German conglomerate Siemens has been hard at work reinventing itself in recent years – aiming to shake a reputation for worthy but dull industrial engineering, via a new threefold focus on automation, digitalisation and electrification under its Vision 2020.
Along the way it has snapped up software companies ($10 billion-worth in the US alone), including Polarion, Camstar and eMeter, with one high profile recent B2B technology acquisition being low code application specialist Mendix last summer.
Yet the company has also been looking at opportunities earlier in companies’ life cycles, teasing out new technologies and teams at the startup stage around the world; both for its own benefit – feeding their innovations into its own products – and as pure investment opportunities, as it bets on the Next Big Thing in tech.
Siemens is not alone in having a venture capital (VC) firm, but says its Next47 – a separate VC unit launched in 2016 to “foster disruptive ideas more vigorously and to accelerate the development of new technologies” – is unique in its independence.
Globally, next47 has built up a portfolio of investments including rideOS, which builds marketplace and mapping services that can be used by ride-hailing companies, OEMs, logistics providers, and Yellowbrick, a data warehousing specialist.
With a footprint in Beijing, Boston, Israel’s Herzliya, Munich, Palo Alto, Paris, and Stockholm, the VC firm has recently been investing heavily in London, opening a new office and recruiting a growing investment team over the past 12 months.
Computer Business Review joined Venture Partner Chris Barchak, an MIT Computer Science graduate who leads Next47’s European investment team, to hear more about his strategy, the bets the firm has made thus far, and what interests him on the horizon.
What’s Different About Next47?
It’s a slightly different model than you may have seen in most corporate-linked venture activities. We have true, independent operation when it comes to investment decision making. I think entrepreneurs value speed of decision making from their prospective investors, and we have the same agility that’s possible in a totally independent financial firm. But we can also bring the corporate angle into play post-investment. [e.g. tapping into its global network of customers, brokering introductions, etc.].
You’ve Been in Your London Offices Less than a Year. What’s the Focus/Deal Flow Expectation?
We think that the UK will be the biggest contributor to opportunities in our pipeline. If I had to guess I would say hundreds per year; maybe 500.
I am very interested in applied AI. (I got the chance to study artificial intelligence before it was fashionable in the early 90s with some of the big names in Boston).
We haven’t seen so many good exits in AI platforms because the tech giants are giving them away for free, but when you apply it to a specific problem, there are untold numbers of new businesses that could be made out of that…
There’s a lot of focus on autonomy when it comes to personal transportation. But autonomy can be applied to kind of all kinds of areas, including goods transportation, operations in warehouses, operations in freight. We think autonomy is much broader than personal transportation and that is a definite area of interest.
There are lots of interesting developments taking place in agri-tech; we have applied IoT to lots of different investment areas… our interests are broad.
London’s a Major Fintech Hub. Is that of Interest?
I wouldn’t try to forecast exactly how the portfolio will be constructed, but fintech is one of the areas where European companies are really world-class.
Our goal is not to find the European version of a proven business model elsewhere but to find the global winning companies that emerged from from Europe though.
How Big is Your Team Here?
We’ve doubled the number of investors in the office. We now outnumber Munich in London, which wasn’t true a few weeks ago.
We’ve hired mid-level; we’ve hired a former entrepreneur who is actually a fintech CEO and so has the right background to help us evaluate these opportunities in detail.
And we also hired a senior investor who has a PhD from Harvard in biochemistry; everybody has a kind of renaissance background in that they have both business experience and technology experience; sometimes operating experience…
How Much Capital do You Have to Deploy?
It’s a global pool so every every investment has to compete for the same pool of resources. We have EUR1 billion to work with. We’re not making any announcements about how much we’ve deployed. But there’s plenty left.
What was the First Investment You Made Here?
The first investment I made here was a Finnish company called Varjo. It’s the world’s leading virtual reality and augmented reality head-mounted display.
That’s a Competitive, Crowded Space…
It’s a contrarian investment probably, but those often have the most potential.
It’s founded by people who have experience delivering billions of handsets for Nokia, so they understand how hard it is to deliver on time, on budget, with a very demanding audience. And some of the talent that comes from that team basically produced the HoloLens. There aren’t that many technical teams who could pull this off. This is one of them. This is a really rare globally rare team.
What Have You Invested in in the UK?
We haven’t made a UK-sourced investment yet. We should be finding some gems locally. London is the most important venture market in Europe, but it has no specific claim on the capital; it has to earn it.
I expect to make investments here though: I’ve been living in London a total of 17 years. And in my prior role I spent five years at a firm that made no investments in the UK because it was Nordic-focused. And I missed having the opportunity to be able to invest locally. And I’m very excited about finding things in London, in Oxford or Cambridge or other cities in the UK.
How Fast do You Need to Move when Identifying an Opportunity?
I would say the timelines that that you need to operate under have changed.
In Europe for the most competitive companies, when they’re getting into deal-making mode, they’re probably deciding who their investment partner is within a couple of weeks. Post-term sheet that might take four or so weeks to kind of conclude the deal.
But oftentimes these are companies that are in plain sight. Everybody knows about them, but they’re all watching to see how they develop. And when you have enough signal to say actually something’s changed, we’re hitting an inflection point and they’re about to take off, then you have to be attuned to those signals to be ready to act quickly.
If you’re meeting a company for the very first time, it’s hard to get to the conviction fast enough and to out-compete the others because you’re just learning. So we’re in a constant learning mode; often we’re meeting companies that are not in fundraising mode; then they all of a sudden go into fundraising mode, maybe several quarters before they intended to, because people see the upturn in their business and they act before the companies are even asking for capital…
It really depends on the quality of the company and how well understood they are. If you’re totally contrarian you probably have a lot more time, but if you’re in a clearly defined market that everybody thinks is interesting and you’re getting some business traction, then it’s it’s a different game now than it used to be.
How Much Do you Get Stuck In to Reviewing Investment Opportunities at the ‘Nitty-Gritty’ Level?
I have two computer science degrees… there was a time when maybe I could have been the code reviewer. I think those times are over. [Laughs].
I do keep up enough with with technology that I can do kind of first and second level evaluation of these companies myself. When it comes to a serious investment we can hire third party experts to do the very lowest level; it’s either on a long-term contract basis, or their are expert networks you can use to to supplement then in the team.
Best Part of the Job?
The intellectual freedom; meeting and working with passionate entrepreneurs changing their corner of the world. It’s it’s it’s very rewarding in many ways. It’s more like being a coach than a player. I’s a job that people do even after they make a lot of money which I think is an interesting signal. So there aren’t many jobs that people do when they’re billionaires. I’m not a billionaire (laughs) but many people who become billionaires still like to do venture capital, because it’s that it’s that much of a privilege.
We’re building a very ambitious firm. You haven’t heard enough of us but you can expect to do so in future…