Automotive Ventures is emerging as the global Seed-stage Mobility venture firm.
Three years ago, we decided to launch our first mobility-focused fund.
Fast forward to today: we’ve made 25 investments out of two funds and we’re about to start raising our third.
Success in life has a lot to do with timing, and we’re benefitting from strong macro trends pushing us forward: the pace of change and innovation across the Mobility landscape is accelerating, providing significant wealth creation opportunities.
Our focus is simple and singular: positioning Automotive Ventures to win.
What does that look like? Let’s reflect on what we’ve learned so far and discuss the path we’re on, as we focus on funding the next wave of innovation in transportation technology.
The firm allocates time across four functions:
1. Helping our investments (Portfolio Companies)
2. Managing our startup pipeline
3. Working with our investors (Limited Partners)
4. Managing our Brand
For today's discussion, we'll continue with section 2: How we manage our pipeline of potential investments.
PRIORITY: STARTUP PIPELINE
Our mission is to see every single early-stage Mobility deal globally.
Over the past 30 months, we’ve looked at 1,500 companies and invested in 25 (1.7%) (Link to portfolio)
The key to this process? We focus our branding and networking efforts to reach 6k mobility professionals worldwide, and we actively manage our 36k followers onLinkedIn.
We nurture our ecosystem relationships, aspiring to build connections with every mobility-focused incubator, accelerator and VC globally. And we get many of our high-value investible opportunities through referrals from our portfolio company founders and LPs.
WHAT DO WE LOOK FOR?
We have an internal investment scorecard to evaluate startups across nine different facets (see graphic below). The most important of these are the team, the size of the addressable market, and the uniqueness of the offering.
OUR INVESTMENT PROCESS
Automotive Ventures maintains a disciplined, systematic investment process with 6 distinct phases:
1. Sourcing Deals: Proactively identifying new opportunities in line with the fund’s mandate.
2. Initial Review: Discussing the opportunity with the team and subject matter experts to obtain feedback and structure diligence questions.
3. Due Diligence: Completing a comprehensive review of the opportunity and answering key diligence questions.
4. Investment Decision: Presenting investment thesis and due diligence findings with a solid recommendation.
5.Close Investment: Negotiating investment terms and closing the transaction.
6. Transition to Portfolio Management: Energizing companies, staying engaged, and actively working to accelerate their success.
WHAT MAKES A SUCCESSFUL ENTREPRENEUR?
Creating something of true significance starts with seeing things others do not. This ability shows up in rare founders: those who see the world differently and run through walls to make their vision happen.
A successful entrepreneur cannot be attributed to any one characteristic, but an interconnected latticework of traits, the more of which make for a stronger founder. These include:
• Willing to take risks and not be afraid of failure
• Creative; serial innovator
• Competitive spirit
• Humble and and self-aware
• Customer oriented
• Cost efficient
• Resilient; persistence through adversity; adaptable
We believe that success is the product of focus, dedication and determination. Fate and luck have little to do with it.
In his book Zero to One, author Peter Thiel notes that to imagine what progress the future will bring, you must be able to view the present differently, be the architect of your own future, and make a focused effort to attain it.
Eric Ries, in The Lean Startup, noted, “The only way to win is to learn faster than anyone else.”
BUILDING A DURABLE DEFENSIBLE ADVANTAGE
We believe that nearly all the returns to our investors will come from the portfolio companies able to build long-term defensibility. For early stage investing it’s the big hits that drive outsized returns. So having a credible vision for how to build defensibility matters, even for early-stage companies.
Some of the greatest and most enduring technology companies are defended by powerful moats. While startups at the Seed stage are too early to yet experience economic moats, they should have a plan to build deep and wide competitive defensibility over time. These could include any combination of the following(although the more boxes a company checks, the better):
Timing: Is this the right time for this solution? Being early is (sometimes) worse than being wrong.
Team: Is your team uniquely qualified/positioned to pursue this opportunity?
Technological advantage: A company’s proprietary technology should work much better than anyone else’s. Can you create a true technological breakthrough that’s 10x better?
Economies of Scale: The bigger you are the more operating leverage you have which lowers your costs. Focus on cost savings gained by producing something on a large scale instead of a small one.
Network Effects: Best described by Metcalf’s law, your product or service has “network effects” if each additional user of your product accrues more value to every other user. Meaning the more people are using the product, the more useful it is.
Intellectual Property / Trade Secrets: Proprietary software or methods is where most technology companies start. These trade secrets can include novel solutions to hard technical problems, new inventions, new processes, new techniques, and later, patents that protects the developed intellectual property (IP). Over time, a company’s IP may evolve from a specific engineering solution to accumulated operating knowledge or insight into a problem or process.
High Switching Costs: Once a customer is using your product, you want it to become as difficult as possible for them to switch to a competitor.You can build this stickiness through standardization, from a lack of substitutes, through integrations to other apps and data sources, or because you have built an entrenched and valuable workflow that your customers depend on. Any of these can act as a form of lock-in that will make it difficult for customers to leave.
Brand and Customer Loyalty: Over time, a strong brand can be a moat. With each positive interaction between your product and your customers, your brand advantage gets stronger. Focus on creating a brand that can’t be replicated.
Monopoly: Can you start off with a large share of a small market? Focusing on a small market where you have a good chance of building dominance quickly is a much better bet. Land and expand.
Distribution: Can you create an unfair (and non-replicable) way to distribute your product to your customers? How can you lock up key channels and keep competitors out?
Realistically, no pre-Seed or Seed-stage business has a durable moat at such an early stage.The path to building your moat will take time and effort. But founders need to be able to communicate a credible plan and path to ultimately getting there.
(if you liked this article, read on for how we work with our investors (aka LPs)) (link)