We’ve seen a recent wave of cash washing over innovations in autonomous driving, ML, sensors.
Granted: that chart is dominated by Zoox’s $790M and Xpeng’s $708M investment levels [edited: Xpeng announced another $587M on August 3rd!], but you get the idea.
I pay close attention when segments start capturing more “wallet share” of investors than usual, eating into other sectors of venture financing. I am also seeing an increasing number of new funds focusing on “autonomous transportation” as well as existing funds adding an investment thesis to their lists.
Both from a fund-of-funds perspective as well as from a direct investing perspective we have to ask ourselves: Is this simply the long-awaited tech refresh in the automotive industry that was rattled time after time by local and global crisis? Or is this a sustainable new decade or two of transformative innovations? VCs make money through liquidity events: Sale of shares in the secondary market, sale of shares during a financing event to new or existing investors, an acquisition or merger, an IPO. If we invest now, we need a liquidity event in five to nine years. So how will the market for autonomous transportation look like? Who are potential buyers? Are we too late in the cycle: will most transformative acquisitions or companies be built in the next three to five years, followed by the typical five years drought of acquisitions while everyone hunkers down to absorb recent acquisitions, innovations, partnerships, transformations?
I believe autonomous transportation is seeing more than a simple tech refresh. I believe this sector that will produce great venture capital outcomes for at least ten to fifteen years for three reasons:
- Electrification, robotization, and software centricity are fundamentally changing processes of the transportation industry. Plus China (its growth, its move towards electrifying transportation, and its pricing). This is a transformation that will take at least a decade or two.
- Autonomous transportation fundamentally changes consumption of transportation and business models. That will create new many disruptors and will demand many iterations before any established business model emerges.
- We will continue to have a rich exit environment: Traditional transportation enterprises — from Ford to GM to Hyundai to Toyota — have demonstrated in the past couple of years that their willing and able to absorb venture-backed startups that could transform their businesses. I believe that trend will continue. In addition, the software centricity and required hyperscale operations open exit avenues for traditional high-tech software buyers.
