1. Is an automotive VC right for you?
The automotive and logistics industry represents more than 10% of U.S. GDP, making it one of the largest industries with more than $1.5 trillion dollars in annual spend. For a long time this part of the economy has steadily improved, yet disruptive change has been rare.
This is about to change dramatically; vehicles will become connected, electrified, shared and eventually autonomous.
Underlying all of these changes is a fundamental shift in competitive factors from mechanical engineering to software.
Venture Capitalists and entrepreneurs have taken notice for sure, and more venture capital was invested in automotive and logistics startups in 2014 than in the previous four years combined. Huge valuations of companies like Uber, Tesla and Mobileye obviously continue to fuel this trend.
As such, there will be a lot of value up for grabs in the transformation space. There are, however, significant barriers towards creating a successful business in the automotive industry.
The industry is well known for being slow moving, which can be highly frustrating for entrepreneurs. The value chain has been highly rigid for many years and many attempts to disrupt it have failed, despite potentially better technology.
Companies that do break through often realize that the negotiation power from large global companies puts significant pressure on margins.
This is where adding a sector focused automotive VC can make a difference.
Navigating the ecosystem, understanding both opportunities and barriers and getting introductions at the right level could significantly increase your chances and speed of success.
The pace of technological change means that there has never been a better time to be an entrepreneur in this industry.
As an automotive VC for Volvo Group, I try to ensure that the investments we make will aid in spearheading change for the industry. As such, our investments reflect that desire for change.
Take Cargomatic for example, a recent addition to our portfolio that is about to help bring a new level of efficiency to local trucking.
Inspired by the Uberification movement where supply and demand are connected in real-time, Cargomatic have created a fantastic product: by connecting trucks/drivers utilizing a smartphone, Cargomatic are able to match trucks with free capacity with shippers in real-time.
We are convinced that innovation like this, will undoubtedly have a profoundly positive impact on local trucking.
2. Do your research to find the right automotive VC
The pace of technological change means that there has never been a better time to be an entrepreneur in this industry. Nor an automotive VC.
Tier 1 suppliers, OEMs, telecom and tech companies are setting up funds dedicated to the automotive space. There are also several financial funds either completely dedicated to the sector or with partners completely focused on it.
Do your research before you engage with these funds, what are they looking for and what concrete value could they add to you?
It is a two way process and you should make sure there is an alignment in the vision of your company and the automotive VC. Ask what kind of insight and introductions that they would be able to provide over time and try to deeply understand their motivation for the investment.
Most corporate VCs, including Volvo Ventures, separate commercial deals from the investment process to ensure “clean” deals. Be very careful of entering deals at early stage that includes any type of commercial limitations and of investors that try to push you in a specific direction.
Ask the corporate VCs how they facilitate contacts with the mother company and check references with other portfolio companies.
We believe that the ecosystem of services around a vehicle will be crucial for future competitiveness and many of those services will be built by startups. The Corporate Venture Capital (CVC) model enables us to build long-term relationships with some of the best entrepreneurs; other automotive VCs probably think the same way.
Finding the right automotive VC could mean that the time to reach partnerships within the industry could be significantly shortened with enhanced growth as a result. Finding the wrong partner could limit your options and force you to take a route you are not comfortable with.
3. How to engage with an automotive VC and the importance of patience
A warm introduction is always favorable since it makes it easier to understand the context, however LinkedIn, Email or Twitter also works. Explain as succinctly as possible what you do, and ask for a short intro call.
A niche investor like us will rapidly know if it is a potential fit or not. Never send out the pitch deck or lengthy documents until you have at least had a short phone call to understand if there is a fit.
The same probably applies for any other automotive VC.
I view the initial pitch meeting as a first step in what could become a very long relationship. Entrepreneurs that feel over rehearsed on their story and who don’t adapt to questions are a warning sign for me.
The best initial meetings are actually demos/videos of the product/service in action. Especially when pitching to a focused VC like us, we already know a lot about the market, and by showing the product/service and explaining the customer value, you will get our attention.
It´s been a great meeting if I leave being excited about the product, the team and how we can add value.
Remember that all of our success is dependent on you the entrepreneur. Ask questions and genuinely try to understand if there is a fit with our investment thesis and your vision. If we can’t support you besides the investment it probably won’t be a good relationship. This doesn’t mean that there must be a fit with current core products. The reason we invest is to be competitive in the future, not now.
We love to be convinced if you believe there is a fit, we know that we don’t have all the answers – that’s why we want to invest and partner with entrepreneurs to build the transport solutions of tomorrow.