Four tips for founders and investors powering autonomous mobility startups
How to build and invest wisely in the white-hot autonomy space
Mobility has become the darling of academics, engineers, founders and investors. GM backed up the truck with over a billion dollars for Cruise, and Uber handed over $600M worth of its shares for Otto. Ford and Baidu parked $150M into Velodyne to accelerate their Lidar program, which helps robotic cars “see” the world in 3D. Apple, Google, Baidu, Uber, and other cash-rich tech companies keep creating press around what they plan to do, or not do, in autonomy. The result is venture capital dollars chasing after top talent doing anything around driverless mobility. Venture capital dollars have fueled startups making maps, cheap lidar sensors, high-resolution radar, artificial intelligence, and connecting cars. Fresh startups are emerging around handling ethical questions, to the classic trolley problem. Will investors and founders be handsomely rewarded for taking on the massive risk of building these companies, or will they quickly find themselves fighting for scraps in commoditized businesses?
Having tracked the auto industry for many years, spent time under the hood at GM, and funded auto tech companies, I thought I would share a few tips with talented founders aspiring to start their next company in the autonomous mobility space, as well as the investors who are lining up to fund them:
Be intellectually honest about your business and sales cycle:
Founders must fully understand 1) where their products fit in the supply chain and 2) the nature and timing of their sales cycles. Except for aftermarket product companies, which rarely generate outsized venture returns anyway, every other automotive technology to date has been subject to the long and arduous automotive design cycle. The time and expense associated with getting a feature into a car is eerily similar to that of a medical device. Mobileye, the darling stock pick of public investors excited about driverless cars, took many years to gain real traction. If your company is building a product that spans Level 0 through Level 3, there is a good chance that you’ll be subject to that conventional sales cycle, and not-so-attractive economics. Prepare for the gauntlet of testing, months of negotiations, and the likely ask to enable a competitor as a second source. Rule of thumb: Are you enabling a feature or capability that goes into a car? If yes; congratulations, welcome to the automotive supply chain. Investors looking at these companies should ask themselves whether such timelines and economics are conducive to the outsized venture returns.
Don’t count on getting acquired — you’re in it for the long-haul:
The land grab for talent could be over. GM and Uber paid top dollar (tens of millions) per engineer at Cruise and Otto, respectively. Startups developing cutting-edge AI, computer vision, and perception need to think hard about what their “product” is and where they fit in the supply chain. Are they licensing software to a Tier 1? Are they selling a complete hardware/software bundle as a Tier 1 to an OEM (i.e., Ford/GM)? In the latter case, why would an OEM do business with a startup as opposed to going through its Tier 1 suppliers where relationships have spanned decades? Founders should not only be creative around their product/technology, but also have an intimate knowledge of the supply chain they are selling into.
Why does YOUR technology underpin a huge venture outcome?
Cars have been regularly adopting cutting-edge technology since Karl Benz patented the motorcar in the late nineteenth century. Many turned out to be great businesses, but few have grown at the scale of, say, Google, Facebook, or Twitter. As I’ve laid out above, technology suppliers have been rate-limited by the nature of the business, not lack of innovation. This goes back to my expectation that the large outcomes will be those selling into the nascent “Level 4” value chain where the sky is the limit. Countless startups grew into massive companies by riding the growth of PCs, the Internet, and mobile. Founders: think spreadsheets and word processors, not disk drives and printers.
Level 4 will be more vertically-integrated than you’d expect:
There are scores of startups employing armies of incredibly talented AI engineers to deliver annotated maps, perception algorithms for object/signs/signals/pedestrians using deep learning, and cyber security. Here’s the challenge for startups: going after groups through Level 3 relegates you to the “rate-limiting” traditional automotive supply chain. Level 4, or the “Wild West” where the sky is the limit, is still in its early days. Extreme concerns around competition, liability, and almost zero forgiveness for accidents has pushed the key Level 4 players (i.e., Uber) — who will operate the fleets of their Level 4 vehicles — to bring everything in-house. They are building their own AI, maps, and security. How long will it take for the Level 4 operators to spin out their technology groups as we saw Ford and GM do with Visteon and Delphi, respectively? It could take decades.
At Lux, we’re on the prowl for visionary founders accelerating our autonomous future: mobility startups wanted.