Our Investment in Booster Fuels
Direct to Consumer Gas — Eliminating the task of refueling at the pump
As Venture Capitalists, our responsibility is to invest in the future, while keeping our feet firmly planted in the present. As F. Scott Fitzgerald so eloquently put it, “the test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.” Easier said than done.
I recently revisited my father’s copy of the 1940 Almanac of Science and Technology. The key themes highlighted were Artificial Intelligence and Autonomous and Electric Vehicles. While its taken over 70 years to come to fruition, these technologies are more reality today than at any point in our history. However, while autonomous and electric vehicles are certainly the future of transportation, gas combustion engine vehicles are still very much the present, with fuel consumption and unit sales of gas-powered passenger vehicles both reaching record highs in 2016 (SUVs being the dominant and growing theme). With record low oil prices, rising employment and historically low interest rates, this is a trend we see continuing for the foreseeable future. Concurrently, gas stations are running stagnant businesses with antiquated technology, paving the way for a new model with enormous potential to both upend the existing industry and delight the consumer with a more environmentally friendly business model.
Disruption at the pump:
The operating model of a traditional gas station is coming under increased pressure as rising real-estate costs, operational overhead and regulatory pressures (underground gas leakage) collide with quickly evolving consumer behavior. As technology continues to improve experiences in other sectors, consumers are becoming less likely to favor an impersonal, inconvenient, and undifferentiated trip to the pump.
We see many similar structural dynamics in analogous markets like bookstores, shopping malls, and physical bank branches. In fact, the vast majority of gas stations in the United States are really convenience stores (the first station was actually a KFC restaurant selling Colonel Sanders’ special recipe), which make pennies per gallon selling gas after taxes and operating costs. They compete for expensive real estate at the corner of crowded 4-way intersections, and often require the consumer to make implicit tradeoffs between ease of access and price. Only 0.4% of the gas stations in the US are owned by major operators like Shell, Exxon Mobile and BP, and the large majority are owned by independent businessmen who set and change prices at their discretion. There is little brand loyalty, and services obtained are simply a means to an end.
The technology powering the roughly 127,000 convenience stores and 11,000 traditional stations selling gas in the United States has not evolved substantively in decades. The well-known user interface of the gas station — the pump — involves a manual repetitive process (preferences and payment aren’t streamlined per user ID) and a handle which is, by some accounts, the dirtiest surface across the US (beating out the likes of elevator buttons and ATMs). Further, the calibration of such machines is uncertain, as each States’ Bureau of Weights and Measures is responsible for checking that you are getting what you pay for, but years pass between inspections.
A new model:
The technology required to upend the gas station model is here. The proliferation of mobile devices, advancements in location-based services, and large-scale logistics optimization have given rise to a booming “on-demand” economy over the past half-decade in other sectors (e.g., food and transportation). For the delivery of gas, companies like Booster Fuels have developed the last piece of the puzzle — vehicles and infrastructure that allow for the safe and efficient transportation and dispensation of gasoline to end consumers.
Benefits are not just borne by consumers, but by going direct, up to 2lbs of CO2 per user and 1.5 miles of travel are eliminated from making wasteful trips to congested areas to fill up. There is no longer a need to store gasoline in tanks underground, which reduces harmful seepage, and future services offered by Booster like tire pressure monitoring will increase MPG efficiency. Second-order consequences are similarly interesting: for instance, there are over 7,000 robberies at gas stations per annum in the US, as they represent small honeypots of cash (nearly $1K per take) — a number that we would do well do decrease on the margin by removing opportunity.
We expect an ongoing educational effort with local regulators as roll-out continues (similar to the introduction of any new technology), and perhaps most reminiscent of the shift to self-service pumps in the 1960s. While early, the direct to consumer model is being adopted by local agencies in Booster operating jurisdictions in California and Texas (SF Bay and Dallas-Ft Worth), and even included in the international fire-code.
The size of the opportunity:
The bulk of Americans still rely heavily on gas combustion engines to run errands and commute to work (in fact, 9 of 10 working Americans drive to work). More than 10% of U.S. consumer spending is on gas, which totals roughly $500bn annually. This demand has created a large amount of supporting infrastructure — for instance, there are roughly one billion commercial parking spaces in North America. Each one of these drivers and commuters represents a potential customer for direct to consumer gas, and each one of these spaces represents a potential localized touch-point with that customer. While we expect challengers to also contend for a share, the market is only open to firms with the safest and most efficient technology, and scale effects will be important in determining competitive economics.
However, the direct to consumer gas delivery business is also a wedge into related business opportunities. Corporate office parks, shopping parking lots, and related areas represent centralized locations to potentially perform basic car maintenance or drop off low dollar value goods. As the nature of travel changes, these companies will already have the logistics infrastructure and teams in place to adapt to providing other types of services, or even other types of energy.
A delightful and simple customer experience has transformed everything from selling books online to getting a mortgage. There are very few industries left in the economy which have been as slow to evolve, and while hybrid and electric vehicles are the future, gasoline consumption is here to stay for the foreseeable future. By eliminating this weekly chore for consumers, we believe Booster can deliver an incredible amount of value. We think this delight will be infectious and spread throughout corporations, which will only serve to accentuate the business’s efficiency and cost-effectiveness. A virtuous cycle.
For these reasons, we are excited to share the news that Conversion Capital has led the Series-B financing and is also joining Booster’s board. Since investing in the Seed and Series A rounds we have grown close to Frank and his leadership team, and look forward to continuing to support them on their journey to change the way we fill up.
Christian Lawless, Managing Partner
Reid Hartman, Venture Associate