporate starting with corporate venturing as their approach. No, I think what's interesting is that normally we discuss build partner and invest as three verticals within corporate venturing. We could also discuss M &A and the early stage of that. But here, as Nils explained, I fully understand why they started with venture building, because it's in their genes. And maybe that pivots nicely into where my own opinion lies, and that is that it's corporate culture that will decide where you start, but it will also decide where you're going to be successful.

7:45And I think the many books that have been written about the topic, a lot of people also agree that it's more, you know, how do you connect into the mother company here, Reha, right? That will define how successful you are in what you do. And then again, you know, as some of Nils' learnings will also share, that will be shared later, we'll also tell why, you know, why is it challenging, right? So I think, Nils, maybe for you here, you know, what were some of the challenges you saw in building companies? Because, you know, as you start with something, you often then learn some of the most important lessons on the way.

8:25I think one thing we underestimated is how cash draining the whole venture building activity would be. As we know, you need to think in a portfolio. You need to, you know, build several opportunities in parallel. out, that really leads to significant cumulative cash drain, which is something that the organization needs to be willing to face. The other is, you know, really, and this is a deep learning and really was probably the biggest surprise. Frankly, it's almost impossible to hire an entrepreneur. And entrepreneurs is, you know, the key ingredient to making early stage startups successful.

9:09You can, of course, hire very entrepreneurial managers at a later stage, but in the initial phase of any venture, you need that raw entrepreneurial force. And frankly, that's just something you cannot hire. And therefore, that often was one of the biggest challenges we had to get these ventures off the ground is you couldn't really find the right team. And then, you know, I think something else that's very important, we quickly learned where we had somewhat of a chance for success and where we simply lacked the deep understanding and skill. And definitely whenever we tried to build, you know, kind of software-based product or maybe a platform model, that's where we actually really fell flat.

10:00So moving too far away from kind of our core strengths definitely is a big risk if you want to be in the business of building ventures.

10:08Andreas Munk Holm:How do you first think about the fact that, because venturing often connotates that you're doing stuff in the venture space, not just doing startups, but you're doing startups that should scale rapidly and become behemoths. And that, while it is, of course, expensive to build companies from the ground up, building a venture-backed company is even more expensive. And by definition, you also need to have a very clean cap table for that to be possible. Do you think, and I would love your take on that, both of you, do you think that it's almost by definition impossible as a corporate to do real venture building that creates assets that are attractive to the normal VCs?

11:00If I can have a first go at this, I'm glad for you to jump in, but I actually do think that the only way a corporate could successfully build a venture is if they fund it fully themselves, which is a very inefficient undertaking and again, hugely expensive. The minute you, and we did do this, I mean, we understood that to finance them ourselves was not going to be possible. So we said, okay, we need to bring in external capital. But that also meant we needed to make sure these ventures were investable. So meaning, you know, we would have a minority share on the cap table, hope that we still wouldn't scare away third-party investors, the entrepreneurs, I would say the founders, co-founders, they needed to have a majority share.

11:50And so that for us also was a process. At least I think we got there, but maybe too little, too late kind of situation where overall we just then decided to pivot in a different direction. And I would say that actually CBC faces some similar challenges. So if you're building or if you're investing, the corporate really needs to think carefully about how they go about doing it.

12:17Andreas Munk Holm:I often say that the rulebook of venture doesn't end because you come with a corporate mandate. They're still very much at play and you got to be kosher for the normal venture rulebook. Jabba, you were about to say? Yes. So I think for me, you know, I don't think there is the holy grail for this. There's been so many tries about how to do it right. I think one of the previous calls we did with Intel Ignite, one of the things that they promote there is their cap model, so their customer advisory board. So if you are a corporate and you basically sit down with your key account managers and your customers and understand their challenges, what is it that they need and what will they actually pay for before you set sail on this amazing endeavor as it is to build a new company.

13:10I think there's something in there that a lot of corporates can learn from. And then at the same time as where you came from, this hiring talent, how do you actually hire talent? And then the question becomes, do you need that or have you created a culture within your organization where you can take some of that talent and then give them the responsibility of running this new company within and do these speedboating activities as they are? And I think if you play around with allocating warrants to them or shadow warrants so they can be part of the upside, then you can get there. But then again, as Nils said, the CapEx spending for this, is that what your organization really wants to do?

13:55And then again, leading into do you then do the 80-20 model, right? Is it a strategic asset? Then we keep 80 % of the ownership ourselves and give 20 % for founders. And then, you know, if it's then a financial and we send them fundraising and then you spin it around, right? That's also the opportunity. But I do get it, Nils, why you kind of said, okay, this is too complex for us and it doesn't fit. And then, you know, now I'm just super eager to learn all the great stuff you're doing in the clienting space. No, I'm happy to go into that. And then maybe just to help with the segue here, you know, I think we took on board a lot of those learnings that you just mentioned.

14:40And I think at the end, we had a model that was generally workable and investable, but things in the world started to change with a different dynamic as well. I mean, we started in the COVID phase, which I think we we were able to handle quite well. But then, you know, coming out of that V-shaped recovery, very buoyant market environment, we then saw a new reality as, you know, Russian-laided Ukraine. And in most recent months, of course, also with the Iran war. So overall market volatility, market challenges really led to a shift in the way our organization was thinking. So we saw this kind of shift from, you know, willing to take long-term bets to really making sure that, you know, we took effective measures in the short term.

15:35And so that was a main factor also that impacted our activities as a corporate venture unit. So we also then decided to shift much more towards short-term effectiveness, short-term impact. And that's ultimately what led us to drop the venture building activities and embrace the venture clienting approach.

16:00Andreas Munk Holm:So now you're doing venture clienting. That's the core focus of how you approach your venture activities. Can you talk a bit about how you navigated going from the venture building phase to the venture clienting phase? And then I think we should go into a segment about the venture clienting purely. But how do you navigate through that? How do you close one thing down while you still open up another arm? So on. Well, I think the most important part is to understand the strategic paradigm shift and to embrace that. Because if you've been working on something for a few years and we started kind of late 2021 with venture building.

16:44And by the time we pivoted, we had been doing it for three years. Now, that's super long in venture terms, right? But still, there was, you know, we could have just said, all right, we're kind of out, you know, we need to close shop and move on. What we did, also what I did, is really embrace the paradigm shift from long-term to short-term impact and then come up with a plan how to execute on that. But it does, of course, mean you need to find a new team, also define the new process, the new model going forward. And at the same time, you need to downsize the venture building organization and you need to handle your existing portfolio so that you don't, you know, kind of burn the assets that you've built.

17:29And, you know, that's kind of doing two things at once. You're winding down one business, you're building up another business. And for that, you just need a strong management team and, you know, kind of focused execution. And we came through that actually quite well. So this process was initiated about 18 months ago, and now we're fully focused on venture clienting. We still hold a portfolio of ventures where we're invested, and of course, we manage that portfolio as well. We're still in contact with the different founders there, but we're relatively hands off, let's say. And of course, also looking for a partner so that we can step by step then work towards an exit.

18:12Andreas Munk Holm:I'd love to ask both of you, what do you consider the core ingredients, core principles for successful corporate clienting? As always, you need the right people, right? But the right people here really means that they have a good ability to empathize with our key stakeholders and they need to quickly be able to develop an understanding of the business requirements. You know, in venture clienting, you're first and foremost focused on internal customers. You need to understand their needs. You need to understand their pain points before you then go out and look for possible solutions. And the other quality that's really important is project execution.

18:48At the end of the day, this is about finding, testing, and implementing new tools. And so, yeah, I think customer centricity and execution skill is what's most important in venture grinding. I think this is spot on, right? I couldn't have said it better myself. So I fully agree with this. What I think would be interesting, if you could share a little bit on that, Nils, is how do you work in venture clienting with respect to the strategy of Rehauk Group, right? So how are the tracks developed? Are you working closely with the strategy department? Or are you up for finding the task yourself where it's meaningful to do venture clienting?

19:38we always start with alignment on strategy you know the reha group is relatively broad so we we have different subgroups that are focused on certain industries the first thing we need to know is is what's your strategy but more specifically what's your digital strategy and and then we we go into deep dives from there to really understand where the pain points are and maybe just to put it in a bit broader context, you know, when my grandfather founded the company, Plastics was high tech and completely new. You know, now we're obviously in quite a mature phase of this technology and we're in many industries that are also quite mature.

20:22You know, I think if you know a little bit about the German automotive industry, you then see the challenges that these mature industries and mature players face. So, you know, we face similar challenges. So at the end of the day, you know, it's more than just solving an operational problem, you know, accumulated and looking into the future. It's about business transformation, right? Changing the way we do business in order to increase the value we can bring to the market, increase the value we can bring to the customers, and therefore hopefully extend the product lifecycle time and help to keep us relevant.

20:57So that's always the big picture that we need to be aware of. But again, always starting with alignment on strategy, we need to understand where the organization wants to get to so that we can effectively support that journey. And where have you found early proof point of success when you collaborate with the core business? What would you, or said in a different way, how would you recommend others to address is the problem of getting the collaboration to work. You know, maybe there just to cite some of the feedback we get when we sit down with the stakeholders, you know, often people are telling us, well, you know, we've been working in the same way and manner for the last 15 to 20 years.

21:48And we understand that we should be working differently, but we're simply lacking the tools to do so. And if you know what's going on in the world of, let's say, startups, but also in the world of SaaS and AI companies, we should know that there are thousands of possibilities to change the way people work. So, you know, then identifying a tool that, you know, allows people to save time in tedious, menial tasks that allows people to automate certain processes and just free their mind for more higher value-adding tasks. That's a really rewarding kind of offer that you can bring to these people. It's like when people have been in the desert for years and you finally hand them a glass of cool water.

22:40It goes down really well, and frankly, it's pleasing to see. When I talk to the ecosystem, we have the CBCs, we have the VCs and the founders. The VCs are always standing there and saying to our dear corporate people, you and me, right? why can't you just have a revenue case where, you know, Reha will go in and when we do this collaboration, it's a paid trial and so forth. Can you share a little bit to those VCs that are listening in about those challenges? I mean, that's actually built into our process, if I understood you correctly. You know, a corporate working with a startup that generally per se is extremely difficult.

23:28I mean, you know, the minute we would involve our purchasing department and say, hey, look, we have a software or a SaaS supplier here, you know, why don't you get them on board? First of all, I mean, these processes take a very long time. Second of all, they just wouldn't meet many requirements that a corporate purchasing department, you know, kind of expects in terms of auditing capabilities, but also, you know, we would then quickly be asked to provide two other comparative offers. Yeah, exactly. And often, you know, you spend months wrangling with these kind of corporate processes, which are all about risk mitigation.

24:16And, you know, there's a reason they're there. But we're kind of the API for the startup. So you need a unit that's able to not only speak the language, but we have our own process landscape, which is, let's say, enterprise compatible, but completely independent. So, you know, we don't need three months to establish a supplier in our system. It takes us literally a phone call and an email and we can start collaborating. At the same time, I think really understanding the needs of our stakeholders and translating those into a set of requirements and then defining certain KPIs that will then measure the success of the solution by that, again, maybe a specific skill.

25:03but we do then actually test the solutions first. So there's always a test phase, a pilot phase, which then allows us to have, you know, hard facts and figures that we go back to our internal customers with. And then at the end of the day, it is, you know, an ROI-based investment decision if they want to implement this or not. But without having that kind of interface, it just really wouldn't work. It's almost impossible to make it work otherwise.