As part of our recent research report, Successful Startup Engagement and Corporate Venture Capital, we interviewed a number of leaders about how their organizations are participating in the startup ecosystem. For some, a key part of their strategy involves using a CVC unit to invest in startups. Our survey data showed 56 percent of responding companies already have CVC units in place; among those that already have a CVC group, nearly half of those groups have been around for more than five years.
Chris Varley, Principal of Goodyear Ventures, shared the corporation’s strategy for investment; gave insights into the type of startups it has backed; and explained why the current moment may present great opportunities to invest in startups.
Why the venture group was created. Our industry is being impacted by several major trends. And they’re causing some shifts in what our businesses — plural — are. We started, in a formal structured way, a little over a decade ago with an open innovation group called External Science and Technology. That group was designed to help bring in ideas from the outside and get them introduced to our R&D teams and make marriages happen where they made sense. I was part of that group; I helped structure it.
We made the decision that open innovation had been embraced so well by our R&D groups, that we would move that out into the functions rather than keeping it as a standalone operation.
A couple years ago, we decided to take the next natural step, which was to set up a venture group. … It gives us a chance to take that open innovation approach one step further. What are we going to be able to learn better, faster, and cheaper through an investment in a startup than we could by trying to build it on our own? … We are looking at it as an extension of our R&D efforts.
A learning exercise. For us, from the investment standpoint, it’s a learning exercise. We don’t invest in companies with the idea that we’re going to buy them and turn them into divisions of [Goodyear]. The goal is… helping us to learn the trends that we’re being impacted by. The acronym we use is FACES: fleets, autonomous vehicles, connected vehicles, electric vehicles, and sustainability. We need to adapt and change how we do business, to better meet the changes that are happening in the marketplace because of those forces. Some of those we can do best in-house. Some of those are best done by finding people who know things we don’t know, investing in them, and learning.
We don’t invest in companies with the idea that we’re going to buy them and turn them into divisions of [Goodyear]. The goal is… helping us to learn the trends that we’re being impacted by.
Insights into autonomy. We invested in two autonomous truck companies — Gatik and TuSimple — not because we have any desire to become an autonomous truck company, but because we believe that an autonomously controlled vehicle is going to impact tires differently than one driven by a human being. In order for us to [access data related to that], we have to have a close relationship with companies that are in that business, and the investment allows us to… do all sorts of tests that we couldn’t otherwise do.
Progress report. We’ve made about 15 investments so far [in 2022]. The size of the checks we’re writing are getting a little bit bigger; the size of the companies we’re investing in are getting a little bit smaller in some cases. We understand enough about the growth phases of the startups that we can now judge at an earlier stage whether it’s something we want to get into. It might [at first have been] B round, C round companies. Now, it’s A and B round companies, and some seed-level companies, if we see an exciting enough idea.
Given the recent gyrations in the market, [companies] should not be scared off… This is probably one of the best times to get in, because deals are going to be more realistically priced.
No reason for market gyrations to cause a scare. Given the recent gyrations in the market, [companies] should not be scared off… The valuations were getting kind of lofty, as they do on a cyclical basis. This is probably one of the best times to get in, because deals are going to be more realistically priced. Whenever the economy is uncertain, deals take longer to close. People are much more cautious and careful about valuations, deal terms, and runway for the startups. We’re already seeing this, and would expect it to continue into 2023. And since most CVCs don’t lead on deals, they are somewhat at the mercy of financial VCs with respect to the pace of deals. But CVC activity remains high, and I would expect it to remain so in 2023 – though the total number of deals completed and capital deployed may decrease somewhat. I also expect that the overall quality of deal flow and investments will improve – there will be less FOMO [fear of missing out] around “hot” deals, and more of an emphasis on companies that demonstrate good product-market fit and a solid go-to-market strategy.