BMW i Ventures is on a quest for disruptive start-ups, Dr Ulrich Quay tells Louis Bedigian [Auto.Bedigian.2016.09.09]

There are a lot of new companies that claim to change an industry or offer the next big thing but how many of them are truly disruptive? Dr Ulrich Quay, managing director of BMW i Ventures, wants to find out. He’s searching for consumer-facing services that can improve the transportation experience for BMW customers. Most of all he’s looking for firms that will make an impact.

“For me, the most important thing is which technology is this disrupting?” said Quay. “And is this market interesting from a venture perspective? If it’s a consumer product, scalability is very important – how easy is it to scale it? How much effort, how fast can they grow?”

Software start-ups tend to be more attractive than hardware companies because of the limitations associated with building physical products. “That’s why hardware investments are often not that popular with venture capitalists,” Quay explained. “[They] typically look at software innovations and they would like to invest in things that are not so hot yet – but are hot tomorrow.”

Quay pointed to autonomous car development, which is a very popular area for investors right now. He noted that smart venture capitalists have already made their investments to take advantage of the potential growth of self-driving vehicles. “Going in right now, that’s more the guys with the deep pockets,” he said, adding that late-stage investors and carmakers are the only ones that can afford a highly valued autonomous start-up. “A venture capitalist would rather go in before. They like investing in something that’s not hot yet.”

The automaker perspective

Quay has found that a lot of start-ups value the perspective an carmaker can provide. He has seen this first-hand in board meetings. “I experience that a lot,” he said. “People who are very smart, very entrepreneurial [and] sold a previous company for $500M, they want to learn from us: ‘What does a carmaker think of that technology?’ It’s really interesting.”

BMW i Ventures has a lot of tools for finding innovative start-ups, but Quay said that networking has proven to be the most relevant one available. He continued: “We don’t invest very early, so the struggle is, how can you find someone who hasn’t even launched? That’s a little more challenging, so then you would have to go to accelerators and look at the guys leading [them]. We usually invest once there was a launch. Once it’s launched, it’s not that difficult to find it. Then the art is to find one that’s the winner. That’s the challenge.”

A better company

Once a disruptive company has been identified, BMW i Ventures needs to find a way to ensure that start-up can make BMW a better company. “Traditionally, BMW went to their Tier 1 suppliers and they offer good solutions for the core product but not necessarily the best solution for any add-on businesses, especially in the services sector,” Quay explained. “BMW is exploring that. Our investments help our own operation be more successful.”

BMW i Ventures completes approximately four new investments (and a handful of follow-on investments) every year. Parking, navigation, ride-sharing, car-sharing and intermodal services are among the areas of focus. “We are a pretty small team right now but, hopefully, that will change sometime soon,” said Quay.

Location matters but it’s not everything

Quay said that when it comes to location, “Silicon Valley is certainly the most likely place for start-ups to be successful because that’s where the money is still today. Something like 70% of all investments are made in Silicon Valley.” He added: “There is an advantage to be based there. But when it comes to innovation from bigger players, certainly they can come from any place in the world. Usually it helps when you are close to where OEMs are based. In the past you saw innovation close to headquarters of companies because the OEMs liked to have their suppliers close by. But when it comes to start-ups I’m convinced that Silicon Valley is the place to be.”

Acquisition options

BMW has yet to acquire any of the firms it has invested in but Quay didn’t rule out the idea. He said: “It could be the result at some point. We don’t encourage people to do that prematurely. It only makes sense once the company has scaled within their own processes. If you integrate them, you sometimes can kill a business with all the baggage that [comes with it].”

Quay speculated that BMW might acquire a firm and let it grow on its own outside of the BMW process. “That’s also an option,” he said. “We would only consider an acquisition at quite a mature stage. We could also consider an acquisition when we want to get the team.”

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