Venture funding is on the rise in the transportation sector

The transportation and automotive industry represents more than 10% of U.S. GDP, making it one of the largest industries with more than $1.5 trillion dollar in annual spend. Entrepreneurs are taking notice and both corporate and financial investors are supporting them in creating the next generation transportation and automotive solutions.

Volvo Ventures ambition is to be a leading corporate investor in sustainable transport solutions. During the past two years we have analyzed investment trends in the U.S. transportation sector. Analysis like this is challenging due to the fact that defining and tagging companies is not an exact science. However, the goal is not to be completely correct but to describe the overall trends.

In the time period of 2012 to Aug 2014, we’ve identified a total of 294 transportation VC deals1 at a total value of 4.5 billion dollar.

VC deals and money invested

Figure 1: Number of VC deals and amount of investments made in Transportation companies between 2012 and Aug 2014.

The amount of investment was stable between 2012 and 2013 but has increased significantly during 2014 as a result of large rounds raised by Uber and Lyft..

Comparing transportation VC to total deals and dollars invested, we see that the deal share has been pretty stable around 2%, whereas the amount invested has increased significantly, as seen in figure 2.

Pic 3

 

 

 

 

 

 

 

Figure 2: Uber and Lyft have increased the share of VC dollars that goes to transportation deals.

Out of approximately 100 transportation deals per year, top 20 deals represent the majority of money invested (2012 – 83%, 2013 – 74% and YTD 2014 – 85%).

Since the top 20 companies each year roughly represents 80% of the funding, we looked more closely at those companies. We classified them into seven categories based on business model and segment, as seen in figure 3.

Top VC funded Transportation companies 2012-2014

Figure 3: Classification of the transportation companies that have done the 20 largest funding rounds during 2012 to end of August 2014. The Full stack Start-up concept is described in Chris Dixon’s blog, http://cdixon.org/2014/03/15/full-stack-startups/

We have divided the companies into Full stack vs. companies selling products/services into the transportation value chain. As seen in figure 4, the majority of investments have gone to start-ups taking on the Full stack and going all the way to control the customer experience.

We believe this makes a lot of sense. The transportation value chain is known for its rigidity protected by legislation, long-term relationships, and challenges to work with small innovative companies which translates into high barriers to enter the value chain. Full stack start-ups are changing the game, Uber/Lyft being the two most obvious examples. They are simultaneously attacking product experience, legislative challenges and are changing consumers’ expectations and behavior in the taxi/ridesharing industry. Their data driven approach powered by software as a core capability makes it somewhere between hard to impossible for existing companies to compete with them.

fullstack share

 

 

 

 

 

 

Figure 4: Start-ups with a Full stack approach dominate VC funding during 2012-2014.

It has proven to be difficult to build start-ups based on developing and selling electric components into the automotive value chain. Tesla came along and designed an electric car from the ground up and created a multi-billion dollar company. One can argue that there were other examples of Full stack start-ups that did not make it, (Fisker and Better place)) and component companies that did ok. Still it is hard to see any company selling into the traditional automotive value chain to have such a big impact on the industry in such a short amount of time as the Full stack start-ups we now see develop.

The transportation sector represents a huge market and Uber/Lyft and Tesla have showed that technology in combination with business model innovation can create very successful companies.

We believe this is just the beginning and that we will see significantly more funding going into disrupting additional verticals of the transportation sector utilizing technology to change the way transportation of goods and people is done.

1 Primary data source is Pitchbook.

Posted in Venture capital | Tagged , , , , , , | Leave a comment

Eat or be eaten – those are the options.

We believe new models for large companies to collaborate with entrepreneurs will be a key factor in future growth.

Software continues to eat the world1. The commercial vehicle industry might not appear to be the most delicious target, until you look at the trillion dollar goods transportation business. The commercial vehicle industry is no exception to the well-known fact: It is a challenge for any hardware-focused manufacturer to cope with the rapid pace of software development and the inherently different development style of successful software companies. In the commercial vehicle industry, IT has gone from being an important internal tool to being an essential component in customer value propositions.  As such, it is all the more key for manufacturers in this space to successfully collaborate with software companies in order to stay ahead of new technology developments and deliver a combined product that exceeds customer expectations.

Volvo Group has identified seven technology mega trends that will have a big impact on both internal processes and future service offerings.

The Seven Mega Trends

Mobility & mobile cloud – The continued increase in cloud-connected mobile device penetration still has major potential to impact processes and enable new business models

Human Computer Interaction – Designing products to enable different users (e.g., technicians, drivers, fleet owners) to efficiently access and interact with information and systems.

Internet of people – Levels of connectivity continue to increase and new ways to use the internet and connected services continue to grow

Internet of things – Things connected to the internet with sensors generating data provide new opportunities to control, visualize and measure activities and deliver new services across multiple domains.

Big data – Data is becoming so voluminous or complex that we can’t use “normal” data management tools, giving rise to new types of data management technology.

Smart machines – The emergence of autonomous vehicles, autonomous robots, intelligent personal assistants, smart advisors and advanced global industrial control systems.

Anything as a service – The Internet model for acquiring resources through pay-as-you-go models or by tapping into “the cloud”. Overall connectivity is a key enabler for this trend, which will have a big impact on future business models.

We use these trends as a guide to bring new solutions to our operations and to our customers. A small agile team, Volvo Group Planning & Innovation has a hands-on model to enable rapid testing of new solutions together with internal stakeholders, innovative partner/supplier companies and customers. The business prototyping model is inspired from agile design thinking and lean start-up methodologies. We take an outside-in approach, aiming to look beyond the traditional commercial truck industry when searching for new value for our customers, and seek to co-create with third parties in the prototyping phase. This business prototyping method has been used within Volvo Group for the last 12 years.  In that time, more than 80 business prototypes in various domains have been explored. Key principals for the business prototypes are:

  • A rapid & agile development period of 12 weeks
  • Outside-in approach, searching for inspiration from other industries
  • Co-creation with multiple innovative technology or service providers, customers and users
  • Experimental and hands-on field testing to gain insights on both opportunities and barriers

After the prototyping phase, a cross-functional committee decides either to end the project or transition to a pilot phase. When prototypes are stopped, progress in the area can continue to be monitored and possibly re-engaged in the future.

The findings from the prototypes are always communicated broadly within the Volvo Group via different channels such as webinars, seminars and the intranet with the purpose of transfering insights and spurring new ideas.

Some examples of innovation prototypes we’ve explored during the years:

  Image

Volvo Group Venture Capital partners with fantastic entrepreneurs and, in addition to capital, makes sure that Volvo Group thoroughly explores opportunities for collaboration with external companies. As a core principle, Volvo Group Venture Capital maintains a separation between its investments and any commercial agreements.

The “not invented here” mentality, management turnover and simply access to the right people in a large, global company can all be significant hindrances for entrepreneurs or young companies trying to strike deals. Volvo Group Venture Capital has a strong track record of breaking down those barriers and enabling win-win situations that leverage the strengths of the large company and the speed, focus and agility of start-ups.

Combining the Venture Capital team’s model with the Planning & Innovation team’s approach to testing joint opportunities in real conditions creates a strong solution. We look forward to accelerating these activities, building value for customers, the Volvo Group and entrepreneurs. If you work on software-based solutions for the transportation industry and have ideas for partnerships, you know where to find us!

Jonas Landström, Head of Americas, Volvo Group Venture Capital
Tommy Hansson, Business Innovation Manager, Volvo Group Planning & Innovation

1. Interview with Marc Andressen where he lays out his “Software eats the world” thesis, http://www.wired.com/2012/04/ff_andreessen/5/

 

 

Posted in Uncategorized | Tagged , , , , | Leave a comment

Trucking – a 650 billion dollar market ripe for disruption

Goods transportation with trucks represents a 650 billion dollar market in the US, which is about 5% of GDP. The chart below compares the trucking industry to a few other industries which really shows the massive market it represents.

3market size

Source: SELECTUSA, 2014

The 650 billion dollar is split between Truckload carriers 310 billion, Private fleets 290 billion and Less Than Truckload carriers at 50 billion dollar.

The trucking market is highly fragmented with more than 400 000 for-hire carriers and 600 000 private carriers. These companies have in total around 3 million heavy duty trucks in operation. About 97% of all fleets operate fewer than 20 trucks. On the other hand the top 10 For-hire and Private fleets have about 350 000 trucks representing more than 10% of all trucks, i.e. there is room for both SMB and enterprise plays.

Top 10 For-hire and Private fleets in the US

For Hire carriers Private fleets
Company No of heavy trucks Company No of heavy trucks
UPS

102 851

Pepsico

23 410

Fedex

81 596

Coca Cola

9 782

Swift

15 231

Sysco

9 348

YRC worldwide

14 572

Walmart

6 523

Con-way

11 800

Halliburton

6 034

Schneider

11 563

Agrium

5 828

TransForce

11 380

US Foods

5 766

JB Hunt

10 187

Schlumberger

3 942

Landstar System

8 399

McLane

3 910

Ryder Supply Chain Systems

4 201

Reyes Holdings

3 362

Sum

271 780

Sum

77 905

Source:Transport Topics, Top 100 (2013)

New truck sales is highly cyclical with about 230 000 heavy duty trucks sold in 2012 whereas only 118 000 were sold in the tough year of 2009. The average sales price for a new truck is about $115 000 making the total market size for Heavy Duty trucks in the 25-30 billion dollar range. The total aftermarket is valued at 20-25 billion annually and is naturally more stable than new truck sales.

The trucking industry is labor intensive with more than 3 million HD truck drivers and a lack of qualified drivers is an increasing problem for the industry.

A cost breakdown for an average trucking operation is shown below. This changes with type of operation but provides an idea of what costs that make up the majority. Provided that fuel makes up more than 35% of the cost it is easy to understand the strong focus on fuel efficiency in the industry.

11Cost structure

Source: American Trucking Association, (2014)

Cost pressure is a constant factor and profit margin is for most parts of the value chain counted in single digits.

Trucking – the Venture Capital perspective

As Venture investors focused on the commercial vehicle industry we meet with fantastic entrepreneurs that are moving the industry forward in different areas. A couple of areas where we see opportunities for disruptive innovation and new entrants are:

  • Market places that increase liquidity and efficiency in the market utilizing mobile technology
  • Connected services to lower fuel cost, increase safety, remotely diagnose and overall improve efficiency
  • E-commerce for parts and accessories (See previous blog post on the subject)
  • Analytics services that utilize data from the different sources within fleets to enable better decisions. This could range from what loads to accept, which routes to cover, which vehicles to purchase, how to coach the drivers and other areas that supports the operation

The trucking industry is hugely important for the economy and increased efficiency based on technology will drive the industry forward.

Bottom line, I believe there will be billion dollar companies coming out of the Trucking segment the coming five years.

Jonas Landström

Image | Posted on by | Tagged , , , , , , | 2 Comments

eCommerce in Heavy-Duty Parts & Accessories – who and how?

Approximately $14 Billion in passenger car parts and accessories (P&A) were sold online last year.  That means more than 10% of passenger car P&A sales are online.  I estimate <1% of heavy-duty P&A sales happen online today.  How will eCommerce emerge in heavy-duty P&A?  There is much to consider.

The traditional brick-and-mortar dealers and retailers are not the ones driving the growth in passenger car P&A sales online; it is estimated that half of the online sales volume in passenger car P&A is going through eBay, and a very small percent is going through major retailer websites.

Could it be different with heavy-duty parts eCommerce?  To deliver the highest potential value to a heavy-duty truck owner, I think it has to be different.

Heavy-duty truck owners can measure days out of service in dollars of business lost.  Every truck owner manages towards maximizing “uptime” and reducing days out of service.  Unlike many consumer goods, heavy-duty parts are not driven by normal shopping behavior, but rather by a part failure or maintenance event.  Faster fulfillment options on replacement parts make a real difference.  Leveraging stores and dealers that are near to the customer as fulfillment options for an online sale can deliver a better experience for the customer.  The shelves and stock rooms of brick-and-mortar locations can serve as “forward deployed inventory”, sold online or over the counter depending on who clicks “buy” or walks in that day. Local pick up or potentially even same day local delivery for an eCommerce order becomes possible if the nearby brick-and-mortar location has the item in stock.  Shipping from a retail location that is closer to the customer than an eCommerce distribution center (or a potential drop-ship vendor) could significantly shorten shipping time.

Beyond convenient pick up or shorter shipping time, brick-and-mortar locations can install and service a part purchased online.  Anything requiring installation is more difficult to sell in a pure eCommerce model unless the customers have the equipment and know-how to install it themselves. Having nearby service locations can enable a product sale by coupling it with an often-needed local installation or service.  Even the possibility of local support should increase the potential buyer’s comfort with, and ultimate conversion in, an eCommerce sale.

Is this improved model likely to be the dominant emerging model in heavy duty P&A eCommerce?  Frankly, I think pure eCommerce players are better positioned to gain traction first.  It will take time to tackle the major challenges of running a combined eCommerce + brick-and-mortar retail strategy (often referred to as an “omnichannel” business).  If today’s big store-based players can conquer those challenges though, they should be able to win customers with the superior experience.

So, onto those challenges: First and foremost, it is very difficult to build an effective eCommerce business out of a store-focused business.   Pure eCommerce players tend to be lean and nimble, and require a very different set of employee skills than traditional retail store management. Trying to build an eCommerce business out of a retail store business can mean having a higher cost structure and mismatched expertise.

As one element of that higher cost structure, having a physical location in a US state today means having to pay local sales tax on an eCommerce sale heading to a customer in that state.  Internet sales tax in the US is evolving, but right now that is an additional cost that pure eCommerce players often avoid.

Beyond that, if the stores group and the eCommerce group are run separately, they can become a liability for each other. Completely separate online and in-store businesses can create an inconsistent, confusing, potentially frustrating customer experience (e.g., different product assortment than the consumer expects to find in either channel, inconsistent pricing, inability to return online orders in-store).

Running a successful omnichannel business also means a high degree of back-end integration between eCommerce and retail store systems (inventory and supply chain management, order management, point-of-sale, etc.).  That often means tackling issues with, and trying to add new functionality to, legacy IT systems that have been largely regarded as a cost center to be managed rather than an asset to invest in.  Achieving that integration can therefore be a substantial effort.

I am ready to see eCommerce become a bigger part of heavy-duty P&A, and I think many P&A customers are ready as well.  The question now is: how will it happen?  Will fast-moving, tech-savvy, pure eCommerce players make a big push and gain loyalty first?  Will the big companies with dealerships or stores rise up and deliver a superior experience to a broad audience first?  Will third-party providers step in to help enable those big players to lead, or at least quickly follow, with a better offering?

Leave comments and let me know what you think.

Posted in Uncategorized | Tagged , , , , , , , , | 1 Comment

From frustration to happiness – our latest investment aims to change the game of daily commutes

Frustration, anger, helplessness and happiness describe my emotional journey during this morning’s bad commute to work. A trip that normally takes 45 minutes took 1 hour and 45 minutes and I saw an hour of extra work time being added to the end of a Friday!  I am sure the first three emotions are no strangers to those of us who commute daily but happiness, however, is rarely associated with commuting. Volvo Ventures have just completed an investment in a company that offers an alternative to endless hours of non-productive, frustrating car commuting.  Experiencing the pain point that a new investment aims to solve was the source of my happiness.

Image

Ridepal offers its riders a luxury coach with high-speed internet that takes them from close to where they live to work. Ridepal’s model is based on companies seeing the advantages of offering their employees route-optimized shuttles and taking part of the cost. Netflix’s previous talent officer, Patty McCord explained the benefits perfectly,

“Netflix does not do perks, people work here because they fundamentally like what they do and the culture. Free meals are a perk; commute buses are a must because it is about productivity.” 

The advantages for the riders include ability to start work during the commute, reduced stress levels at a cost cheaper than getting into your car. According to interviews conducted with riders, the service is addictive and once you have experienced the advantages, it’s really hard to go back to a frustrating drive.

Image

The beauty of Ridepal’s business model compared to private commuter shuttle programs at Google, Genentech, Apple and others is that it utilizes the power of the sharing economy made possible at a new level through technology. Ridepal aggregates demand from several companies in an area to significantly reduce costs, they enable private persons to utilize the existing routes when capacity is available and they aggregate supply of transport capacity from companies with suitable coaches. All of this is made possible through the clever use of web and mobile software.

Ridepal has had a great start of its journey with customers like Intuit and Groupon. The vision is however bigger – helping commuters globally to get to and from work in a simply more effective way. The Bay area is a great sand box with unique conditions but bad traffic situations and uncoordinated commuting journeys exist in most densely populated areas in other parts of the world.

The mobile phone is predicted to be the center of our travel need, helping us find the most efficient way from A to B, be it ridesharing, taxi, bike, public transport or commuter shuttles. In order to make this vision a reality there need to be good alternatives to getting into your car, Ridepal adds a great alternative for one of the most important transportation needs, the daily commute.

Volvo Group’s vision is to become the world leader in sustainable transport solutions.  Volvo Buses pioneered the Bus Rapid Transit system that is key to public transport in many parts of the world and keeps on innovating public transportation and services. This follows a strong trend seen where private entities increasingly are complementing public transport alternatives. Moving people from cars to buses significantly reduces the environmental impact and through the utilization of alternative fuels, hybrids and fully electric buses, this can be reduced further or even be fully eliminated.

We eagerly look forward to joining forces with Ridepal, utilizing the in-depth knowledge and technologies we have from global public transportation systems combined with Ridepal’s innovative model. Hence enabling more people to experience a better commute to and from work and improve traffic situations in cities and reducing environmental impact!

Posted in Uncategorized | Tagged , , , , , , , | 1 Comment

You can’t beat a nerd

I recently heard that Google made a large investigation into what the common denominators of successful Googlers are. They supposedly looked at classical factors such as education, age and so on. The one factor that was most clearly correlated with success was if the employee had built computers from components in their youth. The combination of deep computer interest and the drive to actually get to it predicts success.

I think this theme is equally true for successful entrepreneurs; they are often passionate nerds in the areas they are involved in.

Blue bottle, a coffee rostery and coffee chain that makes the best coffee I’ve ever tasted is another example. The founder, James Freeman, is passionately interested in making the best coffee possible and they are true to their mission even if that means making some customers unhappy. Blue bottle only sells their coffee in whole beans, because unless you grind it just before you brew your coffee you will not get a great cup. It frustrates some customers short term, but is most likely a winning strategy long-term, proven by the ridiculously long lines at their coffee shops…

Another example is Patagonia that has been hugely successful in building an iconic brand by being true to its clearly communicated values. The founder Yvon Chouinards is a true outdoor nerd who understands the needs of the core customers Patagonia is selling to. In the book, “Let my people go surfing” he describes their history and philosophy. It is a great read and a very powerful marketing and brand building tool…

The power of the passionately interested nerd together with the growing trend of online courses for free is also starting to democratize the labor market. . You can find material from leading professors on almost any subject today, if you want to learn you can. Motivation is more important than ever and passion has always been the best motivator.

At least tech companies have realized that a self-taught programmer in any shape, form and origin many times beats the Ivy league educated counterpart and innovative methods are used to find the person with the best skills, not the one with the best resume…

Looking through the excellent interview series http://foundation.bz/, it is definitely a common denominator that the founders are passionately interested in the area they are pursuing. They have spent their 10.000 hours thinking and working on the issue.

I am betting on the nerds regardless if I am evaluating a company, where to buy coffee, a new potential colleague or new outdoor clothes…

Are you passionately solving the challenges of sustainable transport solutions?
Then we would like to hear from you!

/Jonas Landström

P.S After finishing the book about Patagonia I went to the closest outdoor store and kitted up, powerful marketing for sure… D.S

P.S 2 To read more about Google’s data driven people operations check out http://www.tlnt.com/2013/02/26/how-google-is-using-people-analytics-to-completely-reinvent-hr/ D.S 2

 

Posted in Uncategorized | Tagged | Leave a comment

The Founder – back in the driver’s seat

Something very healthy has happened on the Nordic start-up scene. And probably I’m just slow noticing, but it’s not until recently that I’ve realized the fact that Founders are taking back control of their creations. Probably I have been in too many board- and investors meetings where the well-being of Founders as well as companies has been at the mercy of capitalists rather than where it should be, with Founders and customers. The realization comes to me as I flip through the newly published hot-lists of Sweden’s tech companies. A healthy majority of them have the Founders as sole or major owners. Compare five to ten years back and I’m sure the cut was different. The move away from early stages by venture capital, the shake-out of non-performing funds has surely fuelled this transition. But even more importantly it’s most likely driven by emerging serial entrepreneurs and entrepreneurs who have lived in and learned from the US venture community where Founders keep a stronger grip of their companies. Couple this with society embracing the Founder and the entrepreneur, rather than the capitalist and we will see a new spring in Sweden and Europe. We’re simply maturing our start-up community. Our societal values are shifting to the benefit of the Founder, the risk-taker, the non-conformist, the entrepreneur, and the source of future social well-being. We’ll for sure see further careful and selective infusion of the limited venture capital which still is available, but instead of standing in front, venture capitalists will stand behind and be selected rather than select among the leading Founders. It’s finally spring.

/Johan

Posted in Uncategorized | 1 Comment