Doubling Down on CVC: Yamaha's Integrated Corporate Growth Strategy

Fred Schonenberg
Anish, thank you for being here. Could you maybe introduce yourself to the audience and tell everyone what you do?

Anish Patel
Yep. So I've spent the vast majority of my career in the automotive industry, specifically manufacturing. I started my career in General Motors and then moved over to Shanghai Automotive. Then after that, I attempted to launch a mobility-focused venture fund. Extremely difficult, especially at that period of time, and as it is for some of you in this fundraising environment. But then six years ago, I joined Yamaha as a partner on the mobility side.

Fred Schonenberg
So I want to dive into the doubling down on CVC part of this. And I would share to the audience, very briefly, I'm Fred Schonenberg. I'm the founder of VentureFuel. We help established companies accelerate innovation by working with startups. So that can be venture clientele, venture building, or venture capital. Those are sort of the three lanes. And so one of the things that's really interesting here is you have a dual mandate now, and also this idea of doubling down. So can you talk about both of those?

Anish Patel
Yeah. So when we think of doubling down, we're thinking of just putting more capital to use. For our fund-specific activities. So our fund is structured in that we focus on Horizon 3 investments around seed to Series B stage deep tech, mostly. Mostly focused on robotics, manufacturing, IoT, things related to the core business, but also we look at fintech as well.

And those that aren't Horizon 3 and are more strategic in nature, we have a separate kind of bucket of capital off the balance sheet, which comes with more kinds of corporate engagement from our business units and more engineering support.

Fred Schonenberg
Can you talk about how your group fits within Yamaha Motors overall corporate strategy? Like where do you play in that sort of the financial strategic pendulum?

Anish Patel
So our group on the venture side is mostly focused predominantly on financial returns. We do check with our business units before we make an investment, but we do not need business units to sign off. We don't need any sort of commercial engagement before we invest in any startups from our fund. 

If we're looking strictly at balance sheet investments that are tied to our BU, we usually start with an engagement on the corporate side and then move to making an investment. The investments off the balance sheet can vary in size and check size and stage, but they're really closely tied to a business unit when we make the investment.

Fred Schonenberg
One thing that's very interesting is that a lot of corporates struggle with that alignment between what ventures are doing and the business unit objectives and maybe what they have to solve in the near term. How do you approach that integration to make yourself an engine of growth? Obviously, you're focused on the financial, but there's a reason why you exist within Yamaha.

Anish Patel
Yeah. So for us, it's not just making Horizon 3 investments. It's also showing our business units new technologies. So we try to show them all of the technologies that we see, whether we invest or not, just so they can get an idea of what's happening, not only here in Silicon Valley, but also across the globe.

So any companies we get presentations from or decks from, we share with our business units, just so they have kind of an idea of what's happening out in the landscape. Whether it's manufacturing or robotics, they get to see a variety of things. And occasionally they'll want to talk to the startups and founders just to see what the technology is really focused on and have a more in-depth technical conversation.

Fred Schonenberg
How often are you getting the, I used to call it the CEO airplane flight email, which is back when there wasn't good Wi-Fi on the airplane, the CEO lands from a flight and you get an email that they read something about an area that they want you to go explore that maybe isn't your thesis. Is that still something that pops up where you're kind of on that wild goose chase into a certain area?

Anish Patel
No, we haven't had that, not yet. Occasionally we may get some emails from our IC members on topics that are important to them, but we do not get decks or presentations from our CEO on different focus areas. I think today we're trying to stay disciplined on investing in our core business. Currently we're going through some restructuring, but we avoid those conversations on new areas like a new social platform. If we got that inbound email from someone on our IC, we would have to politely decline.

Fred Schonenberg
I love it. The disciplined approach has some value to it. So one of the things is you sit on a number of boards, you have a number of board roles. What distinguishes the startups that are successfully leveraging corporate investing versus those that maybe are not tapping into that?

Anish Patel
So for us, when we're talking about our disciplined approach, we only usually invest in founders that have experience. We're not investing in the fresh grads or someone that's dropped out of college. We're looking for founders and management teams that have experience. It could be with other startups or they have more corporate experience, whatever the experience is. 

So when we do invest in them and we do sit on the board or we're board observers, they actually tend to seek advice from us, whether going into a new market, whether they're approaching other customers or other corporates, or they just want our perspective on either a fundraise or a commercial agreement and how to structure it and what's the best way. 

Usually, our portfolio company founders want to engage with us. They're not kind of pushing us away. They really seek our advice before they do any sort of commercial engagement with other corporates, especially also on the fundraising side. They also seek our advice if we can help make introductions to other corporates that are investing in the same verticals.

Fred Schonenberg
One of the things I always think is interesting, when someone's been in a role for a number of years, I think you said six years at this point. How has your strategy evolved as the market has shifted fairly dramatically over the past six years? How are you maybe investing today different from when you first began?

Anish Patel
Yeah, so when we first began, we were investing out of our first early stage fund. And I don't think we were seeing as much inbound as we're seeing now. I think we've had to become even more disciplined in this market and probably even over the last 18 months as the deal flow has increased substantially for us. 

Probably six years ago, I think we would’ve taken bets in seed stage companies more frequently or even series A stage companies, even if we had just a little bit of conviction around. I think now we have set a really high bar for ourselves and our team on following really specific criteria and metrics before we even think about bringing a potential investment to our IC or even bringing a founder in to pitch to us.

Fred Schonenberg
Does that come with the flip side of that? Does that come with the FOMO of, are we going to miss the moment of this particular startup that maybe it's just a little bit too early?

Anish Patel
So yeah, I mean, I guess that's what we all have in common, right? Like we've all missed on the big ones. We have some of that FOMO, but I think if we don't stay disciplined, we'll start losing both the financial aspect of our fund as well as we'll lose the trust of our IC members and our corporate LP.

Fred Schonenberg
So I want to switch over to your other hat, the COO side of things, and curious what operational capabilities do you think are necessary for high-performing CVCs today?

Anish Patel
I think on the COO side, it's mostly about building out our own team as well as managing the existing portfolio. So for our team side, we're really also careful on who we bring on to our team as we're expanding. We tend not to also hire fresh graduates. We're mostly hiring people with more experience either on the PE side or VC side or corporate. So we're really disciplined about that as well. 

And then on the operational side for our portfolio companies, we're managing over 35 fund investments. And all of our companies are at various stages, whether they need to build out the management teams, whether they need to do a fundraise, whether they want to engage with one of our business units.

We tend to really make sure we're going through the portfolio on a monthly basis with our investment team and really tracking and monitoring the activities of the entire portfolio and the various startups. Sometimes some of our companies just aren't able to raise due to various, I guess, circumstances. So we're really careful in how we help them, whether it's the wind down or even just accelerating the growth and introducing them to growth investors.

Fred Schonenberg
Nice. So one of the things I think about a lot is in corporate VC, obviously, corporates have a shorter timetable for most of their metrics that they're looking at, quarterly earnings and whatnot. I'm curious what metrics you are finding valuable beyond the sort of IRR and standard metrics when you talk back to the mothership about how your fund is performing.

Anish Patel
So when we're discussing our fund metrics outside of IRR and TVPI with our headquarters board members, as well as our IC, we're really focused also on the engagement with our BUs and have they been able to learn from the startup, adopt some of the technologies into our various product programs or are we strictly there for financial return? 

When we're looking at the portfolio in its entirety and we're discussing the next fund, we tend to really focus on the corporate engagement and how it's going with the BUs that we've learned from the various startups we've invested in. I think that's been helpful to us overall as a CVC, but also it's been helpful to our various business units as they're also learning, as we're learning about various new technologies. So it's been beneficial to both of us.

Fred Schonenberg
I want to dig into that a little bit, if you don't mind, is the idea of the engagement with a BU where maybe there's a pilot or there's some sort of commercial partnership that happens versus the learnings from the investments you're making. How do you measure the learning part when you have to stand in front of the CEO or whoever it might be and say, yeah, we learned a lot from this that might feel a little fluffy?

Anish Patel
Yeah, so we usually engage with the head of the BU and we write reports. And so there's usually a report whether we're testing a new technology or we're going to put it into production or it's just been kind of an arm's length relationship. We talk about that in either a PowerPoint or a detailed report. We share with our IC members, our executives, so they're aware of what we've actually learned. 

We don't just say we've learned something because it's so subjective. We talk about what we've learned, even if it was a wind down and we had to close a company. We talk about how the engagement went, what we could have done better, things we should do better in the future when we're investing in new companies. So overall, there's a report that's provided and not just subjective metrics.

Fred Schonenberg
Very interesting. What do you think is the hardest lesson you've learned in scaling Yamaha Motor Ventures within a global enterprise structure?

Anish Patel
I think for us, it's been scaling the portfolio and making sure that we dedicate enough time and resources to each startup in our portfolio. That's probably the more challenging thing is as our portfolio has grown, we've been very careful also on who we hire. So we've been managing our time and our resources very carefully. And I think that's what we've had to learn through the process.

The other thing that I think that's been difficult to scale is for us, we also find it challenging to balance both the balance sheet side too. The balance sheet companies that we've invested in also require a lot of time and resources from our end because we're also monitoring and tracking those and reporting back to our headquarters. So a lot of it is time management, making sure that we provide all of our startups with the right services and benefits that come with having a corporate investor.

Fred Schonenberg
So I want to dig into the portfolio a little bit. Can you share a concrete example of one of your portfolio companies that successfully integrated back into Yamaha?

Anish Patel
Yeah, so we have several companies that have launched our various products. Whether it's on the services side or actually being embedded in our manufacturing process. So we're working with a company called, or we've invested in a company called Foundation Alloy that's just outside of Boston that's developed novel alloys for hot forged dyes. 

So our manufacturing team's been working with them for close to two years now. And the testing and validation has gone extremely well. And we'll be launching their dyes in our facilities later this year, early next year. So that engagement has gone extremely well. The startup and the management team were really excited to learn from our manufacturing engineers. And as I said, it has to be two ways. It can't just be us forcing ourselves onto the companies. The management teams also have to be excited to work with us.

Another one of our portfolio companies from FundOne is Velofix, their on-demand bicycle repair service. So when we invested in them, we had a fairly substantial business in the e-bike market in North America. Since our investment, we've withdrawn from the e-bike space here in North America. But we found another opportunity for them with our golf cart business unit. And so they provide a lot of our service to our various golf cart fleets and golf courses, which has been great. I think they're in over 256 golf courses now in the US providing fleet maintenance. And it's gone extremely well. 

So when we have these kinds of engagements, we can show our board as well as our IC members that while we may not have engagements from our business units immediately, eventually there's going to be an application that we can find. And it will be beneficial to our business units.

Fred Schonenberg
I definitely did not see the bicycle repair startup on our bingo card for today. You almost brought the house down behind us with all these insights. The last question, we've only got a few seconds left, is when strategic value and financial returns, when they're in tension with each other, how do you decide what breaks that tie?

Anish Patel
So if it's a fund investment, the financial will always win. Because we're primarily focused on the financial returns when we make fund investments and there's a tie, it always goes to the financial side. If we're looking at the balance sheet and we have a tie in that respect, we will always lean towards the corporate side or the strategic side because the relationship is so tight with our BU and it could have an impact on various product programs. So we tend not to disturb the BU strategy and kind of the next product plans or manufacturing process.

Fred Schonenberg
Awesome. Anish, thank you so much.

Anish Patel
Thank you.

Fred Schonenberg
Thank you, everyone. Good to see you.