Startups looking to cash checks had better start learning Swedish and get ready for meetings at the IKEA cafeteria. Today, Volvo announced it has launched its very own in-house venture capital fund.
Working with an undisclosed amount of money, Volvo Cars Tech Fund will look to invest in startups it believes could help it keep pace in a shape shifting auto industry.
In an industry being rocked by electrification, connectivity, autonomy, and changing ideas of what car ownership even is, every automaker is racing to rethink how it does business. Rather than try to develop everything with its own R&D team or buy components from suppliers, Volvo hopes to take an active role in shaping new ideas—and bring them into the Swedish fold. “Capital adds a strategic element,” says Zaki Fassihuddin. The CEO of the new fund has done similar work for American Express, PayPal, and McDonald’s.
The Swedes are not pioneering this move. General Motors formed a VC arm called GM Ventures in 2010, a year after exiting bankruptcy. In 2011, BMW launched iVentures, and in 2016 moved its headquarters from Munich to Silicon Valley, with plans to spend $530 million over the following decade. Last year, Toyota started Toyota AI Ventures. In January, Renault, Nissan, and Mitsubishi (which work closely together) jointly started Alliance Ventures, to spend $1 billion by 2023.
“Having a dedicated pool of capital is a way to be more regimented, to move at much greater speed,” says Reilly Brennan, cofounder of the transportation-focused venture capital firm Trucks. That’s especially true if the market suffers a downturn, when convincing the accountants that dropping millions of dollars on an unknown startup is the right move for the future. And it gives you a bigger role in developing whatever product you’re interested in, more patron than common customer.
For example, in the past few weeks alone, GM Ventures has put money into an on-demand vehicle car service, the kind of thing a fleet of self-driving cars might make necessary. BMW and Toyota’s VC arms both invested in May Mobility, an autonomous driving startup with a focus on shuttles. Toyota also wrote a check for Joby Aviation, which is developing flying cars.
Fassihuddin declined to reveal how much Volvo Cars Tech will spend, but says it will focus its rainmaking in a few areas. It will look for software and hardware tricks that improve its manufacturing processes, innovations that could apply to the process of buying and maintaining cars, artificial intelligence, machine learning, data science, and things like “microtransactions” that could simplify a car-sharing setup. In short, everything and anything that could change how cars are designed, built, sold, and used.
The question for Volvo’s new venture will be how to woo the most talented and promising companies. Lots of people have money to spend, and the frothy state of affairs in the auto industry makes for a crowded field of suitors. “Venture in a way is the ultimate commodity,” Brennan says. “They have to communicate why that dollar is better coming from them.”
Volvo’s sales pitch will center around its good reputation for design and safety, but also on its parent company. Volvo may make just half a million cars a year—the really big folks like Volkswagen and Toyota are closer to 20 million—but China’s Geely, which bought it from Ford in 2010, offers entree to the world’s biggest car market. “That could be a tremendous differentiator for us,” Fassihuddin says. And just maybe the kind of thing that keeps the Swedish automaker in business.