May 26, 2020

May 26, 2020

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How Can Automotive Startups Attract Investment from Car Manufacturers?

With so many startups in the high-tech automotive space, how do companies know which startups to invest in?  For example, Toyota announced plans to invest in 19 different companies, committing over $200 million so far, to further grow and expand their autonomous, electric vehicle and mobility services.  But finding these 19 companies was no easy feat; indeed, Toyota reviewed over 1500 companies before ultimately selecting only 19 (or 1.3%) for the initial investment.  This post touches on some of the factors associated with these 19 companies that may have helped them receive an investment from Toyota, and what factors other startups aspiring to obtain an investment from an auto manufacturer may want to consider.

Historically, investors have been attracted to, and invested in, new and exciting companies using performance indicators such as top line growth.  However, recent IPO performances of tech companies may show a change or shift in investment strategy for investors.  Investors have progressed from merely investing in the hottest new company with some potential for growth, to requiring a company to be able to show how their business plan can be profitable using more granular and reliable indicators of profitability.

One such company successfully getting on investor’s good side, Bird, recently raised $275 million in a new round of funding, bringing their overall evaluation to around $2.5 billion.  Bird was able to do this despite investor attitudes generally cooling toward the e-scooter industry, and also despite Bird realizing losses during the first quarter of 2019.  To promote their business, Bird attracted investors using unit economics to show that despite the losses, their business model was nevertheless solid and would ultimately make the company profitable.  Positive unit economics help a mobility company to show, on a more granular scale, what aspects of the business are profitable, how they are profitable, and where to make further investments to increase profits.  In Bird’s case, they used per scooter positive unit economics to forecast a clearer path to profitability, and make a case for further investment in new technology and research, thereby wooing investors even as other technology companies are being faced with lowering stock prices after their IPOs.

As car manufactures continue to invest in technologies such as autonomous vehicles, electric vehicles and mobility services, technology startups can stand out from the crowd by improving and selling granular metrics specific to their business model.  Technology startups can ease investor concerns by establishing and validating reliable per unit economics, and use them to illustrate how additional investments in the business can accelerate or increase further profitability.

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About this Author

James White IP Law Foley Boston  Intellectual property Electronics Practice Automotive

James White is an associate and intellectual property lawyer with Foley & Lardner LLP where he is a member of the firm’s Electronics Practice.

His practice involves all aspects of patent protection and strategic counseling in a wide variety of technologies including electronics, hardware, and software practice areas. Particularly, he has significant experience working with patent portfolios related to electric vehicle systems, battery systems for electric vehicle systems, and autonomous vehicle systems. He has experience working with patent portfolios related to power supply...