United's heft could help its new corporate venture capital unit, which will be like a barnacle on a whale. Unlike pure-play venture capital firms, United Airlines Ventures can invest for a truly long haul thanks to its strategic focus.
United Airlines announced earlier this month it was launching a corporate venture-capital fund that will invest in startups strategically relevant to the Chicago-based airline, one of largest U.S. carriers by market share. United Airlines Ventures will target startups to help it keep up-to-date on new technologies rather than to seek high returns in a strictly financial play.
To learn more, Skift spoke with Michael Leskinen, the president of United Airlines Ventures and the company’s vice president of corporate development and investor relations.
United Airlines Ventures now oversees all the carrier’s bets on startups. Earlier this year, the airline said it had made a $20 million investment into Archer Aviation, a company based in Palo Alto, California, that’s building flying electric taxis.
Past publicly disclosed investments include Clear Secure, an identity company that United took an undisclosed stake in a decade ago that is worth less than 5 percent of Clear’s equity, according to financial filings by the New York-based startup that plans to go public this year.
In 2015, United invested $30 million in Fulcrum Bioenergy, a startup looking to produce jet fuel from household waste. The airline may have added undisclosed amounts to that investment since.
In December 2020, United announced it would make a “multimillion-dollar” investment in 1PointFive, a project formed by Oxy Low Carbon Ventures and Rusheen Capital that is licensing direct air capture tech from Carbon Engineering, a startup pioneering the new technology in response to climate change.
United CEO Scott Kirby disclosed in May 2020 that his team had become “a seed investor in a couple of startups” in the sustainable aviation fuels segment.
“We had a couple more investments that we were working on term sheets for and that we had hoped to announce in March, that got sidelined because of Covid-19,” Kirby said during a Bernstein research conference. “We’ll get back to those kinds of initiatives.”
Leskinen was cagey when asked about Kirby’s comments and how they might fit into United Airlines Ventures’ three verticals, or themes, of sustainability, aerospace, and operational technology.
“We have a robust pipeline of projects across the spectrum of the three verticals,” Leskinen said. “Generally speaking, [each investment] will come with a public announcement, but not always. That public announcement may or may not come quickly after an investment.”
Over the next 10 years, United may invest in “dozens” of opportunities, he said.
Building a Team
Leskinen will hire at least one dedicated investment professional to oversee each of United Airlines Ventures’ three verticals, or themes. Each must make sure that deals are not just investments but also come with a strategic component.
“Each person will likely have a team,” Leskinen said. “How we rotate and build careers for individual associates reporting up to that domain expert is still being worked out.”
Leskinen works at the airline’s headquarters in Chicago, but he said his team members could work remotely.
Check sizes will range from as small as a couple of million dollars for early-stage companies to as large as $20 million for more mature startups.
“The Archer investment is about as large as we would want to go,” Leskinen said.
United Airlines Ventures plans to offer startups more than financial commitments. Leskinen said his job is to make certain that portfolio companies receive help from internal resources at United.
For example, with Archer Aviation, United plans to help speed up the certification of its air taxis by the Federal Aviation Administration. It will also offer advice on operating the aircraft in a network and how the startup can optimize the maintenance process and pilot training.
United has already identified a handful of startups in the sustainability area it finds promising.
On the aerospace front, United is interested in companies exploring new aerospace technologies. An example of a type of company fitting this description is Boom Supersonic. Earlier this month, United Airlines signed a commercial agreement with Denver-based aerospace company Boom to add 15 supersonic aircraft to its global fleet once the planes are built and meet its standards.
Creating a Corporate Venture Capital Practice
Many other companies have set up corporate venture arms over the years. Two outfits that are the most prominent in the travel sector today are JetBlue Technology Ventures, the arm of U.S. airline JetBlue, and Amadeus Ventures, the arm of travel tech company Amadeus.
United looked at past attempts across sectors, including outside of the travel sector, to spot best practices to copy and pitfalls to avoid.
“One of the pitfalls is when corporate venture capital firms aren’t close enough to the business itself, and so then they lose strategic alignment,” Leskinen said. “Sometimes they go too far afield to the core business.”
As positive models, Leskinen cited Honeywell, GE, and Boeing as being broadly good examples.
“Others may have gotten a little too techie, but I won’t name the negative examples,” Leskinen said.
Some travel companies have taken different routes to engage with startups. Before the pandemic, International Airlines Group ran a startup accelerator program called Hangar 51. AirAsia executives supported a Tune Labs startup studio. Lufthansa Group launched the Lufthansa Innovation Hub, which spawns startups.
Alternatively, some travel companies have outsourced the work of identifying investments partly to third parties. For example, EasyJet partnered with Founders Factory, which is a startup incubator. ANA has partnered with Plug and Play Tech Center, which vets startups and plays matchmaker with corporations.
United chose to go it alone with a corporate venture arm for a few reasons.
“In life, you get what you pay for,” Leskinen said. “If you outsource this function, you get a team that is just chasing financial opportunity without the strategic integration.”
“We’re focused on what is good for United as a strategic plan over five to ten years,” Leskinen said. “Our investment professionals need to know their counterparts within United’s technology group, its environmental and fuel purchasing group, its aircraft and fleet group, and so on. A cookie-cutter, Build-a-Bear-type effort wouldn’t do that.”
United tapped law firm Sidley to help set up the venture arm’s structure.
An Investing Philosophy of ‘Asymmetry’
Leskinen, who was an investor at JPMorgan Chase and OppenheimerFunds, said his investing philosophy focuses on looking for asymmetries.
“When I look for probabilistic returns, I’m looking for scenarios where the upside is multiples of the downside,” Leskinen said. “Sometimes, we’ll take high-risk bets that have a reasonable chance of failure. But the investments that do work will work spectacularly well.”
United Airlines Ventures will be rated according to both strategic and financial performance. Some other companies have been put off by what they see as frothy valuations for many startups.
“I’m a subscriber to Warren Buffet’s methodology of looking at investments relative to Treasury yields, and by that measure, with interest rates very low, longer-term growth stories should be valued richly,” Leskinen said. But he said he expects his team to spot under-appreciated opportunities early and find both strategic and financial winners.
Some startups are cautious about working with corporate venture capital firms because they worry that a relationship with one major company in a segment may chill their ability to drive business from other players. Some also worry that corporations won’t maintain interest for the long term.
“We think about corporate venture as a long-term business partnership that both parties win from,” Leskinen said. “We’re not going out and negotiate the toughest deal to get the last nickel out of every partner.”
Leskinen said he wants entrepreneurs that receive United’s money to feel the carrier contributed to their success and that they’ll recommend his corporate venture team to other startups he’ll want to invest in down the road.
“There are going to be dozens and dozens of those opportunities over the years,” Leskinen said. “Eventually, we’ll have a resume of our portfolio companies. New startups will be able to go talk to our past investments to find out what they got out of the relationship with United. We want every startup founder to say that, if they had to do the partnership over again, they would say yes.”
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Photo credit: A United EcoSkies plane on a runway, with sustainable fuel sources from the startup Fulcrum Bioengineering, one of the airline's investments. United