September 23, 2017

Five billion-dollar businesses for the driverless future

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Massive opportunities in urban transportation are emerging as the industry transitions from per-vehicle to per-mile economics

Growing up, I dreamed of owning cars I would be proud to wax, polish, and cruise around my neighborhood. Today, I dread the prospect of being weighed down by a rapidly depreciating hunk of plastic and metal. Now all I want is a pleasant transportation experience.

Millennials share my sentiment toward vehicle ownership, and many of them are embracing the convenience of ride sharing.

The trillion-dollar auto industry is being turned on its head. Automotive companies are getting squeezed as car sales drop and newcomers eat their margins.

As part of this shift, the industry is transitioning from per-vehicle to per-mile economics. Historically, the automotive industry has been measured by how quickly it assembles cars, pushes them to customers, lends money against them, and collects money to maintain and upgrade them.

Tomorrow, the industry will be measured by how many miles it moves passengers, and how much margin it generates on every mile traveled.

Vehicles will travel 3.17 trillion miles in 2017 — a 7.8% increase from five years ago. The trend will continue: The rise of electric vehicles and automated driving mean we can expect a lower environmental and labor impact, as well as lower prices.

Automakers should not worry about being put out of business. Some will not survive the evolution. A  but a number of them will be key players in tomorrow’s per-mile realm. Some will become white-label, commodity producers of vehicles for Uber, Lyft, or Zoox fleets. Others, such as GM, Audi, and BMW, may choose to compete with the ride-sharing giants and operate their own fleets.

In the driverless future, traditional car companies will get less of the margin for every mile traveled by consumers. Emerging services will usurp the rest.

Which businesses are positioned to capture the majority of the dollars for the many billions of miles driven? A few possibilities:

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  • Insurance: Robo-taxi technology has almost arrived. So far, there isn’t a legal framework in which an operator can offer autonomous services. Such a framework would help to set limits on the liabilities of passengers, operators, and technology vendors. When the limits of those liabilities are known, insurers can design and offer policies for each group. Startups will need to take a leadership role in helping insurance companies model the risk of computer vision, AI and other technology malfunctioning. Given the expectation of slower auto sales, incumbent insurance companies should be delighted to pursue this nascent market, which could turn into the bulk of their business someday.
  • Compliance: Limiting operators’ liabilities will require strict safety regulation compliance.  These regulations could include building and running simulations on the AI, as well as monitoring and auditing tele-operations (i.e., humans remotely overseeing the autonomous vehicles).
  • Distribution: Today, Uber and Lyft own the primary channels to ridesharing. Their vast network of drivers and colossal cash coffers have allowed them to lock down the industry and squash competitors. So far, neither of them is building their own vehicles. Traditional automakers have an opportunity to rethink the experience of passengers, as well. If they start from first principles, they will find themselves designing and building very different vehicles than what they’ve made in the past. New and emerging companies, such as Zoox (disclosure: my firm is an investor), are being built from the ground up to design and operate sophisticated transportation robots for this new era of driverless transportation.
  • In-vehicle services: Forget mobile devices; “driverless” is the new platform. Highly personalized, rich environments can be created to stimulate and engage with passengers. Voice interfaces can tune the experience in the vehicle, and serve as a concierge for not only that a single trip or a series of trips over multiple vehicles and in multiple locales. Imagine tours provided by robotic cars that “know” passenger tastes, preferences, and previous destinations.  Your driverless tour guide showing you around Bangkok “knows” your preferences from your prior tours in Rome and Sao Paulo. They can tap into your social media profile to recommend dining, shopping and entertainment experiences.
  • Autonomous technology: It is well-established that companies who build unique technology that enables autonomous driving are positioned to reap massive benefits. Non-auto-tech companies are seeing the opportunity and snapping up innovative companies. Intel paid a premium for MobileEye and positioned itself as a major Tier 2 automotive supplier. The channel that Intel acquired through this purchase will enable Intel to sell many other technologies, such as chips, sensors, and software, into the automotive supply chain.

Trillions of dollars worth of new opportunities abound in the coming era of autonomous travel. If history has taught me anything, it’s that this new paradigm will spur entirely new ways of living that we haven’t yet considered. As for myself?

As a gearhead, I’m most looking forward to getting from A to B by robot, and manually pushing performance cars to their limits on racetracks.

Featured Image: David Butow/Corbis/Getty Images

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News Source = techcrunch.com

Automakers accelerate their interest in startups

When it comes to startup investment, carmakers are all over the road.

Over the past two years, we’ve seen a massive spike in venture funding by major auto manufacturers. Deal counts are up, more automakers are investing and more big rounds are getting done.

However, an analysis of Crunchbase funding data for the 20 largest global automakers finds wide variance in investment sizes, timing and strategic focus. Some automakers have focused on unicorns and mega-rounds, while others are active at the early stage. Still others have yet to park much capital in startups, illustrating a long-term reticence to engage actively in the venture space.

None of this is especially surprising to industry insiders. Automakers “operate at a different clock speed than the technology industry,” said Chris Stallman, a partner at Fontinalis Partners, a transport-focused venture firm with offices in Detroit and Boston. Five to seven-year vehicle product cycles make startup partnerships difficult because there is uncertainty about whether the company will still be around when a car comes to market.

That said, it’s no secret that automakers have shown more interest in startups lately. Nor is it any secret what’s driving that surge, given the massive shifts the industry faces from the rise of electric carsautonomous vehiclesride-hailing services and other emerging technologies and transportation business models.

Below, we set out to quantify combined investment by automakers in startups of all stripes, along with acquisitions, with a focus on how individual automakers compare.

Deal pace speeds up

First we look at deal count. Broadly, funding records for the past five years show a dramatic rise in startup investment beginning in 2016 and revving up further in 2017.

In the chart below, we look at the number of disclosed venture and seed rounds with participation by the major automakers. Keep in mind, these are only disclosed rounds, so the actual number of investments may be quite a bit higher, as automakers are known to do stealth deals, as well.

Deal-making isn’t concentrated in any particular sub-sector. We see sizeable rounds, for instance, for Shift, a car-selling platform; ChargePoint, a provider of electric vehicle charging stations; Turo, a provider of peer-to-peer car sharing; StoreDot, a battery developer and Momentum.ai, an autonomous-driving startup.

Car companies aren’t just doing more deals; they’re doing bigger investments. In all, automakers participated in at least eight mega-rounds ($100 million or more) this year, up from zero a few years ago. In the following chart,we look at mega-rounds over the past five years:

Ride apps have dominated so far this year, with at least four companies in the space securing mega-rounds with automaker participation: Via, Grab, Gett and Careem. Autonomous vehicles were also big, with Nauto and ArgoAI scoring mega-rounds.

Carmaker M&A

While it was a big year for startup investment by automakers, M&A has been slower. That’s not abnormal, as car companies generally don’t buy a lot of startups, although they do the occasional big deal or smaller asset purchase.

So far this year, we haven’t seen any large M&A transactions involving automakers. The most recent large-dollar purchase was GM’s purchase of self-driving technology startup Cruise Automation for $1 billion in 2016.

The latest deal, Volvo’s purchase this month of valet parking app developer Luxe, by contrast, was a smaller asset sale involving a startup that had ceased offering its service. Other recent deals, including Ford’s purchase of commuter transit provider Chariot, and PSA Group’s acquisition of online auto repair platform Autobutler, were smaller deals involving early-stage companies.

Whether they opt to partner or acquire, however, automakers are cultivating more relationships with startups, Stallman told Crunchbase News. The global recession of 2008-2009 required heavy cuts to R&D for many struggling automakers, and in the last couple of years they’ve been playing catch-up. Bringing in an outside startup can be a good way to speed up internal efforts.

How the biggest automakers stack up

Not everyone’s operating at the same speed, however. Some automakers like venture investing a lot more than others.

Looking at deal count, Germany’s BMW was the most active automaker by a wide margin, with more than 30 disclosed investments since 2012, including 10 so far this year. A majority are through its corporate fund, BMW iVentures, which invests across multiple sectors, including autonomous driving, electric vehicles, AI and automotive cloud technology.

Although most deals are Series A or B, BMW i Ventures invests across stages, and many of its early-stage rounds are quite large. This summer, the fund participated in a $38 million Series C for Shift, and a $159 million Series B for Nauto, a developer of AI-enabled camera technology for automotive fleets.

Germany’s Daimler was also quite active in 2017, with eight investments, including participation in two mega-rounds for two ride apps, New York-based Via and Dubai-based Careem.

In the chart below, we look at the number of disclosed investments since last year by major automakers:

A few automakers have so far stayed out of startup investing. Fiat Chrysler, in particular, has been reticent to invest, although a recent self-driving car partnership with Google demonstrates an interest in partnering with Silicon Valley companies. Nissan and Mazda have also shown little appetite for VC.

The road ahead

Looking ahead, it’s not far-fetched to presume that the momentum for startup investing among automakers will continue. If anything, signs point to further acceleration, with Toyota recently unveiling a $100 million AI-focused venture fund and Ford scaling up its tech-focused Ford Smart Mobility division.

Moreover, if any industry’s investment activities are going to follow Newton’s first law of thermodynamics, it ought to be transportation.

Featured Image: Li-Anne Dias

News Source = techcrunch.com

Southeast Asia games firm Sea, formerly Garena, files for $1 billion US IPO

Southeast Asia-based games and e-commerce firm Sea, formerly known as Garena, has officially filed for its much-anticipated U.S. IPO. The company, which is valued at over $3.75 billion, will list on the New York Stock Exchange as ‘SE’ and is looking to raise $1 billion.

Sea is best known for its Garena gaming business, which predominantly focuses on PC games but also includes mobile, but in recent years it has branched out into e-commerce with its Shopee service and payments with its AirPay business.

The Garena games portal is like Steam for PCs. It counts 40.1 million monthly users as of June 2017, with 12.9 million daily users spending an average of 2.3 hours per day on the service. Garena is Sea’s only revenue-generator since the company is still subsidizing Shopee and AirPlay is available in just three markets.

Revenue-wise, Sea has grown its revenue from $160.8 million in 2014 to $345.7 million in 2016, but losses during the period widened from $90.9 million to $225 million.

The company said this was predominantly down to Shopee, which it has been subsidizing in order to battle the likes of Alibaba-owned Lazada in Southeast Asia’s e-commerce space, which is tipped to grow from $5.5 billion in 2015 to $87.8 billion in 2025, according to a report co-authored by Google.

That Southeast Asia growth story is the anchor for this public listing, with Sea putting its faith in the region’s rapidly growing internet space — which is adding 3.8 million new users a month — to propel its business to profitability.

That’s particularly true in the case of Shopee, which is Sea’s big bet. Shopee has grown to reach 5.4 million monthly users in Q4 2016, with 2.3 million average monthly buyers and 1.9 million average monthly sellers. Sea claimed Shopee clocked $1.15 billion in GMV — total goods sold — in 2016, which it said makes it Southeast Asia’s largest e-commerce company.

It’s unclear if that is accurate. Lazada reached $1,024 billion GMV for 2015, but founding company Rocket Internet ceased reporting its financial details after the first of two $1 billion Alibaba investments in April 2016.

There’s plenty of rival between the two, and Lazada CEO Max Bittner had previously fired shots at “rival” companies for pumping their numbers.

“In comparison to our competitors, who are keen to tell everyone how big their GMV is, we don’t have the need to scream very loud about how much money we raised,” Bittner told TechCrunch earlier this year when Alibaba made its second investment.

No doubt the growth of Shopee, which was only formed two years ago, is impressive. Sea has begun to monetize it for the first time this year when it introduced advertising and seller commission fees in Taiwan. There are still six other countries to monetize, and Sea said it might consider other types of revenue generation.

This IPO is an important event for Southeast Asia more generally, where the only recent U.S. IPO was a disastrous and short listing from payment company MOL that ended in 2016.

Sea is the much-anticipated listing that investors and founders are hoping could light up a feel good factor about Southeast Asia as a tech destination and pave the path for other IPOs.

The region has seen a number of billion dollar companies rise to the point of a public exit, and Sea is leading the pile. A successful IPO could tempt other tech companies in Southeast Asia to test the public markets with a listing of their own.

The main beneficiary of the Sea listing will be Tencent, the largest shareholder with a 39.7 percent share, with Blue Dolphins Venture — an organization set up by founder Forrest Li — holding 15 percent. Li himself has 20 percent, and CTO Gang Ye has 10 percent.

Other investors include Hillhouse Capital, Temasek’s SeaTown Holdings and Mistletoe, but their share holdings were not disclosed in the filing.

News Source = techcrunch.com

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