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By Your Edge Blog Team | June 21, 2022

Ask the Expert: Why Is Zebra Technologies Providing Venture Capital to Startups?

If you haven’t heard about Zebra Ventures, or just want to know why a Fortune 1000 company would have a “corporate venture capital” team that invests in startups that may someday be competitors, keep scrolling below.

Ever since Zebra Technologies launched Zebra Ventures, our strategic investment arm, people have questioned our motive. “Why would Zebra become a venture capitalist? What’s in it for the company or shareholders? How does the anticipated return stack up against the known risk?”

The simplest answer to all those questions: we are innovators, much like the companies we invest in through Zebra Ventures. We strongly believe that diversity of thought, deep domain expertise, and collaborative problem solving are necessary to help our customers gain a performance edge. We have a vision of what the future of work will look like, especially front-line and field-based work. And we must sometimes look beyond our four walls and global channel network for the capabilities to execute on that vision. 

Does that mean we have plans to eventually acquire every company in our Zebra Ventures portfolio, as we did with Fetch Robotics and Profitect? Are we just nurturing these companies? Testing them, even? 

We connected with Tony Palcheck, Managing Director, Zebra Ventures, to get answers to those questions and more…

Your Edge Blog Team: When and why was Zebra Ventures first formed? And who even recommended we start making strategic investments in startups? 

Tony: I joined Zebra through the acquisition of Motorola Solution’s Enterprise business in October 2014. I was part of Motorola Ventures (or Motorola Solutions Venture Capital) and then transitioned to Zebra to manage the six investments Zebra had made prior to the acquisition and the 11 “enterprise-oriented” startups that were in the Motorola Solution’s portfolio that came over to Zebra as part of the acquisition. We immediately labeled the function, “Zebra Ventures.”  At that time, we were very conscious of Zebra’s need to pay down the debt related to the acquisition, and we spent the first few years rationalizing the existing 17 companies in the portfolio and limiting the money invested in new companies.

Corporate venture capital arms exist for a variety of reasons, but generally are created to enhance a company’s ability to solve customer problems. Other reasons include: 

  • learning – gaining a deeper understanding of new industries, to include their deal economics, sales cycles, customer demand and traction and market landscapes.

  • augmenting internal research and design (R&D) efforts.

  • creating options for new businesses. 

  • “try before you buy” scenarios.

  • obtaining a financial return.  

The primary goal of Zebra Ventures is to invest in innovative companies that are strategically relevant to Zebra so we can protect our core and expand into adjacent and transformational solution offerings. I see Zebra Ventures as one tool in the Zebra “innovation tool kit. The other main tools are internal R&D and M&A. Zebra has been effectively using all these tools over the past few years to maintain our leadership in core markets as well as branch out into new areas.

Your Edge Blog Team: How has the Zebra Ventures portfolio changed since then? Are you focusing investments in different categories or market segments? Or looking more closely at incubating solutions that support new types of applications?

Tony: Prior to 2018, Zebra Ventures was mainly investing in follow-on rounds in existing portfolio companies (i.e., Displaydata, an electronic shelf label company). At that time, I would characterize the portfolio as being more adjacent to Zebra’s core products (i.e., mobile computers, barcode scanners, and printers) and it included small investments in RFID, location and motion sensing, and device analytics.

In 2018, Zebra Ventures became more of an active investor, and we leveraged our years of tech research and focused our capital on “transformational” companies that developed technology in what I like to call the 3 A’s: automation, artificial Intelligence (AI), and analytics. These transformational companies provided products and solutions that were outside our core product portfolio and provided opportunities for Zebra to learn about new industries, spaces, technology, players, and more. Part of that learning comes through working closely with each company and through the board or board observer seat that we obtain as part of our investment.  

So, over the past six years, our investment focus has shifted into more transformational spaces including investments in companies that provide manufacturing and warehousing robotics, AI solutions, supply chain visibility and reverse logistics software, retail software, and healthcare workflow analytics. They represent large growth opportunities in the verticals we serve.

Most recently, in 2021, Zebra created three new business units related to the investments we had been making in warehouse automation, industrial automation (fixed industrial scanning and machine vision), and retail execution and demand planning software. Each new business leverages the substantial research that has been done in these areas, as well as the investments that have been made. Zebra Ventures aims to continue investing in leading-edge companies that support these businesses and reinforce our ability to be a leader in solving our customers’ productivity and efficiency problems through digitalization and automation. 

Your Edge Blog Team: How many companies has Zebra Ventures invested in since inception?

Tony: We’ve invested in about a dozen new companies but have also made several more “follow-on” investments to support existing portfolio companies. Several of our portfolio companies were acquired, and thus the current number of portfolio companies is 15.

Your Edge Blog Team: Are we still actively engaged with all these companies?

Tony: We have experienced several exits during my tenure here. Many portfolio companies have been acquired – Airclic was acquired by DesCartes, Bytelight by Acuity, Intellivsion by Nortek, GoCanvas by K2, for example – and a couple have shut down. It is worth noting that some startups have pivoted from their initial strategy over time and, in a few cases, we have changed our thinking on particular spaces which caused some companies to become less strategically relevant to Zebra. That said, we remain actively engaged with the majority of our portfolio companies.  

Your Edge Blog Team: Is there an acquisition strategy specific to Zebra Ventures companies? Is the end goal to eventually buy these businesses and roll them into our broad portfolio, perhaps to fill a gap or scale our capabilities?

Tony: No. We typically do not invest in a company with a defined plan to acquire them. That said, we spend a lot of time identifying a strategic intersection between the startup and Zebra in the investment process. That is one of the core criteria required to make an investment. Post-investment, we spend a lot of time working with our Zebra colleagues in the product, solutions, sales, and go-to-market groups to partner with the startup and execute on the synergies identified.

If Zebra’s leadership team finds that the portfolio fills a gap and/or enables us to scale our capabilities faster, then the mergers and acquisitions (M&A) team will be brought in. This has happened twice during my time at Zebra – first with Profitect, which served as the foundation of Zebra’s prescriptive analytics offering in retail, and second with Fetch Robotics, which has helped build the foundation of our warehouse automation solution offering.

Your Edge Blog Team: What happens when Zebra acquires a company that competes with a Zebra Ventures company? 

Tony: This does not happen very often, however, a great example is our acquisition of Fetch Robotics while we were also invested in Locus Robotics. Fetch and Locus are now direct competitors with competing warehouse automation solutions. In the case of Locus Robotics, after we announced our intention to acquire Fetch Robotics, I had to recuse myself from participating in the Locus board meetings and they have greatly limited the information they share with me.

That said, I continue to have a good relationship with Locus’ CEO and board of directors, and we continue to share information on the warehouse automation market and other robot companies.

Your Edge Blog Team: Sometimes we seem to have a dual relationship with the Zebra Ventures portfolio companies. We’re investors in their business, but we’re also customers or strategic partners on customer deployments. For example, we’re using FourKites software to help inform some of our supply chain and transportation decisions. And we’ve been working with Tagnos on developing and deploying real-time locationing solutions in the healthcare sector, even demoing our joint solution recently at HIMSS 2022. Are there conditions of our investments that dictate these companies must work with us in a certain capacity, either to support our business or customers’ businesses?

Tony: Those are both great examples of how we are more than just investors in many of our companies (and strive to create value for them). This is not a condition for investment but represents just a few examples of how Zebra truly believes in the technology and product offerings that our portfolio companies provide.  

Prior to investment, we spend a lot of time researching the entire space (i.e., trends, market size, market growth, technology, competitors, profitability, intersection with Zebra, and more) to develop an objective view on who are the strongest companies and which ones offer the right “strategic fit” with Zebra. This increases our confidence that these companies can help solve problems that our customers have, which coincidentally may be some of the same challenges that Zebra is trying to address in our own operations, such as asset visibility and warehouse automation. 

Your Edge Blog Team: How are companies chosen for investment? Do they have to apply? Do we have certain criteria that drives an investment decision?

Tony: The first “filter” we use in evaluating companies is to determine if the startup is developing technology that is strategically relevant to Zebra’s customers. If we determine there are potential synergies, we dig further into the company’s level of maturity and operations, including its current stage, valuation, number of employees, customer traction, revenue, business model, partners, and where it fits into the overall ecosystem. If we determine there is still interest after this review, in many cases, we will bring in some of our colleagues from the relevant departments within Zebra to learn more about the company and provide input on their level of interest in further evaluating the company. 

Your Edge Blog Team: How long does Zebra support these startups? Is there ever a point when we step away (if we don’t acquire them)?

Tony: We support our portfolio companies in a variety of ways, such as strategic planning, fundraising, and driving revenue by introducing them to our sales team and customers if there are potential sales opportunities. We also encourage them to work with our product and solutions teams to co-innovate.  Zebra supports our portfolio companies as long there is a mutually beneficial relationship, assuming they do not become competitive to us.

Your Edge Blog Team: Have you ever considered investing in companies that are innovating outside Zebra’s current ecosystem? Perhaps companies that may serve the same target markets but whose solutions would seem out of place in Zebra’s core technology portfolio – at least today?

Tony: It depends on how you define “current ecosystem.” I would argue that Zebra is in the business of solving efficiency and productivity problems for our enterprise customers through digitizing, digitalizing, and automating their processes. Thus, our current ecosystem includes a broad swatch of companies.  I’d say the answer is “yes” as long as the company is strategically relevant to Zebra, and they serve the customers and industries we serve.

Your Edge Blog Team: In a perfect world, what types of companies would you have in the Zebra Ventures portfolio a year from now? Or five years from now?

Tony: Zebra is in the business of helping our customers “get the right products to the right place at the right time, at the lowest cost.” That isn’t going to change. Our customers’ use of the “3 A’s” to accomplish that mission is only going to increase. Thus, in a perfect world, Zebra Ventures will continue investing in the next generation of transformational startups that focus on the 3 A’s.  

What will change is how those technologies evolve to serve our customers’ needs. Recently, we have been spending time understanding companies in the autonomous forklift space within a warehouse as well as micro fulfillment centers (MFC), frictionless checkout (i.e., Amazon Go stores and smart carts), and “beyond the barcode” solutions for identifying items and improving inventory visibility. We also like software companies in the supply chain that help our customers efficiently fulfill orders. Examples of such solutions would be demand sensing algorithms and distributed order management software for omnichannel retailers. I look forward to continuing to invest in these exciting and innovative spaces to help Zebra remain on the leading edge of our industry!

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Editor’s Note:

You can learn more about Zebra Ventures here and get the full scoop on why Zebra acquired Fetch Robotics in this blog post and podcast.

Did You Know?

Tony Palcheck was named to the Global Corporate Venturing Powerlist 2022. Learn more.  

Topics
Healthcare, Warehouse and Distribution, Retail, Hospitality, Energy and Utilities, Manufacturing, Transportation and Logistics, Inside Zebra Nation, Field Operations, Public Sector,
Zebra’s “Your Edge” Blog Team
Zebra’s “Your Edge” Blog Team

The “Your Edge” Blog Team is comprised of content curators and editors from Zebra’s Global PR, Thought Leadership and Advocacy team. Our goal is to connect you with the industry experts best-versed on the issues, trends and solutions that impact your business. We will collectively deliver critical news analysis, exclusive insights on the state of your industry, and guidance on how your organization can leverage a number of different proven technology platforms and strategies to capture your edge.