Two promising AV startups recently received eye-popping funding, but don't assume 2017's frothy hype is back.
The big picture: Blitzscaling, or investing to achieve massive growth before competitors do, doesn't work in the capital-intensive AV business. And with self-driving cars still a long way off, many contenders could start to fade in the face of massive demands for funding and talent.
What's happening: Two AV companies scored huge rounds of fresh funding in the last few days, giving them the resources to keep developing their technology and add engineering talent.
- Aurora Innovation secured over $530 million in Series B financing led by Sequoia, valuing the company at $2.5 billion. Amazon also invested, a development that has tantalizing implications.
- Nuro, a robotic-delivery vehicle startup, raised $940 million from SoftBank Vision Fund, a deal that valued the company at $2.7 billion.
Meanwhile, in more modest but still important news yesterday, May Mobility raised $22 million in Series A funding to keep developing its last-mile AV transit solution.
Quick take: These companies have something in common: a path to commercialization. Nuro and May Mobility already have tiny fleets of low-speed AVs on the road. Aurora is developing a "driver" for any vehicle and has big-name partners including Hyundai and Volkswagen.
- Leadership credibility matters, too. Some co-founders of all three companies are veterans of the 2007 DARPA Urban Challenge and others worked on Google's self-driving car project (now Waymo) before starting their own companies.
What we're seeing: With the magnitude of the challenges facing AV technology sinking in, investors have stopped chasing the dream and are narrowing their focus to companies with a commercial niche and actual revenue potential.
- In contrast to the way software apps multiply, AV companies need to map each city individually and then test their vehicles on local roads before launching — a meticulous, 6-month effort that must be repeated for each city.
- Even with massive investments of time and money, full-scale deployment remains slow and limited.
- Safety must come before speed and scale. Consider Uber's missteps in Phoenix that led to a pedestrian's death.
- Public fear of AVs remains an issue. People still have to decide whether AVs are safe, affordable, convenient — or even needed.
Where it stands: Some 60 companies are spending "high single-digit billions" annually to try to grab a commanding share of what's expected to be a $1 trillion AV market, says Mark Wakefield, managing director of advisory firm AlixPartners.
The bottom line: After a lot of churning, the cream is rising to the top, says Varun Jain of Qualcomm Ventures, which exited an early-stage investment in Cruise Automation when GM bought the AV startup in 2016.
Editor's note: this story was clarified to show that some of the founders of all three companies are veterans of the DARPA Urban Challenge.
