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CBINSIGHTS: Q&A: Quin Garcia, Managing Director, Autotech Ventures

READ THE ORIGINAL ARTICLE AT CBINSIGHTS HERE.

A conversation with Quin Garcia of Autotech Ventures on connecting startup innovation with corporate reach, as well as areas of interest in the auto tech space.

As mobility and auto tech startups have rapidly proliferated, the ecosystem’s investor pool has drawn in both traditional venture capital firms and various investment arms from traditional OEMs and suppliers placing strategic bets.

Among these investors, ground transport-focused Autotech Ventures has brought a unique model to bridge the gap between startups and its corporate partners, while still investing for returns(unlike a strategic corporate venture unit.

The firm closed its inaugural $120M fund last July, drawing a range of transportation LPs including manufacturers, suppliers, and trucking firms. Autotech Ventures has already made bets across the mobility and AV/EV spaces, investing in companies like Lyft, DeepScale, and Volta.

We caught up with Managing Director Quin Garcia on the firm’s thesis and his take on current trends in auto tech.

BACKGROUND, AUTONOMY, AND ELECTRIFICATION

Tell us about Autotech Ventures: why did you start this and where is this going?

Autotech Ventures was founded to bridge the gap between the ground transportation startups and corporations that are solving the world’s most pressing transportation problems.

We believe that the magnitude and speed of disruption in the $3 trillion ground transportation sector warrants a specialized venture capital firm that provides startups with capital, transportation market intelligence, and access to corporate scale-up partners.

As a strategic fund, what are the different ways you support your portfolio companies?

We help startups find traction by providing contacts, market intelligence, and other transportation-specific strategic support. Our investment decisions are not strategically motivated like a corporate venture capital group, but rather we invest to generate financial returns.

We have dozens of financial investors and transportation-related corporations as limited partners in our current fund, and we facilitate collaboration between our strategic limited partners and our portfolio companies for mutual benefit.

While we prioritize our strategic limited partners, we can also help our portfolio companies to succeed by making warm introductions to many other corporations who aren’t limited partners.

With the surge in auto tech activity over recent years, what’s an area that’s particularly interesting to you right now?

We’re excited about startups solving the biggest pain points related to movement of people and goods along the ground whether it be inside of cars, trucks, buses, motorcycles, or other vehicles with tires.

We tend to invest in startups solving the most acute transportation pain points related to vehicle retail, insurance, financing, autonomy, parking, recharging, sharing, repairing, resale, and goods transport.

While autonomous, shared, electric and connected vehicles get most of the media attention, many of the less glamorous solutions to transportation problems can be highly profitable.

What’s an area you think is overheated?

Full-stack Level 4 or 5 autonomous driving and lidar are two examples of startup domains where valuations are sky-high and significant revenue generation potential is far away.

Many of the startups in these overheated domains are relying on a preemptive acquisition before they are able to generate meaningful revenue, much less any profit.

There have been several preemptive acquisitions of full-stack autonomous and lidar startups, and we expect a few more such successes, but we believe it’s a losing game to invest at inflated valuations in startups that require a preemptive acquisition for survival.

Thus far, we’ve chosen to invest in startups like DeepScale, Lyft, and Metawave that can generate meaningful revenue in the interim period before fully autonomous vehicles achieve mass adoption.

Are there any common pitfalls you see among today’s auto tech entrepreneurs?

Startups often innovate quickly then scale slowly, while corporations often innovate slowly while scaling quickly.

The incumbent transportation sector is a century-old ecosystem, and some transportation entrepreneurs have underestimated the difficulty of succeeding in the transportation sector without a strong corporate partnering strategy.

Sometimes we see transportation entrepreneurs that have developed exciting technology without a sufficiently compelling monetization model to secure revenue.

What are the biggest hurdles remaining for AVs (autonomous vehicles) and EVs (electric vehicles)?

In most geographies, mass adoption of EVs is mainly being throttled by battery cost and availability of recharging infrastructure, but both of these challenges will slowly be solved. The hurdles for autonomy depend on the type of AV in question.

For example, there are low-speed autonomous shuttles for geofenced areas, autonomous cars for mostly personal ownership, autonomous highway trucks, and more. Each of these have different legal, social, and technical hurdles, but we don’t believe any of them are insurmountable.

For example, some startups are currently operating low-speed shuttles in geofenced areas. Geofencing alleviates many technical challenges by controlling the physical operating environment, but it is hyperlocal and may not scale as quickly to multiple geographies.

Autonomous trucks also alleviate some technical challenges by operating in autonomous mode only on highways, but studies show public concern with completely removing drivers from trucks operating at high speeds.

One bad collision could cause a social and political uproar that could delay commercialization of autonomous trucks.

Passenger vehicle OEMs are increasing ADAS content on their vehicles, but there are serious human-machine interface challenges associated with Level 3 and Level 4 vehicles that would unrealistically require a driver to spring into action without much notice.

Even airliners, which some claim should be straightforward to automate, still have two pilots in every cockpit.

THE REST OF THE VALUE CHAIN: AUTO COMMERCE, INSURANCE, PARKING, AND BEYOND

We’ve seen lots of large auto commerce deals in Asia for auto commerce. What’s driving these large deals? What do you see as the future of car purchasing?

China, for example, is a rapidly growing vehicle market with fewer mature incumbent vehicle commerce players than mature markets like Japan, USA, or Europe. Rapidly evolving auto commerce markets like China (and to a lesser extent India and Southeast Asia) with tech-savvy consumers are well-suited to the entry of startups.

We don’t yet see clear evidence of Asian markets leapfrogging mature geographies in terms of business model nor technology innovation, but rather we see many Asian auto commerce markets like China playing catch-up to mature markets.

New retail models that want to cut out dealerships tend to underestimate the regulatory barriers and the full scope of what brick-and-mortar dealerships provide.

The future of car purchasing will vary according to each region’s economic maturity, consumer preferences, and regulations (e.g. strong dealer franchise laws in the US), but in most areas we expect increasing application of automotive e-commerce.

Outside of autonomy, we’ve seen tech companies dabble in automotive: Google tried selling auto insurance, now Facebook and Amazon are building retail marketplaces. What are some challenges that might face these tech players?

Some tech giants have overestimated their ability to use their software expertise to circumvent incumbent transportation business models. Mass production of vehicles, vehicle insurance e-commerce, and vehicle repair services are example of transportation businesses that tech giants have yet to succeed in.

For example, auto repair mechanics do not know what parts are needed for a repair until they can diagnose the vehicle, which frequently cannot be achieved via software. All across the world, there are networks of “jobbers” that can deliver vehicle repair parts from distributors or retailers to an auto repair shop in under an hour.

That’s faster delivery than Amazon Prime in San Francisco, and a delivery time that requires brick-and-mortar distribution facilities (which some tech giants have shied away from).

Amazon’s acquisition of Whole Foods created a shockwave within the incumbent auto repair industry, as it provided a proof point of a digital-first tech giant entering the domain of brick-and-mortar distributors of physical goods that must be delivered quickly.

All that said, nobody likes the act of getting their car repaired, buying a new car, selling their old car, or shopping for insurance. With any of these pain points comes an opportunity for an innovator, large or small, to offer a better experience.

What are the largest trends affecting parking? Is shared mobility making incumbents worried, or still a distant thought?

We’ve studied parking for the past two years and recently wrote a market analysis report on parking for our strategic investors. The most significant megatrend affecting parking is urbanization. As more people flock to already densely populated cities, the demand for parking will continue to increase.

Shared mobility services like ridesharing may offset some parking demand in the near term, and autonomy will substantially reduce parking demand in the long term, but we hypothesize strong demand for parking in urban centers for years to come.

In light of this, we invested in SpotHero, which helps drivers to find, reserve, and pay for off-street parking spots in urban centers.

How do you see auto insurance evolving in the future?

While distracted driving has caused recent upticks in the number of vehicle insurance claims, we expect this to decrease over the coming years while the magnitude of the average claim should increase.

Further, we anticipate increasingly shared use of vehicles in urban centers, thus an increased number of fleet insurance policies with corresponding decreases in personal vehicle insurance policies in these urban centers.

As vehicles are increasingly automated, we anticipate decreased frequency of collisions corresponding to decreased insurance premiums, at least after the bugs are worked out.

In maintenance and repairs, what’s happening? Do you see an opportunity for digitization of such a fragmented space?

We have been studying the repair space for the past year, and we recently wrote a market analysis report on this topic for our strategic investors.

While there is ample opportunity for digitization of vehicle repair, the major pain point we observe is customer trust. When private individuals’ cars need repair, they frequently feel gouged for the repairs they need, they feel upsold on repairs they don’t need, or both.

This frustration amongst consumers is so acute that many people continue to bring their vehicle to dealerships for repair beyond the warranty period despite the price premium. A business model that instills customer trust and loyalty will help everyone – except the unscrupulous repair shops.

We’ve seen lots of recent deals to trucking marketplace companies and other players generally looking to improve efficiency in the trucking tech space. What’s interesting in terms of logistics?

The online logistics broker business model for trucking is hugely popular amongst startups, resulting in a crowded market space. We don’t believe that the online logistics brokerage business model being pursued by many startups will as rapidly disintermediate the incumbent brokers as ridesharing companies like Lyft were able to disintermediate taxi dispatchers.

We do think that there is a tremendous market opportunity in the digitization of communication and document transfer between the shippers, carriers, and brokers, but we believe that incumbent logistics brokerages will be modernized in the near term via software, rather than disintermediated entirely.

Autonomy will radically reshape trucking logistics, with longer stretches no longer constrained by drivers’ hours. In the meantime, there are a lot of ADAS and driver monitoring opportunities to improve the safety of trucks on the road today.

Lastly, the onset of cargo robotics and enhancements to last-mile delivery methods should improve the productivity of goods delivery to end consumers.

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