Last month, in our final Verizon Ventures Forum of 2017, we brought together entrepreneurs, VCs, and corporate peers from across the globe to meet in New York City to discuss the future of smart transportation and cities. As is evident by some or our investment activity (Urgent.ly, Renovo, YourMechanic, among others) as well as recent acquisitions (Sensity Systems, Fleetmatics and Telogis) this is an industry of great interest to Verizon Ventures as we believe it continues to be ripe for disruption.
The event, like all of our Venture Forums, sparked debate and dialogue about trends and innovation across the industry, shining a light on autonomy, tele-operations, and ride-sharing, to name a few. We capture some of the highpoints brought up during the day below.
Transportation is the beachhead for Smart Cities, but valuations are meeting resistance.
We believe that transportation is pivotal for initiating the transformation of cities. There have been several public-private partnerships that have already been forged trying to solve mass transit issues in municipalities. One example is the town of Summit, New Jersey and its recent partnership with Uber to help resolve commuter parking issues [article]. As such, we are not surprised to see venture activity in the transportation sector dwarf that of traditional smart cities - ~3x in terms of deal volume and ~30x in terms of deal value (based on our PitchBook query). Despite the large amount of venture activity, we still believe the transportation sector remains ripe for further disruption, as legacy players have done little to push innovation along. As some evidence to that assertion, when you exclude ride-hailing companies like Uber and Lyft, you will be hard pressed to find startups that have unicorn (billion dollar plus valuation) status within the smart transportation space, which is expected to reach a couple hundred billion in market size [link]. We believe there are three reasons for that trend: 1) cars are an expensive proposition – costing ~$9k a year per consumer, according to AAA, 2) a lack of revolutionary innovation in the automotive space, 3) consumers desire for reduced friction – simply wanting to get from point A to B. With that said, when we see tech companies like Samsung acquiring Harman, or Intel acquiring Mobileye, we are cautiously optimistic on potential for the industry. We think continued investment in the sector is needed, but with smart and careful diligence as some of the recent M&A valuations have not only been below unicorn status, but also prior funding rounds, which exhibits some proof that we are hitting a resistance level.
Autonomous vehicles are here (if you squint).
We were fortunate to be joined by a partner from a transportation focused VC firm, who opened up the afternoon with a talk about where the Autonomous Vehicle (AV) market is today. There were three parts to his talk as outlined below.
Where we are today: he estimates that there are roughly 2,000 AVs today, most of those are test vehicles developed by Google, Uber and countless startups and labs. Next year, he believes there will be about 60k AVs built, most of which doing menial tasks and running for a limited number of hours a day. By 2019, it’s estimated there will be about 180k AVs, with 2020 being the typical date most industry executives use as their target for launching an autonomous vehicle platform.
The Development Process: Manufacturers and OEMs building AVs are working through three phases: R&D → advance engineering → and production. As you move through each phase you need bigger budgets as the technical challenges get harder to solve and the requirements get stricter. Based on the evolution of the industry, he believes the AV industry is now about to enter the advanced engineering phase and expects there will be a reduction of companies in the sector. As an example, he estimates that there are roughly 32 LiDAR companies today, but believes the number could shrink to about three in the next 18 months as many won’t be able to meet technological targets. Given this dynamic, the cream will naturally rise to the top.
While these services and models are still being developed, he thinks that ride-hailing is a good interim solution until AVs arrive in a major way and can offer lessons that the industry could learn from as it looks to build out its services.
Enterprise and consumer clients are looking for more control over their services and solutions.
Two of our portfolio company founders, Amos Haggiag from Optibus and Christopher Ruff from Glympse, joined a panel discussing future innovations in transportation and shared insights into how their companies interact with their customers.
Optibus, whose mass transit scheduling solution is used in 200 cities across the globe, including Los Angeles and Washington D.C., has a platform that is totally customizable to fit each of its customers’ unique needs, be it private companies or municipalities. This is extremely important, given the myriad of different laws, rules and union requirements that each of their customers must support.
Glympse’s person-to-person time-based location sharing technology is more than just a means by which to notify a customer a service truck is on the way to their home. Ruff stressed that a key to their success is staying close to the customer. Glympse sends reminders to customer about their appointment and then follows up with a five-star rating notification once the service is complete. These kinds of features are purposely designed to turn more and more control of those experiences over to the customer.
Ruff also pointed out that there was a tremendous amount of venture capital funding flowing into startups that are building out end-to-end capabilities that “empower consumers.” While this is happening, he believes that there’s a large number of established companies that will have an integration problem, as decades of investments in systems and platforms cannot be replaced with a singular unit. As such, startups are becoming the marketing and operations weapons that allow these legacy companies to meet their consumer expectations.
Tele-operations is a logical next step before reaching Level 5 AV
Early in the day, an investor referenced a long haul trucking startup that developed a hybrid model for automated trucking to solve “first and last-mile” challenges. Trucks would operate autonomously on highways, where there are no pedestrians and maneuvers are simpler. However, when they get to urban areas where maneuvering is more difficult, they would switch over to tele-operated drivers for safety. Later in the day, we heard from a pureplay tele-operations startup who aims to provide real-time remote support to self-driving cars.
There are roughly 50,000 open truck driver positions in the U.S. today, a figure that’s expected to grow to 174,000 in the coming years. Tele-operations companies like Phantom Auto appear to be a viable solution to not only bridge that gap, but also the technological evolution that still needs to happen with autonomous vehicles. From a connectivity perspective, we believe that tele-operations and autonomous vehicles represent excellent test cases for 5G, as they require low latency and high bandwidth.
Once we can get over our fears of self-driving cars, we can begin to reap their societal benefits.
The biggest driver of consumer resistance is fear and a lack of trust. During the Venture Forum, a long time AV veteran, who recently founded a startup that is developing a “full-stack solution” for self-driving cars, gave a talk on the evolution of self-driving cars which ended with his optimism for the industry’s future. He quoted a study that claimed 60 percent of Americans don’t want to ride in self-driving vehicles, which excited him because it meant that 40 percent wanted in, an astonishing revelation considering the technology really doesn’t exist today.
When he reflected back to when Google introduced its first AV prototype in 2014, he claimed that they weren’t trying to necessarily build a cool and sexy car, but simply one that wasn’t scary. Once people tried this Smart car sized vehicle that didn’t have pedals or a steering wheel, they realized it wasn’t scary at all, but actually quite natural.
He then went on to say that once consumers get over their fears of self-driving vehicles, they will be on a path to reap three major societal benefits: 1) increase in safety – today there are 33k people killed in car accidents every year, which has grown by 8 percent annually, an acceleration fueled by distracted driving, 2) a significant reduction in congestion and traffic, 3) better utilization of urban real estate – roughly 30 to 40 percent of cities are taken up by lots and garages that store idle vehicles.
While most recognize the importance of smart transportation and cities, there are varying opinions on its arrival and how to play it. As an investor and strategic player in the space, we greatly appreciate the opportunity to exchange insights and opinions about what is possible in the future. On that note, we would like to thank all speakers and attendees for joining us and we look forward to seeing you again at future Venture Forums in 2018. A special thanks to Zeev Klein and the rest of the Landmark Ventures team for helping us produce yet another successful Venture Forum.