The digitization of transportation is not a zero sum game

Over the last few years, four winds of change have been blowing increasingly across the transportation industry bringing dramatic transformations with them:

1. Electrification of vehicles is now reaching mainstream use at rates faster than aggressive predictions
2. Mobility services in the form of ride-hailing, car-sharing and micromobility have spawned a dazzling array of unicorn valued companies from Uber, Lyft, Ola, Grab and Didi to Bird and Lime
3. Data connectivity bridges between vehicles and the cloud, enabling the transfer of data that vehicles are constantly collecting
4. Autonomous vehicle technology promises to reduce accidents and fatalities while allowing for much lower vehicle operation costs

Underlying these trends is a change in the fundamental nature of a vehicle from an analog platform where mechanics are the primary explanatory language to a digital platform which has a very different and much less linear set of rules.

One trend alone would be a lot. Combined, they amount to a perfect storm unlike anything this industry — and maybe any industry — has ever seen. With the arrival of this storm, some would prefer to respond by battening down the hatches and bracing for the coming onslaught. However, for carmakers and automotive suppliers along with many other adjacent players, this storm of change carries not only risks but also unique opportunities — so long as they are able to embrace them.

Digitization requires a cultural shift

In contrast to tech companies which have high margins and large stock multiples with swelling market caps as a result, carmakers and suppliers have relatively flat stock prices given their low margins and in spite of their very substantial revenues.

Digitization also explains this difference: tech companies have become so successful because software can be scaled at extremely low marginal cost and creates defensive moats through network effects. In contrast, selling cars or pieces of cars is a hardware business. The strategies that have historically worked in growing these businesses — being extremely cost conscious, having multiple suppliers for key components to gain negotiating leverage, striking exclusive partnerships on critical technologies — don’t translate well to digitization. In fact, the strategies that have made incumbents historically successful are precisely what make it so challenging for them now. The key to unlocking the new opportunities enabled by automotive digitization is to see beyond this zero sum thinking that has been a requirement until now.

In adapting to these changes, incumbents have three different strategies for harnessing digital technology:

1. Building it in-house: This requires hiring talented engineers and retaining them, a challenge for carmakers who can’t subsidize hiring with the promise of lucrative stock options. It also requires new management priorities which have been trained on the paradigm that has historically allowed these companies to succeed. It is hard to solely create these changes from within.
2. Building alliances with large tech companies: Automotive incumbents can and already have partnered with tech companies to offer maps, infotainment, voice assistants or cloud connectivity. But this is a risky game since it may mean that they lose control of portions of the technology stack and customer relationship and the future value associated with both. Tech companies conversely hope to capture the majority of the new value that will be created in the new mobility industry.
3. Partnering with startups: This third option presents the most interesting opportunities because startups are the source of the most disruptive new innovations. But it is also the most challenging given how hard it is to identify key technologies and new trends in time (information problem), be well positioned to form the right startup collaborations (access problem), and successfully navigate these collaborations with extremely young companies and the dynamism that is inherent to them (culture problem).

How Maniv Mobility bridges these gaps

It is in this third space where Maniv is active. What we have done over the last five years is build a bridge for mobility technology innovation that connects large corporates and suppliers with startups from across the globe. As a seed stage VC, we invest in early stage startups which closely aligns our interests with theirs. We then work to connect these startups with the right partners and support the formation of commercial agreements, offering a unique win-win-win.

1. The startups reach the right corporate partners
2. The corporates gain access to the leading mobility startups
3. Our fund benefits from the value created in the process

Maniv’s model (DF = deal flow; BD = business development)

For startups, this makes us an ideal investor so we don’t struggle to access the leading opportunities, a challenge often faced by corporate strategic investors. Our singular focus on mobility investments and building a broad network across this multifaceted industry has allowed us to benefit from economies of scope. As our network of corporates has grown, we’ve been able to see more and more global mobility investment opportunities. And as our portfolio has begun to prove itself, our access to corporates has expanded.

A startup with multiple customers is a better partner to all of them. The key differentiator is no longer exclusivity but velocity.

This approach has moved the work we do beyond the more narrow zero-sum calculus that has worked historically in the industry. Startups bring something new into the world, but in order to thrive, they need customers in the near term; without them, their limited pool of capital will dry up and they will fail. As a result — incumbents partnering with startups have a vested interest in those startups having multiple customers since that is what allows them to drive their product development and deliver benefit to all their customers. In other words, a startup with multiple customers is a better partner to all of them. The key differentiator is no longer exclusivity but velocity: whoever can move fastest will be able to benefit the most from early access to key market-changing technologies. The bridges we have built have created value for both sides — innovation collaboration offers a clear path for all corporates to capture value in the rising ocean of mobility digitization.

A different kind of VC

Maniv’s approach has allowed us to meaningfully differentiate ourselves. Venture capital is dominated by a small group of top tier funds. Over time, these VCs have also tended to raise larger and larger funds, reducing their interest in the earliest investment stages.

A VC that wants to compete must have a strategy to address these advantages. We believe the answer to this is specialization. Specialization allows:

1. Better value to the startups given our focused industry knowledge and accumulated learnings and can move quickly
2. An industry-focused network that allows us to actively support our portfolio’s path to commercial agreements and help them raise capital
3. Access by being able to attract the most serious founders looking to build great companies in the mobility sector

Specialization makes particular sense at the seed stage where the relative advantages are greatest. Specialization requires a market that is big enough and open enough to generate enough value to justify a dedicated fund. We believe the mobility market — with its multi-trillion dollar scale, significant inefficiencies and current openness to innovation — does just that.

Mission driven

Above all, we are extremely passionate about how mobility innovation can change our world for the better. Mobility affects everyone’s life directly. This is why people are so curious about self-driving cars or are so passionate about kick scooters, whether what they feel is love or hate. The mobility investments that we’re making have the potential to affect the traffic jam that you get stuck in every day. They’re offering new ways of getting around cities like New York or accessing a car in Europe. They include automotive cybersecurity that can keep your family safe, even as cars offer an array of new data-enabled services. And they’re helping to support the safe development and rollout of autonomous vehicles.

We’re in a critical moment of change. The decisions that industry incumbents are making today will become the basis of business case studies in the future given the current heady mix of opportunity and risk. We’re excited to be a part of this story and the opportunities it presents!

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RedBlue Capital is a global firm investing in the leading mobility startups.

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