As COVID-19 swept across the globe, no sector lay untouched, but perhaps no industry was more disrupted than transportation.
Airlines slashed routes, public transit use plummeted, ridership on Uber, Lyft and other ride-hailing platforms dropped and shared scooter companies pulled products from city streets. Meanwhile, e-bike sales bloomed and on-demand delivery, including services using autonomous robots, exploded.
Transportation companies have been forced to adapt — quickly — to this new reality. Uber, for example, found itself in a position where it felt both right to lay off thousands of employees as it planned to inject $170 million into micromobility startup Lime.
The upshot: Along with the pain, crises can also be a catalyst for innovation. TechCrunch spoke to seven venture capitalists about how COVID-19 affected their portfolio and investment strategy, and asked their advice for startup founders as well as where they think the next and overlooked hot opportunity will be:
- Ernestine Fu, Alsop Louie Partners
- Stonly Baptiste & Shaun Abrahamson, Urban.us
- Rob Coneybeer, Shasta Ventures
- Shahin Farshchi, Lux Capital
- Kate Schox, Trucks VC
- Jeff Peters, Autotech Ventures
Ernestine Fu, Alsop Louie Partners
How has COVID-19 impacted your investment strategy?
Early-stage venture capital is about investing in the steady growth and potential of a business over time. We’re in it for the long term, and the economy will eventually rebound. We’re preserving dry powder for existing investments, but at the same time, I’m reminded that some of the best venture-backed businesses were founded and funded during recessionary times (e.g. Google, Salesforce, Instagram). So we’re keeping our eyes open for promising young startups too.
What is your advice to startups in your portfolio right now?
COVID-19 is an existential event in all of our lives and businesses. Stay positive and be empathetic — protect your employees and communicate often, maintain the financial health of your business and know you need to adapt to the change that will continue to happen.
How has COVID-19 affected mobility hardware startups?
Obviously, there’s been a sudden and steep drop in vehicle miles traveled due to regulations keeping people at home and decreased car density on roads. In addition, in an effort to reduce social contact, people are taking fewer trips with public transport and shared-mobility services.
Startups that have just started fundraising are at greatest risk. Automakers are under stress themselves as new-vehicle sales plummeted in Q1. Most companies will not consider additional acquisitions right now, but in rare instances, I think some will pounce to find low-priced acquisitions.
Do you expect low oil prices will hurt EV infrastructure startups?
I do not expect this effect to be very significant, for several reasons:
- The cost of gasoline is a small percentage of the total cost of driving, while capital financing and insurance costs for consumers are more significant. This means that a 50% relative drop in fuel costs may only result in, let’s say, 10% relative drop in total driving costs. So consumers are not necessarily that affected by gas prices when making buying choices.
- The cost of crude oil is a relatively small percentage of the total cost of gasoline. Refining, distribution costs and federal, state and local taxes are a significant part of the cost of gasoline at the pump. This means a 50% drop in crude cost may lead to only a 25% drop in gasoline prices.
- Based on tank-to-vehicle miles, electricity is still a more efficient transport fuel than gasoline. Electric motors are more efficient than internal combustion engines. (They are also lighter, but that is partially offset by the weight of the battery pack.)
- Car buyers are starting to appreciate other dimensions of the driving experience — such as lower emissions, automation, entertainment and connectivity. These can be better with electric vehicles than with internal combustion engines.
- Battery costs continue to decline rapidly enough that costs are, or soon will be, lower for electric vehicles, even before efficiency-adjusted fuel costs are considered for larger vehicle classes.
What are the opportunities startups may be able to tap into during these unprecedented times?
How can we improve transportation for vulnerable populations? In recent years, we’ve seen new mobility options for those already served by traditional transport options. Now more than ever, with the ongoing COVID-19 pandemic, it’s important to provide accessible public transportation options for our most vulnerable populations. I would be excited to see entrepreneurs brainstorm solutions that consider accessibility and affordability, along with performance and security.
What categories within mobility hardware are best poised to flourish in 2020 in spite of COVID-19?
In 2020? It may seem surprising, but there will still be many. For instance, we’re seeing an increase in the need for truck drivers these last few months. They’re on the front lines of the “silent” war against COVID-19 — delivering critical supplies to hospitals and stocking the shelves of grocery stores. Transport industry analysts have always talked about self-driving technology first penetrating the commercial and heavy-duty truck segment, rather than the consumer auto market. It’ll be interesting to see if now is the time for autonomous trucking.
Stonly Baptiste & Shaun Abrahamson, Urban.us
How has COVID-19 impacted your investment strategy?
We started Urban Us because of climate change. While COVID-19 is a massive challenge, we still believe climate is a much larger and longer-term challenge. We continue to invest in things that look like infrastructure and help us recover from disasters.
Our strategy was designed for investment environments where teams are distributed and VC isn’t a reliable singular capital source. We are doubling down on some of the core tenets of our approach: distributed, early, providing targeted value, and urban sustainability or resilience focused.
We are expanding our practice of open knowledge gathering and sharing to include guidance for all startups through and after COVID-19. One example is our COVID-19 for startups guide. We’re currently working on our After COVID-19 Startup Playbook, along the lines of our Urbantech Startup Playbook and our Urbantech Investor Playbook.
How has COVID-19 affected mobility hardware startups?
Our mobility startups have almost universally seen industry and customer tailwinds from COVID-19 but have faced a few operational challenges. Our portfolio includes investments in vertical mobility and logistics (EVA Air), robotic delivery and last-mile logistics (Kiwibot), autonomy (Lunewave) and personal electric mobility (Onewheel).
Tailwinds include increased demand for fun and safe ways to get around as well as moving critical supplies around, both on the ground and through the air. Challenges include supply chain constraints and the constraints on demoing hardware remotely. It is safe to say that Onewheel is one of the largest players in personal EV space outside of China.
Future Motion, the makers of Onewheel, are shy about sharing revenue numbers, but they’ve grown rapidly over the last few years,. They manufacture in the U.S. and have great IP in core EV drivetrain areas, They’re well-positioned to create new small EVs and to benefit from diversification of supply chains beyond China.
What are the biggest worries of the founders in your portfolio?
Drawing from our research for our After COVID-19 Playbook, we’ve noted a few common concerns from our portfolio founders. These include revenue forecasting in the face of expected reduced budgets from governments to enterprise. Founders are also managing a range of work from home issues, including family management, team spirit and motivation. Not to mention the mental health, physical health and the overall stress and well-being of the founders and their teams.
For hardware teams, many are already used to working with a range of partners in the supply chain and distribution, but partnerships rely on a good amount of in-person trust-building. Many founders are concerned about the restrictions and new overhead of international travel (including mandatory self-quarantine at arrival or return depending on the destination), which may critically impede some partnership and customer relationship-building.
What are the opportunities startups may be able to tap into during these unprecedented times?
Location, location, location has been central to real estate investing, but now tech allows us to rethink this. If products and services come to you, what’s the value of location? The evolution of curbside pickup is also super-interesting. The challenge with on-demand remains the delivery costs — not great for restaurants, for example. So pickup is likely more important than delivery for most businesses rethinking logistics, but the experience can still be greatly improved for consumers.
Related to this, streets are being reorganized — from closed streets to temporary bike lanes. There are opportunities to help reimagine outdoor space for restaurants, deploy and amplify bike and micromobility safety and reprioritize pedestrians.
Finally, city revenues have fallen dramatically, so there are opportunities to get city support in situations where you can help drive revenues. Think about sales tax or parking, which have fallen off as retail has shuttered.
What’s your advice to shared mobility startups that are facing dips in ridership while trying to achieve positive unit economics?
Shared streets are an essential way to expand space for non-car activities, from walking to cycling. There is no doubt folks just want to get out, and with reduced travel, local trips will increase. This seems to be the case from the communities we track, like Onewheel’s fan base. As cities continue to decrease public transit options because of lower ridership and safety concerns, essential workers and commuters still need to find ways to get around. Cities are continuing to build emergency bike lines and there has been a push to make the added bike lanes permanent. Cities have been restricting car access and opening streets to pedestrians and cyclists. Non-automobile shared mobility startups should continue to ensure the safety of riders with increased cleaning measures and ensure ease of signups and use, specifically for essential workers and those on the front lines.
Where ridership is down due to local restrictions, startups can partner with Miles to grow brand loyalty with your customers. Startups can reward their customers with points for following Stay Home guidelines as well as incentivize their return to riding devices when restrictions are lifted.
What categories within mobility hardware are best poised to flourish in 2020 in spite of COVID-19?
Last-mile logistics and urban ground mobility.
Do you expect low oil prices will hurt EV infrastructure startups?
No. The total cost to own an EV continues to fall. The math may not be as great on fuel savings, but the maintenance gap continues to grow.
In the coming months, the oil price will recover as a result of pressure on key suppliers — else we’re going to see even more job losses and stranded assets. All the while, battery prices will continue to fall, driven not just by EV demand but by growing demand for energy storage too.
Finally, passenger cars are interesting, but not as interesting as the other types of EVs, from trucks to cargo bikes. The drivers for these are all a bit different, but perhaps the most interesting is e-bikes. Sales remain strong and their usage profile is different to regular bikes — there is very little drop-off as weather gets colder. C19 seems likely to accelerate bike infrastructure and further drive personal EV adoption.
Rob Coneybeer, Shasta Ventures
How has COVID-19 affected mobility hardware startups?
COVID-19’s impact on mobility startups largely depends on whether a company helps move people or helps move freight.
You can’t name a harder-hit market today than travel — ranging from international travel to local commuting, whether personal or for business — all of which have had consumer demand decimated by the pandemic. Planes, buses and trains are packed full of shared surfaces, and their economics rely on having full loads of passengers in close proximity to each other. Shared vehicles raise legitimate concerns about shared surfaces — especially door handles and seat belts. Moving people from one place to another has always been a low-margin business, and any countermeasure costs money and destroys profitability. I don’t think “countermeasure” companies create long-term opportunities.
In contrast, freight is as important as ever. Grocery supply lines are still operational, albeit with hiccups here and there. Amazon is operating at record volumes. There is still some controversy over whether the surfaces of packages can readily transfer COVID-19, but the risk appears to be a lot lower than people in proximity to each other. Countermeasures are a lot easier to implement and less expensive in the world of shipping goods. Or, if a process is fully automated via robotics, you won’t need countermeasures in the first place.
In today’s environment, I’m more excited than ever about startups applying automation and robotics to freight operations, at every point of the delivery chain — ranging from long-haul trucking, to warehouse operations, to local delivery. I think teleoperation has a critical role to play, which is not fully appreciated yet, since it allows a fully operational service to be performed without perfect autonomous technology. It’s going to be at least 10-20 years until vehicles are fully autonomous, and I can imagine opportunities where “drivers” can teleoperate vehicles from workstations in their own homes.
If you’re an entrepreneur building a consumer mobility-related startup, I hope you made dramatic cuts to your burn rate already. The road back to growth is not going to follow a v-shaped recovery. There are too many headwinds. Consumers have learned how to work remotely. Consumer and business pocketbooks have already been severely hit, and there simply isn’t as much money to spend to move people around. Until (or if) there is a widely available vaccine, people are going to shun shared surfaces. You need to size your company and burn rate with these issues in mind.
If you’re building a freight-related startup on the other hand, you won’t face a macroeconomic demand challenge. Your main challenges will be in execution, which entrepreneurs have the creative energy to solve. For example, how do you build and test hardware when people need to “shelter-in-place?” How do you move customers along in a sales cycle when their businesses have slowed down due to the pandemic? How do you hire a team via Zoom video interviews? These are all solvable problems, unlike trying to address markets where demand has evaporated and won’t recover for years.
Personally, I think that eventually people will travel as much as they did before the COVID-19 pandemic. People love to be in proximity to other people, and to try new experiences. I think in the long-term, video calls largely replace audio-only phone calls — but not in-person meetings. However, this is going to take many, many years, which does not map well to the short time frames startups live and die by.
Shahin Farshchi, Lux Capital
How has COVID-19 impacted your investment strategy?
We seek founders whose thesis is built around this new normal: an environment where fundraising will be very difficult for all but those who can rapidly de-risk a big opportunity with modest dollars. We take on hard problems, and expect to work with great founders to grow their teams and their businesses. We have a fresh $1 billion pool of capital to put to work and are excited to get to work.
How has COVID-19 affected mobility hardware startups?
Mobility hardware runs the gamut from hardware and software for autonomous cars to last-mile delivery services. Those selling technology into the broader automotive supply chain will face serious headwinds; automakers have shut down factories and expect to restart production into a market suffering from massive unemployment. They will likely cut back, or at the very least, delay their plans for producing autonomous cars. Ridesharing companies are also suffering, and they too are likely going to postpone robotaxi programs. Startups selling to these customers will have to be creative around extending their runway so that they will be able to meet delayed demand. Last-mile delivery technology could see an increased demand as a result of greater demand for contactless delivery, which could be a shot in the arm for them to further improve their technology and demonstrate unit economics to their customers who operate on-demand.
What are the biggest worries of the founders in your portfolio?
- Customers slowing down purchasing; sales cycles getting longer, slowing down growth.
- Downward pricing pressure from a market in pain.
- Investors taking less risk on companies with unproven metrics, and willing to pay more for those that are more proven (obvious winners get overfunded at the expense of everyone else).
- Employees facing stress from spouses and relatives out of work, children at home, ill loved ones, and anxiety around whether they can absorb an unexpected event.
- Maintaining momentum in an environment that has ground to a halt.
What is your advice to startups in your portfolio right now?
- View change as opportunity.
- Start from a blank slate: revisit your product, go-to-market, related strategies and the team required to execute, as a function of THIS new normal.
- Make changes, no matter how painful, swiftly. What was previously built for a different reality is a liability, not an asset.
- Focus on your people. Do what you can to minimize uncertainty for them at this time of uncertainty.
- Find creative ways to extend runway with the cash you have on hand.
- Get closer to your customers. Understand the challenges and changes they are facing. This is a unique opportunity for you to hone your product and build a barrier between you and your competition.
What are the opportunities startups may be able to tap into during these unprecedented times?
There are the obvious ones: Contactless autonomous delivery vehicles, drones that can carry goods inside buildings, robots that can regularly disinfect floors and touch surfaces. Other obvious opportunities are elevators that are voice activated, and doors that open without having to touch handles, keys or even phones or cardkeys. What gets us more excited are the less obvious, second-order impacts.
What’s your advice to shared mobility startups that are facing dips in ridership while trying to achieve positive unit economics?
It is still unclear as to how we will come out of this. We have to see if, when and how people choose to resume getting around. Those new behaviors will impact ridership [and] expected unit economics. Will people be comfortable in a car with strangers? Will it be practical to test everyone getting into a car? How long will it take until there is a vaccine? I think there are too many variables at the moment, so the best piece of advice to shared mobility startups is to come up with a plan for all of those scenarios.
What is an overlooked opportunity in mobility hardware right now?
It feels like the broad mobility hardware space is overcrowded. What’s missing isn’t more hardware, it’s product. We’re entering a rapidly changing market, so getting product right is exponentially more difficult. Rather than focus on more whiz-bang technology, hardware startups should understand how their customers’ needs have changed and build product to serve those needs.
What categories within mobility hardware are best poised to flourish in 2020 in spite of COVID-19?
Successful companies are not those that are in the “best-positioned” categories. It is those companies, agnostic of their category, that are able to quickly engage with customers with a product that instantly creates measurable value. Those that can build a business that can scale with modest amounts of capital. Those that are nimble and can adapt quickly to changing customer needs.
There was a graveyard of “car” companies during Ford’s early days, “PC software companies” at the dawn of Microsoft, “search engines” when Larry and Sergey were graduate students, “social networks” when Mark was getting started out of his dorm room, and “videoconferencing” as Zoom was getting started with WebRTC available open-source. The best analysts, speculators and investors dismissed those companies; they did not anticipate a superior product, in even the most crowded category that is unforgiving to startups, can build a dominating position.
What categories within mobility hardware are most at risk?
Those that are focused on technology, and individual features, rather than building a superior product that is greater than the sum of its parts serving a burning need for a nascent and growing market.
Are there still opportunities in the autonomous vehicle industry? If so, what?
Absolutely. As a function of the change COVID-19 has imparted upon us, there is, by definition, HUGE opportunity.
Do you expect low oil prices will hurt EV infrastructure startups?
No. People who have historically purchased EVs haven’t done so to save money at the pump. If local, state and federal governments continue to motivate manufacturers to build EVs, and consumers to buy them, with incentives ranging from tax credits to high-occupancy lane access, then people will buy cars and there will be a need for infrastructure. That said, startups have to figure out how to differentiate themselves in the crowded EV charging category.
Kate Schox, Trucks VC
How has COVID-19 impacted your investment strategy?
Our investment strategy largely remains the same, but we are more cognizant of opportunities in new verticals and use cases that have been highlighted by COVID-19 (i.e. logistics, last-mile delivery, etc.).
How has COVID-19 affected mobility hardware startups?
Many mobility hardware startups sell directly to OEMs and Tier 1s. COVID-19 has tightened the purse strings of many of these players so hardware startups need to be able to adapt to lower appetites from manufacturers and longer sales cycles. Shared mobility hardware startups obviously also have low to no ridership.
What are the biggest worries of the founders in your portfolio?
Maintaining additional runway in a moment where sales cycles to manufacturers have become longer, customer engagement or ridership is lower and available VC funding is lower.
What is your advice to startups in your portfolio right now?
Maintain enough runway to get through the COVID-19 period in case it lasts longer than expected.
What are the opportunities startups may be able to tap into during these unprecedented times?
There are behavioral changes for consumers during COVID-19 that may last well beyond the pandemic, such as increased reliance on grocery delivery, etc. Startups should plan for these changes and adjust their product road maps accordingly.
What’s your advice to shared mobility startups that are facing dips in ridership while trying to achieve positive unit economics?
As people reintegrate back into daily normal life, there are going to be fears around cleanliness, social distancing, congestion, etc. that will push them back to using single-occupancy vehicles. It’s critical that startups prevent this by instilling a sense of confidence and trust that these fears are being addressed.
What is an overlooked opportunity in mobility hardware right now?
Cleaning/sanitation/disinfection or sensor calibration and other such after-market maintenance of automated/ADAS features.
What categories within mobility hardware are best poised to flourish in 2020 in spite of COVID-19?
Logistics and autonomous/automated delivery. As everyone is sheltering in place, the impact and need for more robust supply chains and contactless, efficient last-mile delivery has come to the forefront.
What categories within mobility hardware are most at risk?
Any mobility hardware startups with fleets of vehicles that are grounded and their business model depends on high utilization (micromobility, motor coaches, airplanes, etc.).
Do you expect low oil prices will hurt EV infrastructure startups?
There will likely be a long-term dip in EV adoption rates in the U.S., which will hurt EV infrastructure startups. However, the EU and China EV markets are regulation-based, not cost-based, so EV adoption should continue to grow in those markets.
Any other thoughts you’d like to share with TechCrunch readers?
We at Trucks have always believed that transportation and mobility is a critical component of global trade. Over the last month, COVID-19 has given transportation a new distinction: essential, not only to global trade but also daily life itself.
Jeff Peters, Autotech Ventures
How has COVID-19 impacted your investment strategy?
COVID-19 added new risks that we probably downplayed in the past, such as: future financing risk, length of runway and ability to control burn. We’re hoping that much of the COVID impact will be short-term and not affect the long-term prospects of great companies.
How has COVID-19 affected mobility hardware startups?
The best euphemism I’ve heard was that many hardware startups are not “revenue dependent” and won’t be as affected. However, the big challenge will come while raising the next round of funding, especially with many automotive corporate VC arms pulling back.
What are the biggest worries of the founders in your portfolio?
The biggest worries our founders have are around the challenge of “how can I extend the runway for the company to see this through, but not cut off our ability to execute at an acceptable level?”
What is your advice to startups in your portfolio right now?
It is always good advice to cut costs where possible and do more with less. People are just taking it more seriously now.
What are the opportunities startups may be able to tap into during these unprecedented times?
If a startup is well-capitalized, then they should consolidate the market. If they can alleviate a pain point experienced by the industry, then they should use that to gain a foothold in the market.
What categories within mobility hardware are best poised to flourish in 2020 in spite of COVID-19?
There may be a shift to personally owned micromobility. Perhaps people will realize it is more cost-effective to just buy a scooter or bike, and they don’t need to worry about sanitation.
What categories within mobility hardware are most at risk?
Novel embedded vehicle sensors (e.g. lidar, radar) will struggle most due to less corporate VC funding, delays in vehicle production and less M&A activity from the already limited pool of automotive acquirers.
Do you expect low oil prices will hurt EV infrastructure startups?
With reduced government incentives, massive unemployment and now cheap oil prices, it is hard to build a bull case around near-term EV penetration in the U.S. Plus, EV infrastructure companies always struggled to profit from selling something that is so cheap — electrons. Our portfolio company, Volta, instead provides electrons for free and monetizes from advertising displays outside of well-trafficked venues like grocery stores and malls. They are largely decoupled from the near-term trend while they are coupled with the long-term trend of large-scale EV penetration.
Any other thoughts you’d like to share with TechCrunch readers?
While travel and transportation were some of the most impacted sectors due to COVID, many startups have found ways to: 1) survive in the near-term and 2) become stronger companies over the long-term. Having just announced our second fund, we, and our partners, are confident that this is a great time for startup formation, and there is a bright future for mobility.
