Industry in race to fund next big thing

SHANGHAI — Augmented-reality startup WayRay has been trying to perfect a holographic head-up display for cars since 2012, and it still doesn't have a single one for sale.

But the Switzerland high-tech hopeful has a shot at changing all that, thanks to a sudden influx of interest from automakers worldwide. Manufacturers are flooding WayRay with cash to back development of the special windshield film that enables its detailed digital pop-ups.

Welcome to the new world of auto industry venture funds.

In hopes of seeding breakthrough technologies that they just don't have the time or people to create in-house, old-school carmakers and traditional suppliers from Detroit to Munich to Tokyo have been ladling out hundreds of millions of dollars to high-tech startups to get a leg up on autonomous driving, connected cars and electrified vehicles.

The money race targets almost any industry outsider, no matter how small or obscure, that might be a conduit to the next big solution. It is pitting established players against each other, armed with venture funds to buy up partners before rivals do. And it also smacks of a new gold rush — carrying risks for investors betting on what, in many cases, are still unproven startups.

WayRay became an industry darling partly through its participation in several such venture programs, including the Xcelerator program that Honda runs and Plug and Play Japan, which connected WayRay to Nissan Motor Co. WayRay's other partners include Porsche, Chinese auto giant SAIC Motor Corp. and China's Internet retailer Alibaba, to name a few, says Andrei Shelomentsev, WayRay's vice president of strategic partnerships.

Some 20 auto companies are now collaborating with WayRay, and for good reason, Shelomentsev said.

"On one hand, car manufacturers are scared by the threat of technology companies," Shelomentsev said here last month at CES Asia, where WayRay was exhibiting inside the Honda booth. "On the other hand, they want innovation but are too big and bureaucratic to innovate themselves. It's a trend happening all over the world."

The list of automotive players on the hunt with venture funds is long and growing.

Ford Motor Co., General Motors, Toyota, Volvo and BMW are among the automakers. Suppliers from Magna International to Germany's ZF and Japan's Denso Corp. are also in the game. Given the industry's upheaval, no player is big enough to completely go it alone.

Carlos Ghosn, who oversees the Renault-Nissan-Mitsubishi alliance as chairman, highlighted the importance of venture funds at Mitsubishi's annual shareholders meeting in June.

In January, his three automakers set up Alliance Ventures, which will shell out up to $1 billion to up-and-coming partners over the next five years. It targets the gamut of new technologies that stretch the imaginations and pocketbooks of old-guard automakers: new mobility, electrification, autonomous driving, connectivity, big data and artificial intelligence.

"The fund," Ghosn promised, "will strengthen our operation with startups and help all alliance companies cultivate new areas of business and widen the spectrum of technology we are able to cover."

Tomorrow's automotive suppliers will be high-tech companies from sectors where employees write code instead of bend metal. Yet, automakers and traditional suppliers are just beginning to adjust to that new landscape — and in many cases, they aren't exactly sure how to.

"We have a sense of crisis that we won't be able to handle this large-scale development with just our own technological power and resources," Toyota's general manager for automated driving, Hiroyuki Hirano, said in May while announcing Toyota's ¥400 million ($3.6 million) investment in a Japanese big-data analysis firm called Albert Inc. "In working on automated driving, we think AI is essential. Unfortunately, we don't have advanced technology in this field."

Old-guard investors are earmarking big chunks of money to buy in to new fields.

Toyota AI Ventures, for example, was set up last year and has a war chest of $100 million, according to a tally by Crunchbase Inc., an online database of startups and investors.

General Motors Ventures kicked off with $100 million in 2010. BMW launched its i Ventures fund a year later with $100 million. By 2016, amid spiraling competition to invest, BMW threw in another $500 million and moved the fund's head office to Silicon Valley.

"These days, more and more innovations come from the startup scene," Peter Schwarzenbauer, BMW board member responsible for Mini, BMW Motorrad, Rolls-Royce and aftersales, said at the time. "Venturing allows us to tap into this potential at an early stage."

Individual outlays are usually bite-size amounts to pint-size players, partly as a hedge.

BMW's fund parses out between $1 million and $50 million per shot, according to Crunchbase.

Other funds are in the same ballpark.

In March, Ford took a $65 million stake in metal 3D-printing startup Desktop Metal Inc., of Burlington, Mass. Alliance Ventures bet $65 million in February on Ionic Materials Inc., of Woburn, Mass., which proposed commercializing a polymer that would make batteries safer, cheaper and longer lasting.

The idea among players in this new strategy is to spread out their chips for a toehold in something new, while recognizing that it might not pan out.

Renault and Nissan know it sometimes doesn't. Before their Alliance fund was even an idea, the electric vehicle pioneers were early backers of Better Place, a onetime hot item that peddled the idea of creating a charging network for EVs that relied on swappable batteries.

Despite building demo cars and signing agreements, Better Place filed for bankruptcy in 2013.

Today, funds are funneling hundreds of millions of dollars into all manner of shared mobility, AI, mapping, computing, charging and materials companies. Some are bound to flame out. The trick is separating the vaporware from companies truly pushing the envelope.

It's not always easy. Here is a sampling of some hopefuls tapping the trough of cash:

Yoshi, a San Francisco startup supported by GM Ventures, wants to deliver gasoline and oil fill-ups, car washes and other maintenance to vehicles while they are parked, so consumers don't waste time doing it themselves.

NanoSteel, of Providence, R.I., another U.S. target of GM Ventures, specializes in ultrastrong steel made with nanoscale microstructures.

Kalray Inc., a French startup that received funding from Alliance Ventures, is developing a new generation of "massively-manycore microprocessors." They would deliver the high computation rates and low energy consumption required by autonomous driving systems.

GaN Systems, a Canadian upstart backed by BMW's i Ventures, eyes diodes and transistors made of gallium nitride instead of silicon, for more efficient, low-cost power conversion.

WayRay's proposal turns a windshield into a transparent screen for viewing head-up displays with augmented reality guides. Traditional systems, WayRay says, require bulky optical lenses that are expensive and take up valuable real estate inside a car's dash.

WayRay wants to get around that with a special holographic film sandwiched between glass layers of the windshield and a system that modulates the projection laser just right. The 200-employee company still hasn't announced a date to start production.

For small companies with a skeleton staff and just a good idea, pairing with a giant such as Ford or Toyota can be a make-or-break moment, injecting the funds they need to succeed.

Automakers increasingly feel they have little choice but to seek such help when venturing outside their comfort zone. The risk, some say, is succumbing to the impulse to simply splash out cash in an attempt to block competitors from snatching up something first.

Albert, the big data analytics company backed by Toyota, went public in February 2015 on a special section of the Tokyo Stock Exchange reserved for startups. It has yet to turn a profit.

But that hardly deterred the deep-pocketed automaker. Toyota's Hirano says it is too difficult even for his giant company to hire its own data scientists. Buying in was a convenient shortcut. Not to mention, he concedes, there was also that nagging fear of simply missing out.

"There is a risk that Albert would have formed a capital partnership with another carmaker. That would make it difficult for us to do business with them," Hirano said. "If we miss this chance, we could risk falling far behind our competitors."

Naoto Okamura contributed to this report.