Is Silicon Valley about to rival Detroit?
Quin Garcia and Alexei Andreev, managing directors of the Palo Alto, Calif.-based early-stage firm AutoTech Ventures, think so, especially now that the private auto is taking on board an increasing number of digital devices and services.
The two partners last year filed to raise a $150 million debut fund that will target auto IT investments.
While they can’t talk specifics, they said they’re planning to invest in about 15 startups, mostly in Silicon Valley, but with a “couple” of possible deals in Israel and China.
Their investment focus will be on software, services and electronics that can reduce road fatalities, traffic congestion and air pollution.”
“The ground transport sector is undergoing tectonic shifts, including reshuffling of the supply chain and business models due to the entry of tech giants and startups,” Garcia said. “Vehicles are essentially becoming supercomputers on wheels.”
Those startups are disrupting the auto industry, from manufacturing to sales to insurance to repairs, as well as disrupting the technology behind the dashboard and underneath the hood, he said.
AutoTech joins a growing roster of VCs looking more closely at automotive IT, a list that ranges from a relatively small player like AutoTech to large corporate VCs, such as Intel Capital.
All are hoping to cash in on the accelerating market for automotive suppliers, including software and services, which industry researcher Statista reports is valued at $620 billion.
GM Ventures, for example, a five-year-old venture arm of automaker GM, is investing out of a $100 million fund. The corporate VC is very active in its search for new technologies to be used in future models.
The unit is one of 18 automakers with offices in Silicon Valley, compared to just four in 2007.
GM Ventures spokesman Dan Flores said the office works closely with the company’s research outpost local in Palo Alto. He said that in working in tandem they’re more likely to spot companies worth backing.
“Their job is not to go out and develop technology, but be GM’s eyes and ears in the Valley,” he said. “We’re looking for a small tech company, not an automotive supplier, where we can help them bring new technology to market with the possibility of becoming their first customer.”
Overall, GM Ventures has invested in about two dozen companies since 2011, but has disclosed less than half. Because the development cycle for new models takes three to five years, products and services from some investments are just now showing up in new models.
In 2011, GM invested $5 million in San Francisco-based Powermat Technologies, which has developed a new product that allows drivers of select GM models to recharge their mobile devices cordlessly.
Several other car makers are now offering customers the technology that got its start in Israel.
In January 2015, GM invested an undisclosed amount in San Jose, Calif.-based Tula Technology, which is developing technology to boost gas engine efficiency up to 15 percent.
Delphi Automotive, Khosla Ventures, Sequoia Capital and Sigma Partners have also invested in the company.
“There is a revolution under way as to what comprises an automobile,” Flores said. “What a car is made of is changing.”
Mark Lydon, managing director at Intel Capital, said one of the biggest changes in the industry is the rapid shift to semi-autonomous driving technologies, which will eventually morph into fully autonomous driverless vehicles.
“We’ll eventually see such things as valet parking, where you’ll pull up to the front door at Safeway, get out of your vehicle, and tell the vehicle to go park itself,” he said. “Then, when you’re in the check-out lane, you can text your car to pick you up.”
And the changes ahead are not just true of cars, but trucks, too.
In April 2015, Intel Capital participated in a $16 million Series A round in Peloton Technology, which is pursuing the digital capabilities to allow long-haul trucks to closely follow each other down the highway.
Japanese parts supplier Denso led the round with participation from Intel, the Band of Angels, Birchmere Ventures, Castrol innoVentures, Magna International, Sand Hill Angels, UPS Strategic Enterprise Fund and Volvo Group Venture Capital.
“The reason why this company is interesting to us is the technology touches a variety of areas in computing,” he said.
Intel invested in Peloton out of Intel’s dedicated $100 million connected car fund established in 2012. Tractor-trailers using Peloton’s technology will feature vehicle-to-vehicle communication links with onboard tablets to serve as the driver’s interface. A network operations center will help to assemble truck convoys based on road conditions, geography and weather.
Lydon said Intel will invest at any stage, and will often lead deals with a network of co-investors, but said the sweet spot is the Series B round, where the portfolio company has a proven product and service and wants to scale.
And he said many of today’s cars have more than 100 million lines of computer code compared to Window’s Vista operating system, which had 50 million lines, and a Boeing 787, which has 14 million lines of code.
“It’s not a simple task for an auto manufacturer to find a cool piece of software, drop it in and have everything work seamlessly,” he said. “These are complex systems.”
Meanwhile, Garcia of AutoTech Ventures said the fact that such influential Silicon Valley-based tech giants as Apple, Google, Tesla and Uber have plans, or are rumored to have plans, to develop autonomous cars bodes well for an industry now starting to undergo a transformation after a century of stability.
He said many of the technologies now emerging must be put in place before the fully autonomous car arrives, most likely within the next two decades.
“The auto ecosystem was a closed market for its first 100 years,” Garcia said. “But now auto production as well as the supply chain ecosystem is changing, from how you buy, sell, rent, insure and repair vehicles. We’ve got an exciting 10 years ahead of us.”
Tom York is a San Diego-based contributor. He can be reached at firstname.lastname@example.org.
See related story on how Fontinalis Venture Partners, the Detroit-based VC firm that Bill Ford, the great-grandson of Henry Ford, helped launch in 2009, is raising $125 million for its second fund to invest in emerging IT for trains and planes, as well as some aspects of the automobile.
Featured photo: An Acura RLX sedan brakes to avoid a mannequin “pedestrian” during a demonstration at the ITS World Congress in Detroit, September 2014. REUTERS/Rebecca Cook