Honda Xcelerator Ventures invests in several VC funds globally to gain insights into early stage breakthrough technologies.
Investing in VC funds gives Honda Xcelerator Ventures, the Japanese carmaker’s investment arm, a view into moonshot technologies while seeding a future pipeline for direct, strategic investments, says Hyundo Kwon, principal at the corporate venturing arm.
Corporate investing in venture capital funds is becoming an increasingly important part of corporate venture strategy. More than half of CVCs now take limited partner stakes in VC funds, according to GCV Keystone survey data. Thirty-five percent of CVCs allocate more than one-fifth of capital to indirect investments.
Honda Xcelerator Ventures is a CVC that invests both in funds and directly in startups. It holds limited partner positions (LP) in several venture capital funds globally in Europe, US, Israel and Japan, in addition to investing directly in later-stage series A and B startups.
By investing as a corporate LP in specialist deep tech VC funds, it can explore global innovation patterns more effectively and spot where breakthrough technologies are gaining traction in areas such as new materials, batteries, fusion and AI, says Kwon.
“We see a lot of new technology, where technology is going, and how the startups that the funds invest in are doing. That gives us a hint where we can invest our resources internally when we’re trying to do new things within Honda,” says Kwon.
Market insights and deal flow
The VC funds that Honda Xcelerator Ventures invests in specialise in deep tech pre-seed- and seed-stage startups. Without these VC partners, says Kwon, it would be hard to gain the same level of exposure to these very early-stage technologies that could potentially become strategic investments when they are more mature.
The CVC team also seeks to have strategic partnerships with early-stage startups it invests in indirectly. “We can’t really hire an internal team working on something new that those startups are doing, so we’re kind of borrowing their capabilities,” says Kwon.
Startups also benefit from collaborating with a large corporate, as it gives them credibility with financial investors.
Want to hear more from Hyundo Kwon?
He will be hosting a panel on corporate indirect investing at the GCVI Summit in Monterey, the biggest dedicated gathering of corporate venture capital and C-suite innovation leadership.
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It is important to be strategic about choosing the right VC fund to partner with, he says. Venture capital funds have different goals – some seek solely financial returns, while others aim to provide market insights and use their LPs as potential acquirers of their portfolio companies.
CVCs should carefully consider what they want from an LP relationship, says Kwon.
“Do you want to use the LP in those funds to provide you an insight and market mapping, or do you want to see more startups out there that you can’t really find on Pitchbook or other resources?” says Kwon.
He recommends CVCs ask VC funds what their strengths are, their investment criteria, how they evaluate startups and what makes their fund unique compared with other venture capital firms.
Being a corporate LP also brings networking benefits, says Kwon. CVCs can learn from other corporate LPs about how they view startup investing. CVCs can also learn from the VC funds why they made particular investments to inform their own investing strategy.
“I would recommend building a relationship with funds, asking them why they made an investment in a particular company, what makes this deep tech startup better than the other. Knowing that logic is very important,” he says.
