Interview Of The Week

Interview Of The Week: Jim Adler, Toyota Ventures

Jim Adler is the founder and a general partner of Toyota Ventures, responsible for setting the strategic direction and leading the firm’s investment activities. In addition to serving on the board of directors for Toyota Ventures, he also serves as an executive advisor at Toyota Research Institute (TRI). Adler, an electrical and computer engineer by training, joined Toyota Ventures from TRI, where he served as vice president of data and business development. Prior to that, Adler was vice president of products and marketing at Metanautix, a big data analytics startup funded by Sequoia Capital and Workday that was acquired by Microsoft. He also held the position of vice president of data systems and chief privacy officer at Intelius, which was acquired by H.I.G. Capital. Earlier in his career, he founded VoteHere, a pioneer in cryptographic secure and secret online voting for public elections that was funded by Cisco and HP, among others. He also worked as a rocket engineer for Lockheed Martin.

Adler currently serves on the investment committee of JetBlue Technology Ventures and is a member of the board of directors for several Toyota Ventures portfolio companies.

He is scheduled to speak on a panel about corporate venturing moderated by The Innovator’s Editor-in-Chief at 4YFN conference in Barcelona Feb. 28. He will also participate as one of the investor judges for the 4YFN 2023 Awards to evaluate the five startup finalists and assist in deciding the winner of the competition. Adler spoke about how corporates can best engage with startups during an interview with The Innovator.

Q: You started out as a rocket engineer and entrepreneur. How did you end up in corporate venturing?

JA: I’m an engineer by training. My first job was launching rockets for Lockheed Martin. I loved the work but didn’t love the big company experience. After 25 years of founding and working for startups, a company I was working for was sold to Microsoft in 2016. Usually after an exit you need to take a break. Toyota was going to be my recharge. I was hired to lead the company’s data and Cloud engineering team. I did that for about a year and then I was itchy to do something new and impactful, so I joined the Toyota Research Institute (TRI) in Silicon Valley. TRI had some money to make investments so they sent me to pitch meetings with startups because they figured I understood startups. I told them if I am going to sit through startup pitches, I need to know what our process is for investing. What are our values? What’s our thesis? I told them that no one will take our meetings if we are going to waste people’s time. So, they asked me ‘What would you do?’ I had strong opinions since I had taken money from corporates during my period as an entrepreneur, so I wrote a manifesto that described what I think a good corporate venture approach looks like, framing the values, who the customer is and who the partners are. I did not think I was going to run it. I just told them this is how I would do it. The leadership at Toyota Research Institute liked it and decided to take it up the chain to Japan. It went all the way up to [Toyota President] Akio Toyoda. He thought it made a lot of sense and the group put me in charge and launched its first $100 million fund in 2017. Since then, we’ve grown to  $500 million under management across four funds: three in frontier technologies and one focused on climate.

Q: What makes Toyota Ventures different from other corporate venture funds?

JA: In building the Toyota Ventures investment strategy, we prioritize financial return over strategic return based on the principle that the most financially successful companies make the strongest strategic partners. Many corporate VCs see their company as the startups’ primary partner. We don’t. We see Toyota as a limited partner. If you throw money at something because it is strategically great, what happens is often the startup and co-investors don’t trust you. Everyone else around the boardroom table wants financial success for the startup, so if a corporate brings up a suggestion or a concern everyone suspects it’s because they need to meet some KPI for their quarterly review. Without trust nothing is possible, and you can only have trust if everybody wants the same thing. It is also why we structured this as a 10-year fund.

Many corporates come in at the top of the business cycle and end up buying high and selling low, which is the opposite of what you want to do.  Toyota has patience and a long-term philosophy. The message is we are going to be there and will be as reliable as your Corolla. We don’t have to go to our CFO anytime we want to do a deal. This gives us resilience and means we can be financially astute.For us, the point of corporate venture, at least for early stage investing, is to explore new markets and learn from the disruption that startups are bringing to them. This helps identify, prepare and position Toyota for the next emergent opportunities.

Q: Can you give an example of how that works in practice?

JA: In August of 2017 I made a visit to the headquarters of a startup called Joby in Santa Cruz, California to watch a test flight of its electric vertical takeoff and landing (eVTOL) aircraft. There were three elements that lit the light bulb: how safety redundancies were incorporated throughout the vehicle, that fact that it was super quiet and sounds more like wind rustling through trees rather than a helicopter; and the third was what they wanted to build around it: air taxi services aimed at saving a billion people an hour a day.

At the time, we were very focused on AI and not air taxi services, but I felt like if there are going to be flying cars, we had better be investors. The team was amazing, the market was potentially huge, and the company was financially oriented, so we moved very quickly, writing a check two or three weeks after our first meeting as a participant in a $100 million Series B financing to take Joby’s eVTOL aircraft into pre-production and certification.

The initial investment was the first step towards laying the foundation for a potential collaboration. With Joby, it became apparent early on that there was an opportunity for a strategic engagement that involved manufacturing. Given that Joby’s plans for an urban air taxi service would require thousands of vehicles to be mass-produced on a level unfamiliar to most aviation manufacturers, it was clear that this would be a job for an automaker that understands scale, quality and safety.

It took a year or so for Toyota to see  what we invested in. There is a saying in Japanese which means   ‘get out of the office’ so eventually, at our urging, a senior executive and a team of 20 traveled to Santa Cruz to see the eVTOL operate. They were blown away. A year later Toyota led a $590 million Series C round in the company and engaged as a partner for  manufacturing design-work streams in January 2020. It marked the first large-scale engagement of its kind for a Toyota Ventures portfolio company and Toyota. Since then, Joby listed on the New York Stock Exchange and Toyota engineers have been working with Joby to help it prepare for manufacturing at scale.

Q: Helping startups scale is the holy grail but often relationships between corporates and startups get stuck in proof-of-concept trials (POCs) What is the best way to avoid that trap?

JA: This is a hard one. You need to look at what the pain points are in the business unit and stay clear of innovation theater- the idea that we are innovative because we are working with startups. If there is real value, then you can break through. The reason our investment and work with Joby is a good example is that Toyota has, over decades, been interested in aviation.  The founder hesitated between whether to build an airplane or build a car in the 1940s so there was pent up interest in aviation. In addition, on the manufacturing side, Toyota is world-renowned and is really focused on the factory of the future, so it has adopted all kinds of new technologies and has a process for doing line trials and then graduating that across sister plants. This makes it a good fit to help Joby scale manufacturing.

Q: What are some of the biggest mistakes that corporate venture firms make?

JA: It is important to structure relationships with startups, so you don’t fall into the most obvious traps. Everything is culture. If things are running at different frequencies, they won’t work. Large companies work on a quarterly cadence. A startup doesn’t run that way. They work with much longer timelines so if you try to jam an early-stage startup with a business unit, there is discord. In a business unit where the risk tolerance is low and the startup is at an early stage and doesn’t have a product yet, the risk is too high, so you need to propose only later stage startups. If the business unit is working on the bleeding edge, then you can match them with earlier stage startups.

 Expectations need to be calibrated well so the two sides can take advantage of each other’s strengths, otherwise you are setting yourself up for disappointment. It comes down to understanding what startups can bring and what they can’t.  If they are at an early stage, they help you look at disruptive innovation. Think of them as a telescope into the future. If they are later stage or growth stage, they are more like binoculars into the near future.  Corporates need to understand the difference and remember that startups are like stem cells: you never know what they are going to become.

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About the author

Jennifer L. Schenker

Jennifer L. Schenker, an award-winning journalist, has been covering the global tech industry from Europe since 1985, working full-time, at various points in her career for the Wall Street Journal Europe, Time Magazine, International Herald Tribune, Red Herring and BusinessWeek. She is currently the editor-in-chief of The Innovator, an English-language global publication about the digital transformation of business. Jennifer was voted one of the 50 most inspiring women in technology in Europe in 2015 and 2016 and was named by Forbes Magazine in 2018 as one of the 30 women leaders disrupting tech in France. She has been a World Economic Forum Tech Pioneers judge for 20 years. She lives in Paris and has dual U.S. and French citizenship.