Automobiles - An Industry Ripe for VC-Backed Disruption?
By Elias (Elie) Antoun, Entrepreneur-in-Residence & Ray Schuder, Principal
The global automobile industry is in turmoil. Two of America's three big auto companies have tumbled into bankruptcy and exited only after extensive support from the U.S. government. The commodities price shock of 2008 that led to $4.00 per gallon of gasoline has also provided an impetus for change that will drive new innovations. In addition, there is a growing consensus and awareness that we must reduce global carbon emissions from gas-powered cars.
In short, the status quo is in jeopardy and the industry appears poised for the kinds of massive structural disruptions that we specialize in, and that has been a part of our daily existence for a generation. Is there any opportunity for venture-backed companies to play a role in this reformulation of the auto industry? It's a question that we at El Dorado Ventures are very interested in answering.
To be sure, there are significant differences between the transportation and IT sectors, including the capital requirements, likely time-to-market, the need for industry partnerships, and many other factors. Silicon Valley is not just going to waltz into auto manufacturing and start cranking out competitive start-up companies.
However, we would argue that the venture community is an ideal environment to foster the innovations needed to disrupt and change the auto industry. The venture industry possesses the necessary expertise for identifying and cultivating start-ups; and we know how to support them during the difficult early years. And unlike the rigid auto industry, venture-backed companies are supremely adept at technology and product innovation, warp speed time-to-market product development, and very high customer sensitivity. In addition, over the past few years, venture-funded companies have developed highly successful global business models that are based on partnerships, outsourcing, cross-licensing and operating models that enhance capital efficiency and function well across regions and cultures.
In our research into potential investments in this area, the electric vehicle has jumped out as the best near-term hope for disruption of the current gas-powered auto monolith. We're not the first to notice this, of course – along with increasing announcements of electric-powered vehicles from many large auto companies such as GM (Chevy Volt), Chrysler (Dodge Circuit), BMW (Mini E), Nissan and Honda, there are several start-ups in the mix as well, such as Fisker, Tesla and Coda Automotive.
A deeper look into the announcements from many of these companies highlights the fact that they are mostly pursuing hybrid vehicles. Due largely to the range and expense associated with the battery of a pure electric vehicle, it seems that most companies are pursuing the hybrid path as a bridge to pure electric or hydrogen vehicles in the future.
There are several key aspects to the development of a popular electric vehicle that we think need to be solved before there is widespread adoption. They include:
- Battery technology: the battery system is the largest cost contributor to the development and manufacturing of an electric vehicle and presents the biggest hurdle to adoption. Some of the issues: charging capacity, plug-in recharging versus removable/replaceable batteries, the charge-sustaining cycle and product reliability and warranties. Many believe that electric vehicles will eventually rely on lithium-ion battery technology, but current lithium-ion battery packs for cars are far too expensive for mass-market cars – the recent success of the A123 IPO notwithstanding. In fact, Toyota recently said it will not pursue lithium ion batteries for cost reasons. The world's leading auto maker said it will focus in the short term on nickel-based batteries for their hybrids and in the longer term will focus on hydrogen.
- The charging infrastructure: will there be charging stations, home/office plug-in equipment, or battery swapping? Venture-funded Better Place is an early entrant that is developing battery charging and swapping services.
- Cost: the cost associated with electric vehicles will preclude them from taking an immediate large market share away from gas-powered vehicles. Yet a well-designed and targeted vehicle that can achieve comparable total cost of ownership with gas powered vehicles will have a reasonable chance of success and help drive new innovations and increased volumes that will ultimately lower vehicle costs. As another example, Better Place is benefitting from a strategic commitment by some governments (Israel, Denmark, Australia) to wean themselves off gasoline dependency.
- Brand building: will it be necessary to leverage a known brand (i.e. Chevrolet or Chrysler) or will consumers be willing to buy cars from new electric car brands? The creation of a brand remains a very powerful and critical success factor in the automotive industry, but we believe that the current environment offers one of those rare occasions to do so without the kind of expense that has been historically associated with this effort.
- Service and reliability: automotive service is a huge and varied industry that grew over decades and that car owners currently take for granted. Any credible business plan for an electric vehicle must address this aspect of the market comprehensively.
- Production: who will mass produce electric vehicles? There is a glut of automotive manufacturing capacity in the world. Can idled production facilities be economically re-tooled to produce electric vehicles, or will new factories need to be built?
It is apparent that a whole new industry is in the process of being created, with opportunities for creative and talented entrepreneurs at every level. At El Dorado Ventures, we are talking with many entrepreneurs about their ideas and plans to capitalize on this opportunity. This is truly a time where the opportunity to disrupt an entire industry looms large. We would like to encourage entrepreneurs who are pursuing technologies that impact electric vehicles to push forward. We'll keep you posted on our progress.
> EDV News
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Being a start-up executive doesn't have to be all work and no play. On September 8, EDV hosted 40 hardworking executives of the firm's portfolio companies in the McCovey Cove luxury suite at AT&T Park for the Giants game against the San Diego Padres. The group was treated to an exciting game, good food and excellent hobnobbing in a box that literally hangs over the field. Play ball!
EDV Co-Leads $8 Million Series A Funding Round for Ampulse
Ampulse Corporation, a developer and manufacturer of solar cell solutions based
on proprietary and patented crystalline-silicon (c-Si) thin-film technology,
raised $8 million in Series A funding co-led by El Dorado Ventures and Globespan
Capital Partners. Golden, CO-based Ampulse is developing proprietary
and patented technology developed at the U.S. Department of Energy's National
Renewal Energy Laboratory (NREL) and Oak Ridge National Laboratory (ORNL). EDV General Partner Jeff Hinck has joined Ampulse's board. www.ampulse.com
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Coupa Software Inc., developer of on-demand e-procurement software that helps companies control spending and generate savings, raised $7.5 million in Series C financing led by El Dorado Ventures. Previous investors Blue Run Ventures and Battery Ventures also participated in the round. EDV General Partner Charles Beeler joined the Coupa Software board. www.coupa.com
EDV Invests in Scout Labs, Leader in Social Media Monitoring and Analysis
San Francisco-based Scout Labs, the leader in web-based social media monitoring and analysis for teams, has closed an additional round of funding from new investors El Dorado Ventures and Javelin Venture Partners and existing investor Minor Ventures. The new round will fund marketing and sales efforts further accelerating Scout Labs' rapid market share growth. Scout Labs is already a technological leader in the category, with real-time dashboards, automated sentiment scoring that learns from user feedback, customer quotes extraction, and social media spam filters. This new funding will augment the amount of data Scout Labs indexes and the company's R&D efforts. Scout Labs was recently featured in a Wall Street Journal Story that reported that Coca-Cola is using Scout Labs to track what is being said about it on Twitter, Facebook, MySpace and other networking and blogging sites. El Dorado Ventures GP Tom Peterson joined the Scout Labs board. www.scoutlabs.com
EDV Tech Partner Rod Beckstrom Named CEO of ICANN
EDV Tech Partner Rod Beckstrom has been named CEO and President of the Internet Corporation for Assigned Names and Numbers (ICANN). The announcement of Beckstrom's selection as CEO occurred at the conclusion of ICANN's 35th international meeting in Sydney, Australia.
Beckstrom is the former Director of the U.S. National Cybersecurity Center (NCSC), where he formed an effective working group of leaders from the nation's top six cybersecurity centers spanning the civilian, military and intelligence communities. He co-founded his first company, CATS Software, while in graduate school and led it as Chairman and CEO to become an international public company.
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What We're Looking For:
El Dorado Ventures seeks to invest in a select number of companies pursuing opportunities in the following broad categories:
- Data Center
(Cloud Computing, Storage Virtualization, Energy Efficiency)
(Applications in the Cloud, Crowd Sourcing)
- Online Marketing
(Energy Storage, Solid State Lighting, Smart Grid, Energy Generation)
- Wireless Data
(Healthcare Computing, Next Gen BI, Security)
Portfolio Company News
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Storspeed Emerges From Stealth With Product to Speed Access to Networked Data
Austin-based Storspeed has emerged from more than two years of stealth mode with a caching product that accelerates networked access to frequently needed data. Storspeed's new product, which sits between networked storage and clients and applications, contains 80GB of DRAM and up to a terabyte of solid-state disk. Storspeed was founded by former El Dorado Ventures EIR Mark Cree, who previously founded and was Chairman and CEO of NuSpeed, a developer of storage-over-IP products. EDV provided first-round funding to NuSpeed, which was soon after acquired by Cisco Systems. EDV General Partners Charles Beeler and Jeff Hinck serve on Storspeed's board. www.storspeed.com
Bridgelux Named an Energy Tech Company to Watch; Neil Bostock Named CFO
Sunnyvale-based Bridgelux was named an "energy tech company to watch" by BusinessWeek magazine. According to the article: "Thanks to a dime-size chip embedded with tiny diodes that emit white light, Bridgelux believes it is on track to sell LED-based lighting comparable to 60-watt incandescent bulbs for under $10 that use a fraction of the energy and last for years." In addition, Bridgelux announced that Neil Bostock has joined the company as chief financial officer. Bostock comes to Bridgelux with over 35 years' experience in finance and 19 years of experience with LED and semiconductor manufacturing. Prior to joining Bridgelux, Bostock served as CFO at Philips Lumileds. EDV co-led Bridgelux' first round of VC financing. EDV General Partner Scott Irwin serves on the Bridgelux board.
MaxiScale Launches Breakthrough Platform for Internet Applications
Sunnyvale-based MaxiScale has launched the MaxiScale FLEX Software Platform, the first technology to solve the problems created by the unpredictable and ever-expanding data requirements of Web workloads. MaxiScale transforms and scales file-serving and storage infrastructure to meet the needs of companies supplying Internet-facing applications, ranging from advertising and social networks to hosted software-as-a-service. EDV co-led MaxiScale's first round of venture capital financing. EDV General Partner Jeff Hinck serves on MaxiScale's board. www.maxiscale.com
Convio Named to Software Magazine's 27th Annual Software 500
Austin-based Convio ranked 256th on Software Magazine's 2009 Software 500 ranking of the world's largest software and service providers. It is the first year that Convio was included on the list. Convio's software solutions give nonprofit organizations a better way to reach, inspire and manage donors, volunteers, advocates and other individuals that support their mission. In 2008, nonprofits using Convio's software and services raised $777 million online. EDV co-led the first round of venture capital funding for GetActive Software, which was acquired by Convio in 2007. EDV General Partner Scott Irwin serves on the Convio board. www.convio.com
Luxury Link Partners With Mandarin Oriental Hotels
Luxury Link has entered into a new partnership with Mandarin Oriental Hotel Group to provide Luxury Link customers with full access to a rotating roster of Mandarin Oriental packages. In addition, Luxury Link travelers now have the opportunity to bid on charity auctions sponsored by Mandarin Oriental. EDV co-led the Los Angeles-based company's 2006 funding round, and EDV General Partner Charles Beeler serves on the Luxury Link board. www.luxurylink.com
About El Dorado Ventures
El Dorado Ventures (EDV) is a leading entrepreneur-focused, early-stage venture capital firm with over two decades of success. Entrepreneurs see EDV as a trusted investment partner who shares their vision and helps them succeed by providing ongoing strategic guidance and access to a wealth of industry contacts. With $750 million in capital under management, the firm invests in disruptive technologies and business models in emerging and high-growth markets, across a broad range of sectors including software, technology-enabled services, communications and emerging technology. El Dorado's early-stage investments have included Compellent Technologies, Cyras Systems, EarthLink, Efficient Networks, Novellus and NuSpeed Internet Systems. Numerous EDV portfolio companies have gone public or been acquired by major technology companies including AT&T, Ciena, Cisco Systems, nVidia, Siemens, Texas Instruments and Yahoo.