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A look at the soaring valuations of Rivian and Cruise with transportation VC Reilly Brennan

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Reilly Brennan loves cars. The native Michigander happily did grunt work for an automotive magazine as an undergrad at the University of Michigan before landing a gig as a trackside communications manager at General Motors, spending a few years as an editor and a general manager with an automotive publisher called NextScreen, then becoming a programming director for AOL’s automotive properties.

His next role would be on the West Coast, as executive director of an automotive research program at Stanford, where Brennan continues to be a lecturer. Little surprise that soon after, a seed-stage fund began to make sense, too, and thus was born Trucks Venture Capital, which has since made dozens of bets out of a $20 million debut effort and is wrapping up a larger fund soon.

Late last week, we talked with Brennan about two of the fastest-soaring valuations we’ve seen recently in automotive sector: that of the electric vehicle company Rivian, which raised a giant new round last week at a nearly $30 billion post-money valuation, and Cruise Automation, which also raised a giant new round last week, and also at $30 billion valuation. (Along with some other interesting bets, Trucks managed to write an early check for Cruise before it was acquired in 2016 by GM, which maintains majority ownership of the company.) We wondered if even an auto aficionado might deem things a little bubbly.

You can listen to that full conversation here. In the meantime, the excerpts below have been lightly edited for length and clarity.

TC: Who are your investors in Trucks VC? Are they individuals? Are any auto manufacturers that are trying to get a look at nascent technologies?

RB: We have some former execs from the car industry in the tech world, and a handful of family offices and definitely some large strategic companies. Unfortunately, I can’t tell you their names because I’ve signed documents that prevent me from doing that. But one of the cool things about our little Rolodex of [limited partners] is that our founders — when they want to come in and do something in transportation — it’s an easy doggie door into a lot of those entities, whether they’re people or businesses. One of the things I love about [the mix is] there’s probably no part of a vehicle, whether you’re talking about a car, truck, a bike, or a plane, that one of our investors couldn’t help out with.

TC: Do you look to be the first money into your deals?

RB: One of the interesting learnings I had in the first fund was, we were just trying to participate; we were just happy to be at the party. So we were participating in rounds that other people were leading, and our checks [from Fund I] were anywhere from $100,000 to a few thousand dollars.

The new fund is designed to take advantage of leading rounds [because] halfway through our first fund, founders would ask us to lead rounds, and frankly, the fund wasn’t big enough to do that. Our new fund is really designed so we can lead seed rounds, and that’s what we do. We’ll lead or co-lead and sit on the board. Usually, we’re  owning about 10% to 12% of a company at seed.

TC: One of Truck’s early checks went to Cruise, the self-driving car company that GM acquired for an amount that has variously been reported as more than $1 billion, as well as for closer to $500 million . . .

RB: The Cruise investment, my [fellow general partners] Jeff and Kate made. I can’t tell you specifically what the acquisition price was, but it was pretty good. That being said, if you read about the valuation of Cruise now within General Motors, or that of another [self-driving] company we invested in, Nutonomy, which was acquired by [automotive supplier] Delphi [for $450 million in 2017] and is now essentially a company called Motional, they’re pretty high.

I think a lot about those early exits because they validated the space, but I also think a lot of the early investors probably wish they had more ownership. I’m not saying they shouldn’t have sold. But you look at the valuation of Cruise and Motional today — if you put those two entities together — it’s more than the valuation of General Motors, or maybe Ford Motor Company.

TC: But is Cruise’s valuation perhaps too high right now? They still have a very long lead time to making money.

RB: I would agree with you that in the public market, it feels a little bubbly when it comes to electric vehicles and some of these ideas related to technology and auto. But I do think a lot of these companies look at the opportunity to automate things greater than just robo-taxis. Last year in particular provided good insight into how the logistics and delivery part of automation is probably on the nearer term horizon than robo-taxis and therefore more valuable.

TC: How much have valuations been driven up by Tesla, whose valuation now dwarfs all the major car manufacturers?

RB: One of the things the market appears to want is the simple story, and belief in Tesla is now highly aligned to [thinking that] this is just the way that transportation is going to be organized. It’s going to be a zero-emission vehicle that is highly connected and maybe attached to a consumer in a new way.

You’re seeing the same with a lot of these pure-play EV companies, whether it’s [carmaker] Fisker doing a SPAC or the way that [carmaker] Neo is received in China. There’s this purity of their message.

You can argue, successfully, that a lot of other companies have more engineering or a greater dealer network or more IP around a particular idea, but when it comes to the public market stuff, it really is about painting the picture in this one specific way that’s aligned with the future. And right now, the public markets really don’t like that composite, liberal arts approach to vehicle manufacturing; they really just want one thing that aligns very well with the future, which they believe is better electric vehicles.

TC: This seemingly applies to the Detroit carmaker Rivian. What do you think of this company that’s valued at nearly $30 billion yet hasn’t yet sold a truck or SUV? You aren’t one of its investor. Does its valuation make sense to you?

RB: From an engineering perspective, Rivian is probably one of the companies I respect most out of this new breed of manufacturers.

Tens years ago, when they started, there were a lot of new supercar entrepreneurs who were trying to start something new, but they were always small batch ideas. Like, maybe you could get 100 people to buy one. But they weren’t really well-aligned with what consumers were buying, which is increasingly utilities and trucks. So Rivian’s approach, with the segment it’s going after, is really smart, and it has fantastic engineering. So I’m actually quite bullish on Rivian.

In a year’s time, there will probably be two big events for Rivian. One, they will deliver the first batch of [electric delivery vans being built for investor] to Amazon, along with [other orders] to some of the early customers. It also wouldn’t surprise me if they’re public at some point in the next year.
They haven’t told me that; just my own personal speculation here.

TC: When you say it will go public, do you mean through a traditional IPO or maybe through a giant SPAC? Would what you guess?

I bet that Rivian will probably do a traditional IPO, that’s my guess. But they could also do a SPAC at some point. [Either way] I think the public markets are going to be really interested in Rivian. I just think there’s really good stuff there.

TC: Have you been able to test-drive its cars? Have you seen its tech up close? What makes you so confident that what Rivian is building is superior?

RB: I think the point of view they have about the segments is really interesting In the U.S., they are going after two great-growing segments in the business, which is utilities and trucks where, by the way, there’s a lot of margin, and there’s nobody specifically going after those segments.

The Rivian engineering that I speak about is really about the hires they’ve made and a lot of things they’ve done for years in advance of getting these vehicles ready. They’ve got a lot of amazing talent from big manufacturers. They made an unusual but really smart investment in a vehicle assembly facility that they purchased for relatively cheap years ago that was owned by Mitsubishi. And they put together all these components well in advance of anybody really even knowing about them, which is really smart.

Obviously, there’s still a huge amount of risk. What I’m saying is not investment advice. I just think there’s a lot of interesting stuff there that’s head and shoulders above many of the other EV companies, where there’s not a lot of substance, to be candid.

TC: My colleague Kirsten reported in December that Rivian is developing a network of charging stations along interstate highways and also at spots like hiking trails to accommodate who it imagines will be its customers. Does that make sense to you? Relatedly, how many different types of charging stations are we going to have in the world?

[Regarding the location of its stations], it’s definitely a nice ingredient in the story they’re trying to tell, though I don’t think you’ll see a Rivian charger at the entry point of every national park. They’ll probably have access to other charging networks. One of the things we’re seeing in the U.S. is you have some of these dedicated networks like Tesla has, and then you have a lot of agnostic [stations], where you can plug in and charge in a lot of other places, and Rivian will likely take advantage of that. An open question would be whether Rivian builds its own [larger] dedicated network that has a lot of coverage, and I don’t know about that yet.

The other component about Rivian that’s really fascinating is what they do for service and maintenance. I saw an open job that Rivian had a few months ago around remote diagnostics, and one of the bullet points of the job posting was that this job was really designed so that people didn’t have to go back to the dealership. [It begs the question of]: could you design experiences digitally,  as with [on-demand remote doctor visits], where you could potentially talk to somebody live, you could [have Rivian] assess the vehicle, or maybe walk you through a situation where you can fix something that would prevent a lot of the trips to dealer?

If you consider the traditional dealer and OEM relationship, a lot of the ways that cars are designed is that they’re constantly having to go back to the dealer. Rivian’s point of view on that is really different, and that’s one of the other reasons it’s one to watch.

Lyron Foster is a Hawaii based African American Musician, Author, Actor, Blogger, Filmmaker, Philanthropist and Multinational Serial Tech Entrepreneur.

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Gillmor Gang: Win Win

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Just finished a Twitter Spaces session. It is an engaging platform, somewhat clunky in feature set but easily a tie overall with Clubhouse. I don’t see this as a horse race, however, more as cooperating teams fleshing out a platform where both will be major players. Like notifications in iOS and Android, the feature set is a push and pull motion where Android delivers deep functionality and Apple alternately pulls ahead and consolidates gains. Though the details can vary, the combined energy of effectively 100 percent of the consumer base mandates best practices and opportunities for innovation.

Something similar is going on in Washington as the Democrats test out their majority of none on the pandemic stimulus bill. The headline in the Times says bipartisanship is dead, but the subheading is the real story. The battle for control of the Senate is closing in on the arcane gerrymandering of the filibuster, or what passes for it after Republican whittling of the original talk ’til you drop croaking of Jimmy Stewart as in Mr. Smith Goes to Washington.

The telltale giveaway is Senator Lindsay Graham, who complains bitterly that the Democrats are steamrolling the COVID Rescue Bill without Republican votes “because they can.” The actual bipartisanship is between the progressives and moderates in the Democratic Party, as the Senator from West Virginia moderates one aspect of the bill to gain the prize of something the President can sign. Not only does it establish Biden’s power to govern but it also provides a roadmap for justifying the necessity of altering the filibuster equation.

Notice how Biden changed the subject from bipartisan negotiations to the power play it turned into. He used the polls to squeeze the Republican moderates where they fear most, the primary battles for control of the House in the midterms. The wave of vaccines are making it almost impossible to put up a political firewall; the anti-mask mandates seem like clueless floundering as people begin to have hope of an exit from the gridlock of partisan obstructionism. It will be hard to run on a platform of denial and death as we reach the end of May.

Governing by success undercuts the argument that government doesn’t work. Breaking the back of the filibuster requires the framing of the issue as finding a way to let government keep working in a bipartisan way. That brings us back to changing the definition of bipartisan as evidenced in the technology arena. In the Apple/Android example, two viable entities bring different strengths to insuring the ability to survive long enough to govern. Google’s lock on the network effect in advertising and “free” services may be challenged by Apple’s focus on privacy and a hardware revenue base, but the net effect is to cancel each other’s vulnerabilities due to the market force of their positions. The bipartisan finesse is that each platform has the other as a dominant customer.

In the same vein, Twitter v. Clubhouse is really not the point. Certainly we can cherrypick the battle as startup v. incumbent: Clubhouse filled with unicorn celebrities and rockstar investors and a builtin tension with the media, Twitter protectively fast following with its natural social graph advantages and struggling with scalability and the fear they’ve sown of abandoning projects before they can thrive. The question begged: what is the nature of the bipartisan compromise that will ensure both end up winners?

The answer is how to make each player the best customer of the other. Twitter’s problem is focus, and harnessing the power of users to hack the system to both theirs and the company’s advantage. The @mention spawned the retweet, providing the analytics that drive Twitter’s indelible social graph. Instagram may be Facebook’s best attempt so far at challenging the fundamental strategic value that the former president used to dominate, but Clubhouse promises to go one big step better with its hybrid of mainstream media and a Warholesque factory engine that creates new stars and the media they generate. This in turn migrates through the entertainment disruption led by the streaming realignment. What exactly is this NFT thing really about?

So Clubhouse has to open up its ability to multitask with Twitter and other curated social graphs. Facebook as a source for Clubhouse notifications and suggested conversations is different than Twitter’s But patching into the sharing icon on iOS will offer substantial access to blunt Twitter’s native integration in Spaces. On the flip side, Twitter’s Revue newsletter tools present an opportunity to mine the burgeoning newsletter surge, using its drag and drop tools to bring not just default social network citations but the implicit social graph of curated editorial rockstars. Not only is the influencer audience rich in signal for advertisers, but these same brands will prove most attractive to Clubhouse listeners looking for value. Win win.

from the Gillmor Gang Newsletter

__________________

The Gillmor Gang — Frank Radice, Michael Markman, Keith Teare, Denis Pombriant, Brent Leary and Steve Gillmor. Recorded live Friday, March 5, 2021.

Produced and directed by Tina Chase Gillmor @tinagillmor

@fradice, @mickeleh, @denispombriant, @kteare, @brentleary, @stevegillmor, @gillmorgang

Subscribe to the new Gillmor Gang Newsletter and join the backchannel here on Telegram.

The Gillmor Gang on Facebook … and here’s our sister show G3 on Facebook.

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The iMac Pro is being discontinued

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Chalk this up to inevitability. The iMac Pro is soon to be no more. First noted by 9to5Mac, TechCrunch has since confirmed with Apple that the company will stop selling the all-in-one once the current stock is depleted.

One configuration of the desktop is still available through Apple’s site, listed as “While Supplies Last” and priced at $5,000. Some other versions can also still be found from third-party retailers, as well, if you’re so inclined.

The space gray version of the popular system was initially introduced in 2017, ahead of the company’s long-awaited revamp of the Mac Pro. Matthew called it a “love letter to developers” at the time, though that particular letter seems to have run its course.

Since then, Apple has revamped the standard iMac, focusing the 27-inch model at those same users. The company notes that the model is currently the most popular iMac among professional users. The system has essentially made the Pro mostly redundant, prefiguring its sunsetting. Of course, there’s also the new Mac Pro at the high end of Apple’s offerings.

And let us not forget that the Apple silicon-powered iMacs should be on the way, as well. Thus far the company has revamped the MacBook, MacBook Air and Mac Mini with its proprietary chips. New versions of the 21.5-inch and 27-inch desktop are rumored for arrival later this year, sporting a long-awaited redesign to boot.

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Investors still love software more than life

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Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s broadly based on the daily column that appears on Extra Crunch, but free, and made for your weekend reading. Want it in your inbox every Saturday morning? Sign up here.

Ready? Let’s talk money, startups and spicy IPO rumors.

Despite some recent market volatility, the valuations that software companies have generally been able to command in recent quarters have been impressive. On Friday, we took a look into why that was the case, and where the valuations could be a bit more bubbly than others. Per a report written by few Battery Ventures investors, it stands to reason that the middle of the SaaS market could be where valuation inflation is at its peak.

Something to keep in mind if your startup’s growth rate is ticking lower. But today, instead of being an enormous bummer and making you worry, I have come with some historically notable data to show you how good modern software startups and their larger brethren have it today.

In case you are not 100% infatuated with tables, let me save you some time. In the upper right we can see that SaaS companies today that are growing at less than 10% yearly are trading for an average of 6.9x their next 12 months’ revenue.

Back in 2011, SaaS companies that were growing at 40% or more were trading at 6.0x their next 12 month’s revenue. Climate change, but for software valuations.

One more note from my chat with Battery. Its investor Brandon Gleklen riffed with The Exchange on the definition of ARR and its nuances in the modern market. As more SaaS companies swap traditional software-as-a-service pricing for its consumption-based equivalent, he declined to quibble on definitions of ARR, instead arguing that all that matters in software revenues is whether they are being retained and growing over the long term. This brings us to our next topic.

Consumption v. SaaS pricing

I’ve taken a number of earnings calls in the last few weeks with public software companies. One theme that’s come up time and again has been consumption pricing versus more traditional SaaS pricing. There is some data showing that consumption-priced software companies are trading at higher multiples than traditionally priced software companies, thanks to better-than-average retention numbers.

But there is more to the story than just that. Chatting with Fastly CEO Joshua Bixby after his company’s earnings report, we picked up an interesting and important market distinction between where consumption may be more attractive and where it may not be. Per Bixby, Fastly is seeing larger customers prefer consumption-based pricing because they can afford variability and prefer to have their bills tied more closely to revenue. Smaller customers, however, Bixby said, prefer SaaS billing because it has rock-solid predictability.

I brought the argument to Open View Partners Kyle Poyar, a venture denizen who has been writing on this topic for TechCrunch in recent weeks. He noted that in some cases the opposite can be true, that variably priced offerings can appeal to smaller companies because their developers can often test the product without making a large commitment.

So, perhaps we’re seeing the software market favoring SaaS pricing among smaller customers when they are certain of their need, and choosing consumption pricing when they want to experiment first. And larger companies, when their spend is tied to equivalent revenue changes, bias toward consumption pricing as well.

Evolution in SaaS pricing will be slow, and never complete. But folks really are thinking about it. Appian CEO Matt Calkins has a general pricing thesis that price should “hover” under value delivered. Asked about the consumption-versus-SaaS topic, he was a bit coy, but did note that he was not “entirely happy” with how pricing is executed today. He wants pricing that is a “better proxy for customer value,” though he declined to share much more.

If you aren’t thinking about this conversation and you run a startup, what’s up with that? More to come on this topic, including notes from an interview with the CEO of BigCommerce, who is betting on SaaS over the more consumption-driven Shopify.

Next Insurance, and its changing market

Next Insurance bought another company this week. This time it was AP Intego, which will bring integration into various payroll providers for the digital-first SMB insurance provider. Next Insurance should be familiar because TechCrunch has written about its growth a few times. The company doubled its premium run rate to $200 million in 2020, for example.

The AP Intego deal brings $185.1 million of active premium to Next Insurance, which means that the neo-insurance provider has grown sharply thus far in 2021, even without counting its organic expansion. But while the Next Insurance deal and the impending Hippo SPAC are neat notes from a hot private sector, insurtech has shed some of its public-market heat.

Stocks of public neo-insurance companies like Root, Lemonade and MetroMile have lost quite a lot of value in recent weeks. So, the exit landscape for companies like Next and Hippo — yet-private insurtech startups with lots of capital backing their rapid premium growth — is changing for the worse.

Hippo decided it will debut via a SPAC. But I doubt that Next Insurance will pursue a rapid ramp to the public markets until things smooth out. Not that it needs to go public quickly; it raised a quarter billion back in September of last year.

Various and Sundry

What else? Sisense, a $100 million ARR club member, hired a new CFO. So we expect them to go public inside the next four or five quarters.

And the following chart, which is via Deena Shakir of Lux Capital, via Nasdaq, via SPAC Alpha:

Alex

 

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