@Toyota: Next Leg of our Journey: We are Toyota Ventures

After an overview of today’s news, I’ll take a deeper look into some of the principles we’ve established over our firm’s nearly four-year tenure and, finally, how these principles have worked in practice with one of our earliest investments, Joby Aviation.

Today, we’re announcing adding $150M to the Toyota Ventures Frontier Fund for early-stage frontier technology investments. As closer followers of Toyota AI Ventures know, since 2017, we’ve made early-stage investments in artificial intelligence, robotics, mobility, autonomy, and cloud technologies from two funds totalling $205M. These previous investments will now fall under the Toyota Ventures Frontier Fund, bringing its total to $355M. With the new Frontier fund, we’ll also make investments in smart cities, digital health, fintech, energy and materials. We think these areas will continue to see disruptive innovation.

We’re also honored to manage a new $150M fund on behalf of Toyota Motor Corporation, that we’re calling the Toyota Ventures Climate Fund. The Climate Fund is a part of Toyota’s long-standing commitment to environmental sustainability. The mission of the Climate Fund is to help accelerate Toyota’s goals of achieving carbon neutrality by investing in early-stage startups that are driving innovation in this area — good for the planet, vital for humans.

We’ve already had an eye toward more sustainable technologies. Revel and Joby are all-electric ground and air mobility services, respectively. Universal Hydrogen is trailblazing hydrogen distribution approaches to accelerate adoption of zero-emission hydrogen fuel cell engines. There may even be one or two sustainable startups in our portfolio that we haven’t announced yet. Stay tuned.

We’ll invest in carbon mitigation, adaptation, and removal technologies that could have a breakout impact. Our philosophy for the Climate Fund is not to preordain any specific technology. We know that we just don’t know where those breakouts might come from. You can’t centrally plan innovation.

After all, startups are experiments in the marketplace. So, we look forward to grabbing a seat at the lab bench where these market experiments might prove (or disprove) the feasibility, scalability, and economic viability of specific technologies. Since the industrial revolution, the marketplace has proven a quick arbiter of technologies that have lengthened and improved our lives from manufacturing to agriculture to medicine to computing. We believe, if properly capitalized and motivated, carbon neutrality can be accelerated, too. And, frankly, our planet can’t wait.

Although our name is changing, our investment approach is not. Startups are our customers. Our corporate parent, Toyota, is our partner. These two stakeholders play different roles and have different needs. So, for our startup customer, we’ll be doubling down on the principles that have served them (and us) well.

1. First, Do No Harm — Coming from a long line of doctors (yes, my engineering degree disappointed my parents and grandparents), the Hippocratic oath of ”do no harm” was drummed into me from early childhood. Startups are not just small versions of large corporations. They’re on a unique metamorphic journey. Too often, large corporate investors don’t understand this, which can result in well-intentioned, inadvertent bear hugs that crush the life out of a young startup. For Toyota Ventures, we know that we don’t know what’s best. First, we listen and learn. Then, we offer and act.
2. Financially Align — The startup’s financial return should be prioritized over the corporate parent’s strategic return (a principle that many corporate VCs get 180 degrees wrong). Prioritizing financial success aligns us with our startups and co-investors, which builds trust — we all want the same thing. It also makes sense for the corporation since only financially strong startups make reliable strategic partners. Thus, a Toyota business unit relationship is not required for a Toyota Ventures investment.
3. Speed Matters — Speed must be (1) risk-adjusted and (2) customer-paced. First, when less is at risk, operating speeds should be faster. Second, companies must match the pace of their customers. Since the startup is our customer and we risk-adjust our investment by stage, we operate at their faster speeds.
4. Support the Customer — It would be weak to claim that the “startup is our customer” without resourcing a customer support team. Our dedicated Platform team provides our portfolio companies with strategic support and operational guidance across the functional stack like sales, marketing, product, research, and fundraising. Startups are hard (to put it mildly), so it’s satisfying for us to offer resources to help our portfolio companies navigate their challenges and accelerate their progress.
5. Keep the Terms Simple and Standard — Our philosophy is that investment terms should be clean and standard, without being laden with strategic business terms. That said, we love when our portfolio companies find ways to work with Toyota, but have found that the best relationships grow naturally after the close of our investment. These organic relationships have proven more fruitful, for both the startup and Toyota business unit.

We operate with the best interests of our portfolio companies in mind, truly. This customer orientation naturally fits within Toyota’s long history of excellent service and continuous improvement. As our President Akio Toyoda says, “There is no ‘best’, only ‘better’.” We live by this credo to “earn our customers’ smiles every day.”

Theoretical principles provide nice talking points, but how do they actually work in practice?

Take one of our earliest portfolio companies, Joby Aviation. Their path has some idiosyncratic nuance, but it also shares key elements with other startups. Since Joby announced that it intends to go public later this year, I can speak a bit more candidly about the origin of our relationship, how we’ve worked together, and how we put our Toyota Ventures’ principles into practice.

On a misty morning in August of 2017, I had the opportunity to visit a rock quarry in the Santa Cruz mountains where a small startup was testing an all-electric vertical take-off and landing aircraft — an eVTOL. This full-scale prototype gently rose from its pad, did a halo maneuver around the quarry, and lit back down. It was quiet, solid, and elegant.

On digging in, what struck me was the teams’ attention to safety, silence, and service. The power paths from batteries to rotors are redundant to provide safety in the unlikely event of component failure. The noise was 100 times quieter than a helicopter but, more importantly, the noise “signature” was shaped to be more akin to wind rustling through trees than the jarring wap-wap of helicopter blades.

As an investor, what stood out most was their mission to use this vehicle to power an affordable air taxi service for trips up to 150 miles. Joby intends to, in the words of founder and CEO JoeBen Bevirt, “save a billion people an hour a day.” It was a journey of safety, efficiency, productivity, inclusion, and sustainability. We made our investment within a few weeks of that first site visit.

That initial Joby investment was made that summer for two reasons. First, we saw that urban mobility must move skyward. Dense, urban cities must move people through the skies since they neither have the room nor inclination to build more roads and can’t economically dig tunnels. Second, we were lucky enough to stumble across JoeBen and his amazing Joby team who are passionately committed to the air mobility mission, have the requisite deep technical expertise, and are tenaciously driven to win.

In January 2020, Toyota Motor Corporation led Joby’s $590M financing round and announced a strategic partnership to manufacture Joby’s eVTOL vehicle at automotive volumes. Most recently, Joby announced that it intended to list on the NYSE through a merger with Reinvent Technology Partners, raising $1.6B at a post-money valuation of $6.6B.

So, for Joby, did we live up to our principles? Did we do what we said? Let’s self-assess.

1. First, Do No Harm — In the early days, we asked a bunch of questions to better understand how the Joby team thought about the vehicle they were designing and the service they were building. In the earliest strategic meetings with executives and board members, I tried to keep my mouth shut and listen (not that easy for those who know me). Only after we deeply understood the company’s priorities and challenges could we have any hope of helping efficiently and significantly.
2. Financially Align — We made it clear to Joby that those on the Toyota Ventures’ team were aligned with Joby’s financial success. Once our alignment was clearly understood, our portfolio Platform team went to work to explore how Joby and Toyota might strategically work together. See Principle 4 below.
3. Speed Matters — Our first investment was on a convertible note soon after the Series A closed. The note was oversubscribed and we had to move fast. Of course, the reasonable expectation by Joby executives and investors was that an automotive OEM, especially the largest, would never move fast enough to decide on the investment, get it approved, diligenced, and wired in time.
4. Support the Customer — Soon after the investment, our portfolio Platform team worked closely with the Joby team to help calibrate them to the expectations of a world-class, Fortune 100 automaker. Two and a half years after that first investment, Toyota led Joby’s Series C financing round and announced a manufacturing partnership.
5. Keep the Terms Simple and Standard — For that first 2017 investment and subsequent follow-ons, we didn’t ask for any cumbersome requirements that would hinder a growing startup. There was no obligation for a strategic collaboration — in fact, that grew organically as the relationship matured.

All that self-assessment aside, the best report card comes from the customer themself:

Four years ago, Jim [Adler] came out and watched a flight test. He asked incredibly thoughtful questions and then acted decisively on investing in Joby Aviation. That was just the beginning of an incredible partnership with Toyota Ventures and with Toyota Motor Corporation. It led to further financing and a strategic manufacturing partnership. — JoeBen Bevirt, Founder and CEO, Joby Aviation

Joby is certainly the most public example where a startup in our portfolio is (1) lighting a disruptive new path in their market and (2) demonstrating how corporate venture investments can result in both financial and strategic returns. I have a feeling it won’t be the last.

With nearly 40 investments made in the past four years, it’s truly been a privilege to join each startup journey. The past has certainly been confirming, and the future has never looked more promising.

The Toyota Ventures team will be hiring in the months to come — not only to explore the newest investment areas, but also to ensure that our Platform team is equipped to support our growing set of portfolio company customers. We are also fully committed to expanding diversity, equity, and inclusion efforts within our own team, our portfolio companies, and the venture capital industry.

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Learn more about Toyota Ventures, the team, and our portfolio by visiting our website or following us on Twitter, LinkedIn, and Medium. Early-stage startups may submit a pitch. Interested candidates can explore current job openings.

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