Self-Driving Stampede: Why Mobility Startup Prices Keep Going Up

When automotive supplier Delphi forked over approximately $450 million to buy Boston-based software startup NuTonomy last month, it was the latest in a spate of high-dollar acquisitions involving companies that develop self-driving technologies. NuTonomy, founded by MIT researchers, was only four years old and had raised $16 million in a Series A round the previous year.

In 2016, GM reportedly paid nearly a billion dollars to acquire three-year-old Cruise, a producer of after-market kits that can turn existing cars into autonomous vehicles, and two months before that, the automaker spent $35 million to acquire ride-hailing startup Sidecar. Last year, Uber also plunked down $680 million to acquire autonomous truck startup Otto.

Meanwhile, earlier this year, Ford invested $1 billion in ArgoAI, saying the Pittsburgh startup would be in charge of building the brain in its self-driving cars. And in March, Intel paid an eye-watering $15.3 billion to acquire Mobileye, an Israeli computer vision startup. With so much cash flying around, one is tempted to wonder how these small, somewhat untested companies are inspiring such lofty price tags.

Eric Paley, a partner at Boston-area venture capital firm Founder Collective (which invested in Cruise), says the high valuations are an indication that, within the automotive industry, the debate is settled regarding whether self-driving cars are viable and have paradigm-shifting potential.

“I think there is a battle in a very true way for the future of transportation,” Paley says, adding that it’s the first battle of its kind in 100 years. “Autonomous vehicles are going to disrupt the transportation industry in a big way. We can debate the timing, but by and large, everyone agrees that it’s coming.”

Paley says there are a few factors influencing the current competitive landscape. The cost of researching and developing autonomous technologies is often too expensive for auto manufacturers to do in house—and they generally don’t have the same kind of deep tech expertise that, for example, a nimble Silicon Valley software startup has.

“You can look at the Cruise deal and say it’s insane, but what has GM been spending to advance the technology and where are they versus the market?” he says. “When they realize they’ve spent a fortune and are still behind—that could be catastrophic to their business. One of the justifications for acquisition is if it will get them there faster.”

Another factor: the ambitions of the acquisition target’s founders. “How did Cruise get $1 billion?” Paley asks. “Because the founder already turned down half a billion. [Cruise co-founder] Kyle Vogt already had success [with his previous company Twitch], which made it expensive.”

To get an idea of how some traditional automakers are approaching the autonomous era, Paley points to an article published earlier this month by Bob Lutz, a former GM executive, titled “Kiss the Good Times Goodbye.” In his article, Lutz refers to autonomous vehicles somewhat derisively as “modules” and lays out a scenario where human drivers are legislated off the roads in favor of self-driving fleets owned by the Ubers, Amazons, and Lyfts of the world.

Lutz predicts that with performance and style no longer relevant for fleet modules, … Next Page »

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Sarah Schmid Stevenson is the editor of Xconomy Detroit/Ann Arbor. You can reach her at 313-570-9823 or sschmid@xconomy.com. Follow @XconomyDET_AA

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