30+ Investors Share Their Views on the Current Mobility Environment
By: Chris Stallman
Tags: Mobility, Covid 19, Venture Capital, VC, Transportation

My colleagues and I at Fontinalis Partners — a thematically focused VC investing in the future of mobility — have spent the last three months having countless conversations with founders, investors, strategic partners, advisors, and bankers collecting a wide swath of viewpoints on where people see the mobility landscape going over the next few years and how they have adapted their own viewpoints as a result of the COVID-19 pandemic. Like others, we have our own views — and have shared early versions of where we see bright spots — but we wanted to more formalize these broader views and opinions from others to perhaps paint more of a consensus view of the market sentiment.

Enter the 2020 Mobility Sentiment Survey. (Download here)

During the last two weeks of May, we sent out a survey containing questions about both broad/macro dynamics as well as more targeted themes & sub-themes to a variety of investors we know and respect that have been active investors in the mobility theme. We received more than 30 responses and respondents ranged from traditional VCs (52% of respondents) and corporate VCs/execs (34%) to family offices and angel investors (10%). We gave respondents an option to respond anonymously to ensure they could share their candid views.

Now, let’s look at some of the takeaways.

Financing & Transaction Environment Sees Some Pullback…

Not surprisingly, given recent events and the broader macro viewpoint that extends beyond mobility, 72% of respondents see a “moderate-to-major” decline in IPOs (note: this survey was done prior to the Vroom & Nikola IPOs) over the next 18–24 months.

Private financings are also expected to be impacted, although 63% of respondents favored a “slight-to-moderate” decline. While 72% of the respondents indicated they expect to invest about the same or more over the next 18–24 months, they see the greatest declines in capital coming from corporate investors in general — perhaps reflective that the most recent entrant (there has been a significant ramp-up of CVC activity over the last 2–3 years) is sometimes the first one to pull back, as well as the possibility that COVID-19 is forcing these organizations to re-prioritize and protect their balance sheets in the near term.

…but M&A and Secondaries may Actually…Increase?

Interestingly, respondents collectively foresee a “minor-to-moderate” increase in M&A and secondary transactions. This could be a function of companies and investors with dry powder becoming more opportunistic, or it could be a reflection of the expected financing environment (i.e., if large growth rounds and valuation appetite become more limited, this may push companies and investors to more near-term, attainable exits).

Valuation Pressure Expected to be Greatest for Growth-Stage Companies

While respondents generally see some “slight-to-moderate” valuation pressure for seed- and early-stage companies, only 3% of respondents expected companies in these stages to be facing a “major” decline. However, that contrasts greatly to growth-stage (Series C & later) companies, where 35% of respondents expect a major decline in valuations for these financings. This is a signal that earlier-stage companies are more insulated, whereas later-stage companies (particularly unicorns) that raised a lot of capital at high valuations and without commensurate commercial progress are going to face a very difficult time securing capital on flat/up-round terms.

Predicting When the World Returns to Normal

“When will the broad venture environment and mobility venture environment return to pre-COVID-19 levels?”

The data clearly shows that 2021–2022 is the timeframe investors expect there to be a “return to normal” (i.e., as defined as “pre-COVID-19”), with a heavier slant towards 2021. However, dissecting the data shows that there is a material difference in optimism between VCs (68% expect a return to normal by the end of 2021) and corporate VCs/execs (only 33% expect a return to normal by end of 2021) — possibly due to many of these corporate respondents coming from heavily-impacted industries (e.g., auto & industrials).

Investment Bright Spots Emerging

Possibly due to the recency bias that may be caused by COVID-19, there were a handful of themes/sub-themes that scored well throughout the survey — each of these themes appear to have some degree of insulation from (or even tailwinds to benefit from) recent events. Specifically, a few segments stood out:

· Movement of Things — technologies related to supply chain transformation/visibility/intelligence

· Automation & Robotics — industrial & warehouse robotics were considered attractive by respondents while AV tech related to passenger transport trailed considerably behind (more on that below)

· Enabling & Related Technologies — foundational technologies that have the ability to impact multiple verticals (e.g., AI/ML, e-commerce tech, Industry 4.0)

Investors Turning Focus Towards Nearer-Term Autonomy Applications

While the wave of financing events in 2014–2017 favored autonomy use cases centered around personal transportation (e.g., robotaxi), the delayed timelines and significant capital intensity necessary to bring these applications to urban environments safely has catalyzed more attention to nearer-term applications in more constrained environments. Respondents indicated that warehouse, industrial, and delivery robotics were the most attractive segments at the moment, while full-stack AV technology for passenger use cases were deemed the least attractive for new investment.

Also worth noting, the sentiment around components of the AV tech stack (simulation, LIDAR, radar) weren’t overly positive — in talking with several investors, the view is that some degree of consolidation is necessary in these segments and that is keeping investors on the sideline even if they are optimistic about the underlying technology.

Sentiment Shift Accelerates from Personal Mobility to Enterprise Mobility

Across nearly all of the themes we surveyed, the segments that investors found most attractive were technologies and business models centered around the movement of things that bring greater efficiency to enterprise customers. While people with a more classical view of mobility may see mobility solely as a space comprised of companies with technologies and business models predicated on 2- or 4-wheel vehicles that move around our roadways and sidewalks, there are so many technologies having material impacts (and clear ROIs) on the movement within an enterprise’s footprint.

We think there are two key factors at play here in the data:

1) Recency bias — investors have watched as the travel around the world has ground to a halt in recent months and the hugely negative impacts this has had on airlines, public transit, ride sharing, car sharing, micromobility, etc. Investors may arguably we overweighting these recent impacts.

2) Innovation comes in waves, and the first wave may have perceived “winners” that are difficult to unseat — 10 years ago, we saw an early wave in mobility largely centered around personal mobility, spanning from marketplaces and tech-enabled services to smart cities. This wave launched and built formidable U.S. players in ride hailing (Uber, Lyft), car sharing (Turo), traffic & transit apps (Waze, Moovit), etc. While investors may not necessarily believe these to be unattractive segments as a whole, the attractiveness of investing in new entrants may be more limited than it was 5–10 years ago.

The “Operational vs. Aspirational” Divide Between VCs & Corporate VCs

While the data showed a broad general consensus in several areas between VCs and CVCs, there were certainly areas of divergence, and these generally followed along a theme I’ve started calling the “operational vs. aspirational divide” that we sometimes see between these two types of investors.

CVCs often gravitate towards investing in technologies that immediately help with their existing operations or products, lending themselves to be more positive in areas of applied (vertical) technologies. Their field of view may be more limited, whereas VCs tend to be more broadly aspirational — i.e., they gravitate towards technologies that help launch entirely new products, services, or markets. This is an overly simplistic generalization — and we know investors in both segments that defy those stereotypes — but we saw this concept playing out across the survey, with operationally focused vertical technologies doing particularly well with CVCs and more broad technologies or emerging segments doing well with VCs. The VC respondents were also more favorable on segments that have a longer path to market, particularly sustainability technology (although more on that below).

Where Consensus Exists / Doesn’t Exist

In total, we surveyed more than 60 mobility themes in this study. When we evaluated the data, there were certainly some differences between corporate respondents and non-corporate respondents, but we also saw that some themes were relatively consistent on the whole and others were more divisive.

The greatest investor consensus fell along enabling technologies (e.g., computer vision, AI/ML) and technologies that focus on enterprise mobility use cases (industrial robotics, Industry 4.0). The areas where investors diverged the most in opinion were largely related to sustainability technologies (with blockchain making an appearance, too) — this isn’t too surprising, given that we equally often encounter investors that won’t touch EVs & other sustainability technologies just as we encounter investors that are very optimistic these technologies.

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Closing Thoughts

When we launched our firm 10 years ago, we staked our futures on the belief that new advances in technology would fundamentally reshape how the world moves. This mobility theme is different than most venture themes because it implicates aspects of both bits (digital) and atoms (physical); and a theme so large and audaciously far-reaching means it may take 30, 50, or even 100 years to be fully realized. Seeing this at the beginning of our firm, we set out to take a very broad view of mobility — i.e., to not just focus on personal mobility or automotive technology (or some other arbitrarily limiting opportunity set) — because we knew that a long-term thesis sees waves of innovation and opportunity. We knew the world would fundamentally change due to technology but we didn’t know precisely what the world would look like when it did — rather than bet the farm on a preconceived notion of what that would be, we instead built a firm to bet on change itself and leave the filling in the details to the best entrepreneurs that are far smarter and more creative than we are.

It appears that this survey is confirming the importance of that strategy we set out with, because there are times when rising tides lift all ships, and there are times when being more opportunistic and tactical pays off. As we navigate the next year or two, we see this as a time for being a bit more tactical.

Lastly, we did this (unscientific) survey with the goal of getting a broad temperature check from other investors we know and respect with the intention to share with the broader ecosystem. We invite you to download a copy, review it, and draw some of your own conclusions and takeaways from the data. Enjoy!

Founded in 2009, Fontinalis Partners is a mobility-focused venture capital firm with offices in Detroit & Boston. More here: www.fontinalis.com