The Future of Mobility When the World Stands Still
The global COVID-19 crisis has taken full grip of the news cycle and in a matter of three months has pushed the globe to a physical and economic standstill. Airlines have eliminated capacity and started aggressive layoffs, automotive production in the U.S. has been forced to idle, capital markets have been roiled, and government-led bailouts at an unprecedented scale will be needed to dig out of this mess. The effects of this crisis are no doubt going to be significant, but let me offer a silver lining of one area that I think will be more interesting than most in the months and years to come: mobility.
Ok, humor me for a bit…because I’m well aware that “mobility” and “standstill” don’t exactly go hand-in-hand, and the easy thing is to pile on and say that mobility companies are poised to suffer at least as much as other VC segments (if not more, given the current struggles of automakers and airlines in particular). However, if you tweak the lens at which you evaluate the situation ever so slightly, opportunities in the minefield start to emerge.
Mobility is more than cars, scooters, and ridesharing (but, yeah…it’s those things, too)
When we launched Fontinalis Partners 10 years ago, we intentionally defined our mobility theme as “technologies that enable the efficient movement of things.” If that sounds broad, it’s because it should — because the omission of terms like automotive or road-based or personal mobility was by design: we didn’t want to be self-limiting to the point of being constrained to just 2, 4, or 18 wheels. Instead, we designed a thesis around a broader view of mobility that we thought would allow us to tactically navigate the changing mobility landscape over time (and “over time” is important, because we think long-term and see this theme as having relevance for the next 30–50 years). Our central theme of mobility stemmed from our fundamental belief that the way things move about this planet would change; and while this month has no doubt left many investor questioning their own investment theses, recent events have only increased our conviction in our thesis.
No theme — not even long-term themes — stay constant forever without at least some change: while the first wave of mobility may have been a bit more focused on smart cities and personal mobility, and the second wave pushed autonomous technologies to the forefront, we think the third wave will encompass important themes around automation & the future of work, future of commerce & trade, industry 4.0, and sustainability. While some of these themes may not be sexy or headline-grabbing on their face, they are quite literally what’s needed to get the world back to moving again. And trust me…I think they’re going to be much more sexy in the weeks, months, and years to come as the world forever changes in the aftermath of this crisis. Let’s talk about a few of areas we’re focused on with both near-term and long-term implications.
Automation & Workforce Efficiency
The COVID-19 crisis has placed greater pressure on the deployable labor force, and we believe that will aid in accelerating automation across a variety of industries. With so many companies’ production and distribution facilities being taken offline, we believe that the need to build more resiliency through robotics & automation will become a forefront focus as we emerge from this crisis and look to avoid the next one. (Note: I acknowledge there will be a slightly counterbalancing force as unemployment rises —automation tends to benefit from tight labor pools, which may not exist later in 2020/2021.)
Even before this crisis, grocery chains have been struggling to keep up with the growing demand for pickup and delivery orders, and our portfolio company, Gatik, is using AV technology for “middle-mile” logistics to help with transporting smaller — but more frequent — loads between distribution centers and stores. Technologies like these are even more relevant with heightened grocery demand over the last month and going forward, as analysts are predicting that tens of billions of dollars of lost wallet share for the restaurant industry will transition to at-home dining.
In addition to Gatik, we have recently invested in companies spanning autonomous material handling (Vecna Robotics), autonomous trucking (Ike), indoor drones for warehouses (Verity), cognitive OS for robotics (Robust AI), and enterprise AI tools that augment human labor (AVRL). Additionally, the spillover effects of more activity in robotics and automation benefits important enabling technologies, including cybersecurity (Karamba Security), microlocation (Humatics), sensors (Ouster), connectivity, and processing/computing. In short, this theme had momentum before COVID-19 and we see the push to automation only increasing.
Redesigning the Supply Chain
Recent events have exposed the truth that so many supply chains have single points of failure: a shutdown of a single supplier (e.g., in China, Europe, the U.S., or other exposed markets) can cascade through the entire supply chain, indiscriminately taking down other suppliers and OEMs. It’s critical to be able to identify what is occurring, communicate and react effectively, and redesign (if possible) to avoid failures in the future.
Our portfolio company, Elementum, specializes in helping companies react when things go wrong — from stock outs & material shortages to production or transportation delays. Companies centralize all of their exceptions and run supply chain “war rooms” with Elementum’s technology, which is particularly important given entire corporate offices are now in work-from-home environments. (Given how prevalent the supply chain disruptions have been in recent weeks, Elementum is offering its Essentials product for free through the end of the year to allow companies to set up a fully operational virtual war room within 24 hours.)
“Starbucks is finding it effective to centrally manage operational incidents through Elementum. I know who on my team is accountable for managing them; and I know exactly what to tell customers and stakeholders. This is especially helpful as partners are working remotely.”
Kelly Bengston
SVP of Global Sourcing & Chief Procurement Officer
Starbucks Coffee Company
With such significant shocks to the system occurring across so many industries, trusted voices and data become the beacon in the storm that helps companies make sense of the chaos by interpreting the latest developments and allowing the industry to react accordingly. Our portfolio company, FreightWaves, has been particularly active in being the guiding voice as transportation firms (and purchasers) navigate this environment. When OPEC production discussions unraveled earlier this month and drove crude oil down to 2009 levels, FreightWaves was instantly interpreting the data to put out a bulletin that this was leading to a divergence of retail and wholesale diesel prices, resulting in an extra $0.06/mile for carriers with fuel surcharges — rapid transparency and content in a previously opaque market.
We also believe that there will be a real effort to mitigate supply chain risk as companies emerge from this crisis and look to avoid the next one. Part of that strategy may well include condensing supply chains, and this is where advanced & additive manufacturing becomes necessary, with two of our portfolio companies are working to do just that. CelLink acts as a source of flexible circuits in the U.S. used by major vehicle OEMs whose production has traditionally existed in markets like China, Vietnam, and Mexico (e.g., for vehicle wire harnesses, electrical designs are done in the U.S., sent to Vietnam for wire production, which is then sent to Mexico for pegboarding, and back to the U.S. for assembly — talk about global supply chain exposure!). Additionally, VulcanForms uses metal additive manufacturing to more rapidly produce high-value parts in the U.S. with less components — and, consequently, less reliance on 2nd and 3rd tier suppliers. We believe these technologies play an important role in the resiliency of manufacturing going forward.
The Future of Commerce
Retail sales are poised for an ugly 2020 as foot traffic plummets and store closures have swept the country. In the wake of traditional retail’s decline, ecommerce is filling at least some of the void (Amazon is hiring 100,000 workers to fulfill its own demand) and experts are now predicting that at least some of this shift will be a long-term structural acceleration of ecommerce share of wallet gains, spelling further challenges ahead for traditional retail.
Ecommerce leads to generally more decentralized transactions with smaller-parcel, point-to-point logistics. An under-the-radar company helping to scale ecommerce shipments is SmartKargo, which has recently introduced a new business model to help commercial airlines (about half of all air cargo) better use their capacity and the frequency of their routes to empower ecommerce partners to reduce shipment times and cost alongside UPS, FedEx, Amazon, and others. Furthermore, companies like Vecna Robotics, which provides automated material handling technology, provide much needed flex capacity to existing facilities during seasonal and event-driven demand peaks. Ecommerce management platform Shopify also recently acquired 6 River Systems as evidence that streamlined fulfillment capabilities are central to the future of ecommerce growth globally.
Delivery logistics also importantly extends to the restaurant industry. With restaurants in 24 states closed indefinitely for dine-in service (as of this writing; this number will undoubtedly grow larger each day), takeout and delivery services may prove vital for the survival of the industry. On March 6th, with the U.S. still only at 282 cases of COVID-19, Postmates led the industry with the fist deployment of contact-less deliveries (a move that was quickly followed by others), helping to better ensure the health and safety of customers and drivers while also serving a critical role to its restaurant partners that otherwise lack delivery options of their own.
Closing Thoughts
This is quite clearly a challenging social and economic situation for everyone globally, and the effects will be felt by venture-backed companies large and small. However, it has been proven in countless economic cycles that great companies endure — and even thrive — when times are hard. When the world settles down, the landscape may have changed a bit but mobility will remain as relevant tomorrow as it is today.
Founded in 2009, Fontinalis Partners is a mobility-focused venture capital firm with offices in Detroit & Boston. More here: www.fontinalis.com
