From Gearheads to Game Changers: Unconventional Pathways in Corporate Venturing

From Gearheads to Game Changers: Unconventional Pathways in Corporate Venturing

May 13, 2024

Interviewed by Nicolas Sauvage on September 17th, 2020

Stefan Gabriel, CEO of Hitachi Ventures, has engaged in venture capital in myriad forms. He began his journey studying mechanical engineering and then joined BMW. His role always involved anticipating the future of innovation. He sought technologies that would influence transportation and ecosystems that would be the key drivers for new car concepts.

Intrinsic, Implied Preparation for a Transition to CVC

Though he wasn’t directly involved with venture capital while at BMW, his skills equipped him perfectly for a transition. Stefan never planned such a leap to corporate venture capital, but then 3M came calling one day with an invitation to join and start its venture arm. After some time and a lot of success in innovation, Stefan left 3M to work with many other Fortune 500 companies, further looking into the CVC world more broadly. At that time, he was starting to become a business angel. So, he invested his own money in exciting startups and helped them to grow — advising them to successful execution of their business plans. Later, he was asked again to run a big venture arm — Hitachi Ventures.

He joined Corporate Venturing Insider to trace his long and winding road to electronics CVC leadership.

Early in his career, when Stefan ran BMW’s innovation field of new car concepts, he embraced all disciplines within the development community rather than simply looking within the company. Understanding that other adjacent industries influence automotive through innovations that arise at the nexus of different industries was a key component of his job. R&D in many big corporations does not display the speed or agility to keep up with what’s happening in the startup world. This is why corporate venturing and strategic corporate venturing is an exciting tool to foster microeconomic development and embrace such changes.

Corporate VCs As a Glass Bowl

Corporations such as Hitachi are large and complex, necessitating a hierarchical management structure. They have huge budgets but concentrate on their core business. Because disruption and innovation do not happen solely within the core business, Stefan says megacompanies must identify strategic fits externally. Discerning what could add value to the corporation starts with understanding clusters. Hitachi, for instance, operates in several big sectors, such as industrial energy, mobility, IT, and smart applications.

Stephan said corporate venturing can “abbreviate” R&D activities.

“There’s a need for speed in a lot of developments because this world has become so complex,” he explained. “There are so many opportunities for solutions that you need to find the right pathway. Experimenting at a low-risk level (through CVC) is much more useful than relying on organic R&D.”

He suggested aspiring CVC leaders observe the fishbowl that is the startup ecosystem from the perspectives they have gained through their unique experiences, especially when one’s expertise or business interests lie in adjacent sectors.

“When we were jointly investing in startups (at 3M) we made an investment in ABB, a water monitoring company,” he remembered. “But then we looked into this similar glass bowl. What’s happening in water management technologies? 3M had a membrane business, filters, and a lot of residential water technologies, while ABB was in the automation mission. Suddenly you jointly look into the same glass bowl, see something different. It’s a benefit for both.”

Collaborating with portfolio companies helps corporates examine topics and technologies they may not even be benchmarking because they are seemingly far afield from their core interests.

“It’s so complex that you need someone with guidance. Working with startups for me is always a win-win for both sides.”

Transitioning from a Traditional Corporate Job to CVC

People working in corporate technology jobs often see the transition to CVC as a way to advance their careers. But it’s easier said than done. Stefan’s background was largely technical when he came to BMW. His experience in mechanical engineering did not include any financial indoctrination. Still, that corporate experience is paramount to future success in CVC, Stefan said. Investment fund leaders need to have lived and breathed corporate culture, he contends. Only by understanding the culture and gaining trust among your colleagues and within the organization is key. Otherwise, the corporate insiders will inundate the investment team with questions and skepticism.

Once trust is established, some form of financial expertise comes into play. But this can be learned on the job. Stefan said this is the most common path he’s seen. Finally, CVC managers need to understand how startups work and what they need at different stages of their development. Stefan compared the CVC’s position between a startup and the corporate mothership to diplomatic service.

“Business units have clear budgets, plans, and hierarchies,” he explained. “You need to know who to talk to on which level. And this is something you need to speed up.”

A large part of the job is to ensure that the corporate world adapts and is open to this fast-paced culture.

Hitachi and the Japanese Culture in Corporate Venturing

Nicolas noted that he and Stefan both work for large Japanese electronics conglomerates though neither is Japanese or based in Japan. Stefan compared the structures of large businesses around the world. He feels that American corporations are tough, energetic, and demanding. The Japanese corporate culture is quite different, though it shares some traits with the typical German business model, at least from a technical standpoint and hierarchical structure.

Stefan highlighted that understanding the culture is a big part of the job. It’s an aspect that perhaps isn’t given the appropriate weight in the investment setting. Developing a higher level of discernment of the culture of the industry or region in which an investor operates is essential to your success and the CVC’s success.

Enabling Communication between Hitachi and Startups

“Imagine that every executive in a big corporation needs to work with one startup every year,” Stefan invited. “This opens your horizon.”

He believes a lack of communication between the operating business and startups permeates many organizations, but he’s discovered and established a system that works in Hitachi Ventures.

His startup selection process begins with an understanding of the gaps in the parent company. Collaboration, mutual understanding, and an open mindset to learning between the business units are essential. Hitachi operates a corporate venture office in parallel with its CVC arm. This is an office of highly connected people within the organization who overlay the CVC’s startup ideas with what’s happening in the mothership, their USP, business model, day-to-day functionalities, etc. Stefan and the CVC arm talk to the corporate venture office every week. They scout out the organization because a lot of startups have multiple (potential) touchpoints right in Hitachi. They carefully find out what the interests of these business units are, to work with startups, or sometimes even R&D to work with startups. There’s a lot of learning involved here, and every party engaged in this process needs to remain open-minded and considerate of others’ needs and backgrounds.

In Stefan’s experience, the more deeply he has waded into the dialogue, the more his team has been able to appreciate their needs. Before any actual collaboration begins, multiple business units have been introduced to some of these startups — they just haven’t yet initiated discussions. By investing in a startup, the business units, not just the CVC and corporate venture office, obtain much more knowledge. There are endless possibilities. Stefan said that Hitachi could offer all of these startups some kind of collaboration, working on real customer projects and perhaps developing an application for Hitachi in a specific area. That’s only possible thanks to his team’s thorough concept of Hitachi’s clusters and its ability to identify efficient and inefficient business models.

“The corporate venture office helps to facilitate setting up these collaboration projects paid by the business units,” Stefan said. “If the CEO says, ‘We want every business unit to more fully embrace communication and collaboration with startups,’ everyone is more intrigued to do that. It would be a far future goal to make this mandatory, right? If anyone has the opportunity to build a corporate venture office, promoting this process of collaboration is ideal and would set up all parties for huge success.”

Learning from Startups

Stefan remarked Hitachi derives huge value by incorporating the knowledge it gains from the startups it invests in. The significance of what can be achieved, the long-lasting relationship with the startup, and “even the anticipation of what they’re doing to help your business development to redirect or to challenge is what is needed,” all further Hitachi’s aims.

Stefan even finds collaboration projects with startups he does not invest in. If there isn’t a full strategic fit today, he said, there may be one tomorrow. And his team would invest then. The decision to go for a collaboration project is different from the decision of whether to invest. It enables an opportunity for huge learning without any financial commitment. Stefan said that in his experience, momentum will be somewhat greater if there is an investment and collaboration. Collaborations can even span multiple areas of a big corporation like Hitachi because it operates in so many different sectors where technology could be utilized. Overall, the corporate venture office is a great tool. Stefan affirmed that it’s the most important tool to collaborate or even partner with startups on a realistic, broad project level.