Few people are more closely tapped into the innovations in the transportation space than investors. They’re paying close attention to what startups and tech companies are doing to develop and commercialize autonomous vehicle technology, electrification, micromobility, robotics and so much more.
Clara Brenner, co-founder and managing partner of Urban Innovation Fund; Quin Garcia, the managing director of AutoTech Ventures; and Rachel Holt, co-founder and general partner of Construct Capital talked (and debated) about how the pandemic affected the venture world and deal flow; why AutoTech Ventures was hesitant to invest in micromobility; on how to incentivize micromobility; and, of course, their take on the rise of mergers with special purpose acquisition companies as a route to going public. They also shared their thoughts on the most overlooked opportunities they are interested in within the transportation space.
How the COVID-19 pandemic shaped VC
The COVID-19 pandemic turned the world upside down, and VC was no exception. Holt and Garcia explained some of the effects they saw on startups — both new and existing — over the past year.
Holt: There was enough dislocation in transportation, and in some other areas, that happened through COVID, that it’s just the time when, whether it’s buyers or cities or others are just evaluating what the new world order should look like. And I think that just creates a lot of opportunity. … When you have a shock to the system like COVID, it creates just an opportunity for everyone, whether it’s inside companies, whether it’s founders, or whether it’s cities and governments and other entities to take a step back and say, OK, what do we want the next five years to look like? (Timestamp: 4:18, 4:55)
Garcia: When we had peak COVID fear across the spring of 2020, everyone went down periscope and battened down the hatches and [looked] for capital to kind of endure nuclear winter for some months. New startup formation during that period dropped dramatically. … Then a few months passed, and then we hit summer of 2020 and everyone put the periscope back up and realized that, actually, we’re going to be OK. And new companies started to get formed, natively, remote companies started to get formed. So we started to see the rate of startup formation around that time increased dramatically. And then of course, existing companies were kind of coming back to the well. (Timestamp: 7:10)
Why Autotech Ventures was hesitant to invest in micromobility
From the public’s perspective, it might seem like micromobility is booming. Companies like Bird and Lime can be found in many major U.S. cities and abroad, with thousands of daily users. But some investors have been less keen to join in. Garcia explained why AutoTech is only just starting to invest in the space.
Garcia: We were previously hesitant to get into the micromobility space because we saw low barriers to entry, meaning in order to start up a micromobility startup, all you had to do was buy a bunch of scooters and write an app and then throw the scooters on the sidewalk. You’re in business, right? So there was a bunch of cash being pumped into that space, very low differentiation between the companies operating in that space, meaning the main form of differentiation was actually capital formation, so an ability to fundraise. And Lime and Bird were two big companies, at least in the U.S., that were able to fundraise quite well. But then you got a bunch of other companies, ankle biters, if you will, that were also kind of nipping at the heels. And those large players weren’t able to kind of stamp out the smaller companies. And so we want to stay on the sidelines. (Timestamp: 11:45)
The impacts of local taxes and incentives
Micromobility suffers from a few key challenges, the main one being how companies balance access and profitability. Here, Holt and Brenner debated what role (if any) local and state governments should play in both incentivizing consumer use of micromobility devices and specifically whether these companies should be taxed.
Holt: I think it’s a very interesting tension that’s going on, and I think has been going on since Uber, which is there is a desire for cities to control the way that these products interact with their streets and their sidewalks, as they should … but sometimes in trying to fix those problems, what it’s meant is it’s just far more challenging to run these businesses. If I was running a city, and I wanted to incentivize a behavior, which I think micromobility is something that should be incentivized, I sure wouldn’t tax it first. And I think what you’re seeing is those kind of behaviors happen. Being the person that was trying to get Uber into a lot of these cities, then try to get Jump into a lot of new cities, it was made harder often with the micromobility, and that feels like it should have changed over that seven-, eight-year difference between when we were first trying to get Uber in and then trying to get Jump, you know, along with the other micromobility players. (Timestamp: 19:24)
Brenner: I disagree. … The reason why biking in Holland is so delightful is because municipalities invest in protected bike lanes, the reason why train service in Japan is so fantastic is because communities allocate tremendous resources to building and maintaining high-speed rail. Solving the transportation problem in this country absolutely requires innovation from the private sector, whether it’s bikes, or scooters, electric vehicles, but the money has to come from somewhere in order to maintain the public infrastructure where all of these services can run and coexist. … We have to start somewhere. And that usually comes from taxing these very large and highly capitalized private enterprises. (Timestamp: 20:43)
More SPACS in the transportation space
The transportation sector is littered with companies going public via mergers with special purpose acquisition companies. Garcia and Brenner weighed in on this mechanism for going public versus a traditional initial public offering.
Garcia: I wouldn’t say that they’re good or bad. They just are, they’re a financial instrument. In many ways, they look and smell like an SPV, a special purpose vehicle, although there’s some differences. Our portfolio has benefited from SPAC mania … SPACs offer a lower effort to go public than a traditional IPO, primarily due to the fact that traditional IPOs have more onerous compliance requirements with securities laws. I could see SPACs continuing to be used over the coming years, though it’s possible regulators might clamp down on them a bit as they clamped down on traditional IPOs when they saw irrational exuberance, and some folks getting hurt by traditional IPOs many years ago. (Timestamp: 25:30)
Brenner: [The Financial Times] said, of the nine car tech groups that had listed via SPAC so far in 2020, collectively, between them all, they expected revenues this year of $139 million. But by 2024, they projected combined revenues of $26 billion, which I think can either be interpreted that, the SPAC space, at least as relates to transportation, is a lot of smoke-mirrors bullshit. On the other hand, I think there’s something to be said for the fact that there’s a lot of potential growth in this space. These companies, as we’ve all talked about, need a lot of money to scale, and SPACs can represent a really fantastic way to secure that capital. I imagine it’s probably a little bit of both. (Timestamp: 27:28)
Which overlooked opportunities interest them the most?
Garcia: Digitization. (29:10)
Brenner: Car rental. (29:14)
Holt: Public transit. (29:17)