Yamaha sets up $100 million venture fund, Agtech a top priority

Date:01-28-2019

The Japanese motoring giant Yamaha Motor recently announced Agriculture as one of its next big areas of growth. We don't typically associate Yamaha with agriculture. What's going on?

Wait, this interview isn't about the upcoming MotoGP season? I must be in the wrong room! Actually, while most people aren't aware of it, Yamaha Motor has been involved in agriculture since 1991 through our unmanned helicopter spraying operations in Japan. So, while you may not associate the Yamaha brand with agriculture, it's not a foreign concept within the company. But I certainly get your point. Why did Yamaha Motor announce Agriculture as one of its 3 new growth markets alongside MedTech and Autonomous Solutions? What's the strategic rationale?

It's really about moving into adjacent spaces where we can leverage Yamaha's core capabilities to build entirely new businesses as opposed to new product lines. When you're a $15B company it becomes harder and harder to generate competitive returns, particularly when your largest revenue generating businesses are on a lower growth trajectory. To generate alpha, it requires investing in new markets and new technologies.

In that sense, Agriculture is quite compelling for Yamaha Motor. It's an industry whose products touch every person on the planet, every day, several times over. It's an industry that is starving for automation, particularly as resources of all types - labor, water, land, chemicals - become more scarce and heavily regulated.

And it's an industry where we think our capabilities can be stretched across the entire value chain, from lab, to farm, to processing, to delivery. So it's a massive market opportunity with strong customer demand for solutions that Yamaha Motor wants to deliver.

Yamaha Motor has recently set up a $100M exploratory fund in order to make direct investments into promising companies. What was the motivation to set up this fund and what are the advantages of having this model?

The knock on every large corporate is that they're slow. Slow to make decisions. Slow to adapt to the future. Slow to do anything. Every CEO has probably seen that graph of the life expectancy of Fortune 500 companies and its rapid decline over the last 50 years due to the acceleration of innovation and technology. As a result, any corporate, large or small, needs to continually be asking themselves, "How do I stay relevant in such a dynamic and fast-paced world?"

To Yamaha Motor's credit, the company recognized the importance of investing in speed and agility back in 2015 when it set up its venture office in Palo Alto. Now, three years later, senior leadership has seen those early efforts bear fruit and it reaffirmed to them that venture investing must be a key strategic tool in Yamaha' growth strategy.

The new fund allows us to double down on our venture efforts, as we'll now have two investment vehicles: the $100M fund, which will target earlier stage, exploratory investments, as well as our balance sheet, which we will continue to leverage for more strategic or later stage investments.

More importantly, it obligates us to professionalize our investment activities because now we have a formalized fiduciary responsibility. To me, this is great because we need to up our game and get rid of certain bad habits that are typically associated with Corporate VCs. For example, we need to move at the same speed and cadence as institutional funds. We need to prioritize financial returns to better align incentives with our portfolio companies and fellow co-investors. We need to operate with relative independence, of course leveraging Yamaha Motor's capabilities when it drives value, but also recognizing that the relationship must be arms-length. At the end of the day, I think this is a model that will be adopted by more Corporate VCs because it just makes total sense.

What is your strategy for investing? Which segments of Agtech are you focusing on?

The new fund is called Yamaha Motor Exploratory Fund, so, as the name implies, we're very much targeting exploratory investments focused on disruptive innovations. Nothing incremental. Nothing close to the core. We want to ensure there is sufficient degree of separation from Yamaha's current product portfolio.

That's especially important for our investments in AgTech. Our biggest weakness is also our biggest strength, which is we don't have a major legacy business in Agriculture. As a result, there's no point in us entering a new market in an incremental way. We'd never be competitive.

We need to focus on transformational outcomes that break the paradigm of traditional Ag. To do that, we're taking a holistic approach across the whole value chain. For example, it's not just about putting robots in the field. It's about putting robots in the field with the right genetics in the right production system. Multi-dimensional approaches are needed to drive step-change outcomes.

What do you see as the biggest opportunity in AgTech that people aren't talking about?

Understanding the end game. To use a chess analogy, you can be up a knight and a bishop, but if you don't know how to checkmate your opponent with those two pieces then you won't win. To me, that's where AgTech is right now. And I'm not talking about the end customer like the grower. I'm talking about investors, corporates, startups - any player who wants to disrupt or gain share across the value chain. We're all investing a lot of money into technology with the objective of achieving a superior position, but very few people are talking about how to actually convert that advantage into a win.

To be honest, I think this is the biggest threat to the long-term success of AgTech, that being incomplete and superficial investment strategies from both corporates and investors. The industry has been very good at highlighting macro and micro trends, identifying pain points and disruptive opportunities, and investing in potentially transformational solutions.

But we've been straight up piss-poor at defining what the winning strategies will look like as actual businesses. And if we don't have a solid thesis on how these technologies will translate into scalable, efficient, profitable businesses, then I think we'll continue to see relatively small exits that will ultimately marginalize AgTech as a sustainable area for investment.

You're speaking at the World Agri-Tech Innovation Summit in San Francisco on the panel discussion "Getting Robotics to Work on the Farm". What do you see as the biggest challenge facing robotics companies in achieving market penetration?

Mother nature. All companies developing technology for the farm are at the mercy of a crop's growing cycle and an uncontrolled environment. Unfortunately, many of these crops have annual cycles with single harvest periods. That means your trial environment is severely limited. As a result, it's not a surprise that development times for these robotic technologies have been so long. It's a function of iterations and hardware iterations aren't quick even in a fully controlled, 24/7 operating environment. Now throw in all the variability associated with weather, seasonality, genetics, cultural practices, etc. That's a tough nut to crack.

What are your plans for Yamaha Motor Ventures over the next 12 months, and why is the World Agri-Tech Innovation Summit important to this strategy?

The plan is to continue investing in transformational AgTech startups, particularly those that stretch us into adjacencies that create new markets and potentially new capabilities for Yamaha Motor. Why the World Agri-Tech Innovation Summit? Simple. I've been attending since 2015 and consider it one of the most important events on the calendar. It attracts the most global and prominent players in AgTech.

Nolan Paul will speak on the panel discussing: Robotics & Automation: Getting Robotics to Work on the Farm, at 3.50pm on Summit Day 1, Tuesday March 19.