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The Future of Venture Capital

by Natascha Zeljko

Sohaila Ouffata is Director Platforms at BMW i Ventures Europe, and one of the first women of African heritage with a major leadership position in Germany's VC ecosystem. In her vision for the future, tech is the key to a more transparent, democratic and sustainable society. In this interview she talks about technological innovation and the push for diversity in the financial world

This article is also available in German

Some people are still skeptical about digital issues, but digitization is a prerequisite for solving the most pressing problems of the future. Where do you think the best opportunities lie?

We should not be tempted to slip into extremes. Unfortunately, our societal debate overall is characterized by increasing polarization, and the same is true when it comes to tech. On the one hand, fears for the future and a rather negative attitude dominate the discussion. On the other hand, tech is seen as a kind of alternative religion to which everything is subordinated.

I gravitate more towards the middle, and I suggest we take a look at history: technological change has always gone hand in hand with greater prosperity, democratization, and an improved quality of life. Over the last few centuries, society has clearly moved forward – and this is very much linked to technological innovations. There has always been a tendency to reject the new. Just take people’s reservations about the automobile: many people thought it was crazy to switch from horses to cars. From my own Venture Perspective, I like to think about this sort of change as tech-enabled efficiency. If you look closely at disruptive technologies, the underlying pattern is always efficiency. And where efficiency is increased, not only is wealth created, but potentially more freedom too, both for individuals and for society.

For example, you see this very clearly in agriculture, how much innovation has improved people’s lives. Farming was so hard and physically draining 100 years ago…

Absolutely. But there is another interesting aspect, the issue of sustainability. Here, too, it’s interesting to take a look at history. For a long time, our prosperity was based on the exploitation of resources – natural resources, for example. Today, technology has the potential to level out negative developments, allow for transparency and build up pressure for change.

“The world is changing, and I’m happy to be part of that change.”

What drives you personally to engage with this issue – aside from the basic curiosity and open-mindedness that everyone needs in the current ecosystem?

I see myself as a Next Generation Venture Capitalist. Tomorrow’s world-changing technological solutions will be led by a completely new type of founder – and consequently, they will also require a different type of VC in the future.

This is a transition in our industry that people don’t fully recognize yet, because the start-up and tech industry seems so colorful, young and flexible. The finance world, on the other hand, is still not very diverse, and its cultural change is just beginning. You can see that in my background. Years ago, it would have been unlikely for someone like me, a woman with African roots, to take on the role of automotive tech investor in Germany. And this shift is what’s so exciting about our industry. The world is changing, and I’m happy to be part of that change.

What else has changed, in your view?

There is a new mindset. Founders want to make a positive contribution to society with their companies. Purpose is part of their DNA. This is the Tech 4 Good Movement that I often talk about.

“The problem is that people who think like that are never going to see the truly disruptive outliers, because they only ever reproduce their own thought pattern.”

How do you see your role as a VC? In what ways does this job offer a high degree of decision-making power?

We bear responsibility for the allocation of our investments. In this sense, this role is hugely important, of course. Especially in the early stages, you usually have little information, and you make investments based on the skillsets of your founding team. This is where the famous concept of unconscious bias comes into play. Do people invest in founders who are similar to themselves?

In the past, this always meant young, white, male, Ivy League graduates – in other words, many investors bred little clones of themselves. The problem is that people who think like that are never going to see the truly disruptive outliers, because they only ever reproduce their own thought pattern. That’s why it’s imperative that a new generation of VCs come into key decision-making roles. There is already more diversity at the professional level of analysts, associates, etc., but the top management level still needs to catch up – globally, but especially in Germany.

What could help to bring about change more quickly?

Change is usually driven forward by pressure. And in the case of VCs, the pressure now comes from multiple sides. For one, the new mindset of the investors behind the funding – in the case of Limited Partners, for example, or pension funds, or other institutional investors. Nowadays, LPs are increasingly concerned with “diversity”, and thus they expect it to be delivered.

On the other hand, the boost also comes from the founders themselves. The really good founders can pick and choose from whom they receive investments. They ask the right questions, and they make sure that their board is staffed appropriately, so that a variety of VC partners have a seat at the table. And of course there is a lot of lip service, and free riders who jump on topics like diversity or sustainability. But the bottom line is, it only works if there is real commitment behind the words. On the whole, this is a reflection of the current zeitgeist. The VC industry can no longer ignore it.

Speaking of pressure… Germany invented the car; how do we prevent others from driving the automobile industry away from us? Some people claim that this has already happened. How do you assess the situation here?

It’s very complex, and the situation has of course been exacerbated by the pandemic. In my opinion, the public debate is too one-dimensional. Many reduce structural challenges to the issue of electromobility. Although some OEMs (Original Equipment Manufacturers) still have some catching up to do in this area, most of them continue to operate in their area of expertise and are rapidly picking up speed. The real threat is the digital DNA of new players, and the fact that many of these start-ups have access to a great deal of capital on the market. But it is true, as in all industries, that new competitors start out in the market without IT or process legacies, which makes them fast.

This is an exciting point, perhaps the most important. Please explain…

In the automotive sector, the way cars are designed, developed and brought to market is changing more and more. As is the norm in the tech world, new developments are based on a “software platform”, and the product is understood as a software solution, which is developed and optimized even after the sale.

Because of this constant improvement, a car is suddenly a product that customers enthusiastically purchase even in an “incomplete” state, and continuously upgrade through software updates.  This update functionality (a.k.a. “over the air updates”) can also allow a car to be monetized over its entire lifecycle. In other words, we are talking about a revolution in the business model. And a speed that no longer aligns with the former and current industrial landscape. The traditional OEMs have already made massive adjustments and developed strong core skills in fields such as AI. There’s already so much happening there, and that’s why it’s the most exciting area to be in right now.

But there’s another aspect that some automobile producers often underestimate, and that is the value of storytelling. Innovation leaders are the ones who capture people’s imagination – on the consumer side, but on the investor side too. If we take a look at stock market values now, it quickly becomes clear that some players in the market have managed to do this very successfully because their value assessment goes far beyond classic enterprise standards.

The technology and working style are different now, but so is the concept of mobility…

Absolutely: it’s about more holistic questions. What will cities look like in the future, what modes of transportation will we use? What will it mean when we can sleep or consume media in self-driving cars? It’s fascinating.

“That’s the exciting thing about a crisis: it offers the potential for something new.”

To what extent did Corona help spark the change?

It’s often said that Corona is like gasoline to a flame. It is. Industries that already had problems because they slept on digitalization, or were too hesitant to adopt it, are on the brink of collapse. Unfortunately, I see this quite often in the SME sector. Some companies would now have to catch up tremendously in order to remain competitive. It’s a tough environment – the pandemic has exposed its vulnerabilities. The big winners are clearly the platform models, which will accelerate structural change in retail, for example. Our cities centers will be transformed. Many things that many people love, like small independent shops, will possibly disappear. That’s the negative side. But there will also be positive developments. For example, commercial real estate, which was a hot (and scarce) commodity in big German cities, is simply not being used in the same way. Real estate planning will change. What will happen to our spaces? Will we grow our food on rooftops in the future? And then will we have the chance to nourish ourselves sustainably, with locally grown products? And that’s the exciting thing about a crisis, it offers the potential for something new.

The state intervened heavily in the pandemic, on the economy among other things. What do you think about that?

That is indeed a critical point. When I look at the immense sums that have now been mobilized because of the pandemic, I would have liked to see more investment in future technologies. In recent years, we have stuck too closely to the zero-growth model and done far too little to advance digitization – despite the fact that we are fundamentally innovative! After all, we developed the first vaccine with Biontec. We should have celebrated this much more.

When it comes to change, what are three things you’re tired of hearing?

Number one: When people or companies say that diversity is important to them – and believe that simply hiring a woman is enough. Unfortunately, this outdated way of thinking is still widespread here in the German-speaking world, whereas other countries are much further ahead. There, it has long been understood that diversity beyond gender means diversity in every dimension.

Number two: When I come across an all-male board or panel, and/or work with VCs that don’t have a single woman or PoC on the team, and then they say, “We couldn’t find anyone.” I always say, “If it’s tough, then you have to look harder.” By the way, that goes for me as well. If I can’t make an appearance at a panel myself, I look for another woman who can replace me.

And number three (this one is almost funny) is the phrase: “You speak German so well!”

And finally, please give us your “Big Three of Success”. What do you think it takes to be successful?

This question is different for every individual, of course. To me, it’s authenticity. It’s incredibly important for me to be able to be the person I am. To bring my inner self to the outside world. To draw on my strengths. Not having to pretend. That’s where my strength comes from. I am not a professional actress, so I am at my best when I can be exactly who I am. Secondly – and this is something I often recommend to founders, by the way: it’s about clarity of intention. This brief pause and reflection is incredibly important, and I believe it’s the basis of my success.

And finally: Respect.

A bouncer said this to me 15 years ago, in one of London’s legendary clubs. “You know, Sohaila, it’s all about respect!”

He’s right. We often forget that, especially when we’re so driven and always heading for the next goal. It’s important to treat the people around us, but also ourselves, with respect.

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