Viewpoints

The Transportation Revolution: New Technologies Mean New Opportunities for VCs


September 25, 2018 –

Many people around the world are intrigued by the developments to date in autonomous vehicles. Not only is the technology fascinating, but so are its implications for car ownership patterns, urban planning and other areas.

When investors contemplate these changes, many tend to ask a few simple “horse race” questions. Principally, they ask, “Who will win the race to build full or semi-autonomous cars: Google, Tesla or one of their competitors?”

As the leader of a venture capital firm with experience in the tech space, I think that’s far too narrow a focus and, in fact, misses one of the most important aspects of this transportation revolution. Namely, I believe we’re about to see the creation of not just one or two, but an entire cluster of high-value companies located up and down the transportation value-chain. Venture investors who appreciate the changes now underway stand to get in on the ground floor of any number of new billion-dollar companies.

Other industries may predict VC opportunities in transportation.

To understand what’s about to happen in transportation, think back on what happened with mobile phones. Not only have handset manufacturers and platform providers like Apple, Google and Samsung doubtlessly created incredible wealth for their shareholders — as of the time of this writing, the three companies had an aggregate market capitalization around $2 trillion per Google financial data — but so have a plethora of other companies who provide mobile-centered components, infrastructure and apps. Qualcomm, for example, has benefited by providing chip-based solutions that provide cellular, Wi-Fi and GPS functionality. I’ve seen ARM licensees scoring with processors that, by basic definition, are capable of delivering high performing chips with low power consumption. Manufacturing tasks have fallen to companies like Solectron (later acquired by Flextronics) and Foxconn, which I believe have become thriving enterprises in their own right.

And then there are the components: There may be an Android or iOS-related logo somewhere on your phone, but underneath, you’ll find a veritable United Nations of tech companies working together on image sensors, actuators, touch displays and numerous other must-have parts. On the infrastructure side, we know there are companies providing services such as security and cloud-integrated storage. And everyone knows about the successes of the mobile apps world: mobile social networks, media, shopping, games and all the rest.

Investment opportunities abound in the autonomous car. 

I believe we will see a repeat of this story with the transportation revolution on which we’re embarking. For starters, consider what’s under the hood of the autonomous car.

Naturally, at the lowest level, sensors are required to give the car information about its environment, including cameras, LIDARs, radar, precision GPS units and the like. These need to communicate with other parts of the car, which means a connectivity and communications infrastructure that I believe would be wired on some internal bus or over wireless connections. On the other side of those connections, we can imagine there will be the “brains” of the car, which could be a combination of traditional CPUs as well as next-generation artificial intelligence (AI), machine learning and computer-vision chips.

To be autonomous, the car will require navigation services in the form of maps and route planning aids, which will likely be different from maps for consumers. I predict it will also need to listen to and tend to the needs of its human occupants, which could mean passenger-focused sensors, voice assistance and “infotainment” functionality.

Security and safety will need to be accommodated, probably necessitating systems that guard against on-road threats like collisions and more remote risks, such as hackers. And once these cars are up and running, there will be a myriad of end-user services that companies can accommodate, including everything from insurance to parking, cleaning and maintenance. At the same time, I predict there will be opportunities for fleet management, asset utilization and revenue management.

It should be obvious by now that no single company will be able to provide all of these. And it should be just as clear that the disruption of transportation will provide the kindling for a teeming group of major new players. The PC revolution gave us major computer manufacturers and big disk drive and memory companies. With the internet, we got companies like Google; and already from mobile phones we’ve seen breakout successes from a new breed of mobile-focused companies.

Expect the same from the transportation revolution. Somewhere out there, in garages and dorm rooms, entrepreneurs are beginning work on the company that will do for autonomous vehicles what companies like Intel did for PC processing, what companies like AT&T did for mobile phone networks and what companies like Norton and McAfee did for PC security.

Investors should analyze each individual company’s characteristics. 

There’s no guaranteed way to spot the companies that will emerge to fill these roles. But some things to look for include whether they sell directly to an autonomous vehicle maker or through a supplier, what kind of margins a company can achieve and total addressable market of the solution. I recommend that investors also look at how capital-intensive a company is, how differentiated its product is and, of, course, the valuations of other companies in its area.

I believe autonomous vehicles are written about extensively in the popular press because the underlying technology developments are inherently interesting, even for people with no special interest in robotics. But the business-side developments are just as compelling, and in the process of creating significant new companies, they could also generate spectacular returns for savvy venture investors who keep up with emerging developments.

 

Originally published on Forbes.