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Through Venture-Capital Arm, General Motors Pushing Boundaries of Innovation

May 16, 2012
GM hopes to win in the innovation space by placing "small bets" on startup technology firms.

Sometimes, it takes a "public humiliation" to prompt the kind of soul-searching and self-scrutiny needed for a company to change the way it does business.

That certainly was the case with General Motors Co. (IW 500/4) and its approach to innovation, asserted GM's Tim Brumbaugh on Wednesday at the 2012 Front End of Innovation Conference in Orlando, Fla.

"And I think everybody in this room can agree that the bankruptcy and the pain that GM has gone through in having to utilize government funds to keep us afloat is probably the biggest public embarrassment that you can have," Brumbaugh said.

Since the government-backed restructuring in June 2009, GM has "really pushed the boundaries of how we view innovation," said Brumbaugh.

With that fresh perspective, GM realized that there are innovative ideas and technologies outside Detroit -- and outside the automotive industry -- that can be applied to vehicles.

That kind of thinking led the automaker to form General Motors Ventures LLC, its corporate venture-capital arm, in June 2010.

"We are a way to bridge that gap between what's going on in other industries and bringing it into the vehicle to help us design, build and sell the world's best cars, which is what General Motors is trying to do, and has done in their past," said Brumbaugh, who is deputy director of General Motors Ventures.

Since its inception, General Motors Ventures has closed on 13 investments worth around $60 million, according to Brumbaugh. They include a $7.5 million investment in Sunlogics PLC -- a manufacturer of solar-energy systems -- and a $6 million investment in Proterra Inc., which makes zero-emission transit buses.

Although he would not offer specifics, Brumbaugh said GM hopes that technology resulting from one of the 13 investments "will be in our vehicles by the end of this year."

"That would be a big strategic win for us," he said.

'Small Bets'

In general, Brumbaugh said it's a good time for companies to consider launching venture-capital arms.

For one thing, venture-capital funding has dried up in recent years, while corporations have been hoarding their capital as a safeguard against another downturn.

"A good way to really leverage that capital in an efficient manner is to make minority investments and place small bets across a lot of different technologies," Brumbaugh said.

"There's a lot of overhead that's associated with increasing your R&D spend and increasing your R&D department. By creating a corporate venture-capital arm and investing say $1 million, $2 million, $3 million, you don't have to incur that overhead cost. You're leveraging that capital, and the 20% ownership that we typically take hopefully will gain 100% of the strategic benefits of that capital on the back end when that technology actually reaches our vehicle."

He also noted that many venture-capital firms "have started on a strategic path," and General Motors has patterned itself after that.

"We are only investing in technologies that can be utilized in the automobile itself or through our manufacturing facilities -- something that's going to give us a competitive advantage," Brumbaugh said. "Every single deal that we close has some sort of commercial agreement tied to it at the time of closing.

"So we do have a pathway forward to work together with that company and actually provide that company a method of commercialization in [getting its technology into the vehicle] at the end of the day."

A Long-Term View

For a corporate venture-capital arm to work, Brumbaugh cautioned, "you have to have strong buy-in from the key stakeholders."

He also said it's key to view it as a long-term strategy.

"It's not chasing a hot trend," Brumbaugh said. "It's something that if you're doing to do it, you have to stick to it -- and management has to stick to it -- over decades."

Companies that have been successful with VC arms have been able to weather "the ups and downs that certainly are going to occur."

"And that's one of the reasons why we started our fund so small, at $100 million," Brumbaugh said. "$100 million is a rounding error when it comes to our R&D budget. And any returns that are going to be gained from us aren't going to make or break our quarter. They're going to help fund the future investments that we're going to make."

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