Since March 2015, the BMW Startup Garage to integrate young companies into the innovation process of the Munich-based global corporation. We were able to talk to Gregor Gimmy, one of the two initiators of BMW Startup Garage, about various venturing approaches, the role of the "old economy" and the Culture clash between corporations and startups.
The BMW Startup Garage doesn't want to be an accelerator. What are you then?
We are not an accelerator, but a venture client. This means we become a client of a startup at a stage when it is still a "venture," for example, because the startup's product is not yet market-ready.
The process works like this: The first step is to make BMW known to startups. We need to communicate our added value and our goals worldwide. Now, many startups are applying to us, 90% from outside Germany.
In the next step, we select the best applicants: market leaders who offer something we don't yet have at BMW or our current suppliers. Startups that work with us have to be better than, for example, Intel, SAP, Qualcomm, or whoever else is active in the specific field.
We then look for suitable departments at BMW that could become the startup's first customers. Let's take artificial intelligence, for example: This can be used in many areas at BMW—from workshops to production, service, and even in autonomous vehicles.
We then look for a joint, real-life project—not a demo project—in which the startup can test its innovation in direct collaboration with the department (the customer, not a mentor). The project lasts a maximum of four months, and the startup will, of course, be paid for it. BMW is now the startup's customer, and the startup receives a supplier number and a purchase order, like all other suppliers.
What happens next?
Upon successful completion of the first contract, the startup receives further follow-up orders. BMW Startup Garage is not purchasing shares, but rather the technology, even if it is at prototype stage. We then validate this technology in the aforementioned first project within our ecosystem—be it a vehicle, a factory, or a service. The goal is to know each other well enough after these four months to define a long-term partnership with the associated follow-up orders.
You call your work the venture client approach. Is this model superior to traditional venture capital?
The two approaches are complementary: Venture Client is suitable for working with startups at a very early stage and involving them in a real innovation project. This way, we quickly understand how well the technology fits with BMW and the startup understands how they can work with us. If I see that this works, I could BMW i Ventures The next step is to invest venture capital. However, this isn't a requirement, nor is it the goal. Our goal is to quickly integrate innovations from startups.
Because the fixed costs of an investment are very high, corporate venture capital (CVC) is limited to a few, perhaps five or ten, startup investments per year. With the venture client approach, I can bring many more startups into the system, thus achieving a very high and efficient impact on our innovative strength. And startups may not even want an investment from a corporate, especially in the early stages, because they could lose flexibility and already have many other investors. With BMW as a venture client at an early stage, on the other hand, they get a customer and their validation early on. This increases the value of the startup without diluting the capital structure.
Are you deliberately sitting in Garching and not in the BMW four-cylinder in order to have more freedom?
It has nothing to do with that: Our primary goal is not to change BMW culture. Our goal is to find market leaders in strategically relevant technologies and to enter into partnerships with them quickly and easily in order to bring better products to market faster. I always find the term "startup" a bit tricky — ultimately, we're looking for market leaders. And that happens to consist of three, four, or five people and is only two years old, because they're working on technologies that aren't much older either. What's important, however, is that we're based in Munich and close to the innovation process at BMW. The entire innovation strategy and its implementation takes place in Munich.
Is your program also about helping startups understand BMW’s processes?
Our goal is to quickly integrate a startup's innovation. If we had located BMW Startup Garage in Berlin, the geographical distance would have made it more difficult to understand the surroundings and quickly find customers for the startup—and that ultimately also facilitates integration. The goal of a startup is to sell its technologies to BMW, and our goal is to integrate the technology quickly.
Do cultural differences between startups and departments within a corporation lead to communication problems?
Cultural differences are completely irrelevant here. It would be the same if, for example, we needed a specific technology from Apple, Microsoft, or Qualcomm to improve our products and processes. It's just a matter of ensuring that their technology works in a value-creating way within our ecosystem.
Of course, if I now say I am buying the company, it is different: With a Culture clash the acquisition will not work.
Impressions from the BMW Startup Garage:
You're not interested in promoting, supporting, or building startups, but rather in a customer-supplier relationship on equal terms, right?
Yes, and that's exactly what startups need most from us. A startup works because there are companies or consumers who buy their products. A startup should only exist if it's ten times better than anything else in the world. That's the only reason we work with them, and that's why BMW Startup Garage exists: Because we know that startups are simply better in some areas.
And why are startups better?
The simple explanation is: A lot of things these days are very software-based. If you look at people like Bill Gates or Mark Zuckerberg, they've all been programming since their teens. They enter the market in their 20s and 30s and already have 10 to 20 years of professional experience. It was different for mechanical engineers back then. They weren't already assembling cars in their hobby room.
Startup founders are therefore sometimes much better at new software technologies, be it machine learning, cloud computing, big data, or analytics, than large corporations. That's why we absolutely have to work with these people, and in a completely unconventional way compared to the past.
Why are US companies sometimes further ahead than German ones when it comes to collaborating with startups?
Silicon Valley only functions because the large corporations there work very efficiently with startups. Firstly, they buy startups' products and technology very early on—what I call "venture clients." They also buy entire startups. Startups are therefore a very important element in these corporations' innovation processes.
And unlike large German corporations, many Silicon Valley companies were startups themselves not so long ago. Either the founders are still with the company, or this is embedded in the company's DNA. Pretty much every major Silicon Valley corporation—be it Facebook, Google, Cisco, Salesforce, Apple, Intel, or HP—grew its growth with venture capital. And many are "suppliers," meaning B2B corporations.
Many people refer to startups as the "new middle class." How will the relationship between the "old" and "new economy" change in Germany?
Especially in Germany, I see great potential in medium-sized companies—and in Germany, that includes companies with revenues of one billion or more. Members of the founding families often manage these companies, and they still possess the corresponding spirit. Collaboration between medium-sized companies and startups has so far been limited to venture capital. The problem is: venture capital is very expensive and the market is very competitive. For a venture capital unit, I have to bring a team into the company, change decision-making processes, and perhaps only get small investments, often under 11,000 euros. And only 20% of CVC investments achieve integration of the invested technology into the parent company. As a pure innovation tool, CVC is therefore very costly. With the venture client approach, we achieve a 100% transfer, with lower fixed costs than with a share purchase.
When these companies learn the Venture Client system, they have a direct tool for collaboration. The approach offers a simpler methodology for working with young companies and can boost many things.
Thank you for the interview!
