Investing in frontier technology is (and isn’t) cleantech all over again

I entered the world of venture investing a dozen years ago.  Little did I know that I was embarking on a journey to master the art of balancing contradictions: building up experience and pattern recognition to identify outliers, emphasizing what’s possible over what’s actual, generating comfort and consensus around a maverick founder with a non-consensus view, seeking the comfort of proof points in startups that are still very early, and most importantly, knowing that no single lesson learned can ever be applied directly in the future as every future scenario will certainly be different.

I was fortunate to start my venture career at a fund specializing in funding “Frontier” technology companies. Real-estate was white hot, banks were practically giving away money, and VCs were hungry to fund hot startups.

I quickly found myself in the same room as mainstream software investors looking for what’s coming after search, social, ad-tech, and enterprise software. Cleantech was very compelling: an opportunity to make money while saving our planet.  Unfortunately for most, neither happened: they lost their money and did little to save the planet.

Fast forward a decade, after investors scored their wins in online lending, cloud storage, and on-demand, I find myself, again, in the same room with consumer and cloud investors venturing into “Frontier Tech”.  The are dazzled by the founders’ presentations, and proud to have a role in funding turning the seemingly impossible to what’s possible through science. However, what lessons did they take away from the Cleantech cycle? What should Frontier Tech founders and investors be thinking about to avoid the same fate?

Coming from a predominantly academic background, I was excited to be part of the emerging trend of funding founders leveraging technology to make how we generate, move, and consume our natural resources more efficient and sustainable. I was thrilled to be digging into technologies underpinning new batteries, photovoltaics, wind turbines, superconductors, and power electronics.  

To prove out their business models, these companies needed to build out factories, supply chains, and distribution channels. It wasn’t long until the core technology development became a small piece of an otherwise complex, expensive operation. The hot energy startup factory started to look and feel mysteriously like a magnetic hard drive factory down the street. Wait a minute, that’s because much of the equipment and staff did come from factories making components for PCs; but this time they were making products for generating, storing, and moving energy more renewably. So what went wrong?

Whether it was solar, wind, or batteries, the metrics were pretty similar: dollars per megawatt, mass per megawatt, or multiplying by time to get dollars and mass per unit energy, whether it was for the factories or the systems. Energy is pretty abundant, so the race was on to to produce and handle a commodity. Getting started as a real competitive business meant going BIG: as many of the metrics above depended on size and scale. Hundreds of millions of dollars of venture money only went so far.

The onus was on banks, private equity, engineering firms, and other entities that do not take technology risk, to take a leap of faith to take a product or factory from 1/10th scale to full-scale. The rest is history: most cleantech startups hit a funding valley of death.  They need to raise big money while sitting at high valuations, without a kernel of a real business to attract investors that write those big checks to scale up businesses.

How are Frontier-Tech companies advantaged relative to their Cleantech counterparts? For starters, most aren’t producing a commodity…

Frontier Tech, like Cleantech, can be capital-intense. Whether its satellite communications, driverless cars, AI chips, or quantum computing; like Cleantech, there is relatively larger amounts of capital needed to take the startups the point where they can demonstrate the kernel of a competitive business.  In other words, they typically need at least tens of millions of dollars to show they can sell something and profitably scale that business into a big market. Some money is dedicated to technology development, but, like cleantech a disproportionate amount will go into building up an operation to support the business. Here are a couple examples:

  • Satellite communications: It takes a few million dollars to demonstrate a new radio and spacecraft. It takes tens of millions of dollars to produce the satellites, put them into orbit, build up ground station infrastructure, the software, systems, and operations needed to serve fickle, enterprise customers. All of this while facing competition from incumbent or in-house efforts. At what point will the economics of the business attract a conventional growth investor to fund expansion? If Cleantech taught us anything, it’s that the big money would prefer to watch from the sidelines for longer than you’d think.
  • Quantum compute: Moore’s law is improving new computers at a breakneck pace, but the way they get implemented as pretty incremental. Basic compute architectures date back to the dawn of computing, and new devices can take decades to find their way into servers. For example, NAND Flash technology dates back to the 80s, found its way into devices in the 90s, and has been slowly penetrating datacenters in the past decade. Same goes for GPUs; even with all the hype around AI. Quantum compute companies can offer a service direct to users, i.e., homomorphic computing, advanced encryption/decryption, or molecular simulations. However, that would one of the rare occasions where novel computing machine company has offered computing as opposed to just selling machines. If I had to guess; building the quantum computers will be relatively quick; building the business will be expensive.
  • Operating systems for driverless cars: Tremendous progress has been made since Google first presented its early work in 2011. Dozens of companies are building software that do some combination of perception, prediction, planning, mapping, and simulations.  Every operator of autonomous cars, whether they are vertical like Zoox, or working in partnerships like GM/Cruise, have their own proprietary technology stacks. Unlike building an iPhone app, where the tools are abundant and the platform is well-understood, integrating a complete software module into an autonomous driving system may take up more effort than putting together the original code in the first place.

How are Frontier-Tech companies advantaged relative to their Cleantech counterparts? For starters, most aren’t producing a commodity: it’s easier to build a Frontier-tech company that doesn’t need to raise big dollars before demonstrating the kernel of an interesting business. On rare occasions, if the Frontier tech startup is a pioneer in its field, then it can be acquired for top dollar for the quality of its results and its team.

Recent examples are Salesforce’s acquisition of Metamind, GM’s acquisition of Cruise, and Intel’s acquisition of Nervana (a Lux investment). However, as more competing companies get to work on a new technology, the sense of urgency to acquire rapidly diminishes as the scarce, emerging technology quickly becomes widely available: there are now scores of AI, autonomous car, and AI chip companies out there. Furthermore, as technology becomes more complex, its cost of integration into a product (think about the driverless car example above) also skyrockets.  Knowing this likely liability, acquirers will tend to pay less.

Creative founding teams will find ways to incrementally build interesting businesses as they are building up their technologies.  

I encourage founders, and investors to emphasize the businesses they are building through their inventions.  I encourage founders to rethink plans that require tens of millions of dollars before being able to sell products, while warning founders not to chase revenue for the sake of revenue.  

I suggest they look closely at their plans and find creative ways to start penetrating, or building exciting markets, hence interesting businesses, with modest amounts of capital. I advise them to work with investors who, regardless of whether they saw how Cleantech unfolded, are convinced that their $$ can take the company to the point where it can engage customers with an interesting product with a sense for how it can scale into an attractive business.

Nvidia’s Jensen Huang cautions patience in judging Uber AV engineers

Nvidia CEO Jensen Huang faced a number of questions regarding Uber’s recent self-driving test vehicle accident, in which an SUV equipped with Uber’s autonomous technology struck and killed 49-year old Elaine Herzberg in Tempe, Arizona.

Earlier on Tuesday, Reuters broke the news that Nvidia was suspending its own autonomous testing programs around the world. Huang didn’t address the suspension on stage, but he did express sympathy for the victim during the keynote, which he reiterated during the Q&A.

“First of all, what happened is tragic and sad,” Huang said in response to a question about whether he believes the accident might impact appetite among other companies for developing autonomous technologies. “It also is a reminder of exactly why we’re doing this.”

Huang explained that in fact, as a result of the accident, he actually believes that investment will rise in self-driving system design, specifically because previously companies might have thought they could get away with meager or minimal investment in those areas, and instead will be realizing it’s the one area where they can’t compromise in favor of attempting to lower costs.

“I think that the world is going to, as a result, be much more serious about investing in development systems, which is good,” he said.

Meanwhile, Huang also urged caution regarding anyone being too quick to judge Uber’s engineers or their intentions and diligence.

Huang said that Uber has engineers who are “intensely serious about what they do,” and said that he “wouldn’t judge them” until we have more information about what occurred with the accident. “We don’t know exactly what happened,” he said. “And we gotta give them the chance to go and understand for themselves.”

On the subject of Nvidia’s suspension of its own program, and the motivation behind doing so, Huang said it was all about engaging an abundance of caution in an area where safety must always come first.

“We use extreme caution, and the best practices that we know in testing our cars,” he said. “First of all, it’s of course a safety concern, because our engineers are actually in the car. So it’s something we take incredibly seriously.”

He added that the reason for the suspension was “simple,” since the accident means that there’s now “a new data point” that has to be taken into consideration, and as “good engineers,” Nvidia must “wait to see what we can learn from the incident” before continuing testing activities.

Uber blocked from testing self-driving cars on Arizona roads

Uber has been barred from testing its self-driving cars on public roads in Arizona following the accident last week involving one of its testing vehicles that killed a pedestrian crossing the street in its path. Arizona Governor Doug Ducey released a letter sent to Uber CEO Dara Khosrowshahi in which he described the accident as captured by onboard cameras as “disturbing and alarming.”

The governor, who has been a strong proponent of self-driving testing in the state up until this point, advocating for Uber and other companies to bring their programs to Arizona roads, also directed the Arizona Department of Transportation to “suspend” Uber’s self-driving testing access.

Uber had already suspending testing of its autonomous test vehicles not only in Arizona, but in all markets following the crash and pending the results of its investigation.

The ride-hailing company had begun operations in Arizona in 2016, following its launch of its self-driving SUVs on San Francisco streets, in a test which was quickly shut down once the California DMV revealed they did not have the proper permit to test on state roads. Uber made a big show of transporting its test fleet to Arizona, where Ducey voiced strong support and welcome for the relocation of Uber’s self-driving pilot to within his state.

Aurora hires SpaceX’s Jinnah Hosein, opens SF and Pittsburgh offices

Self-driving technology company Aurora has made some key moves on its leadership team and overall company growth: It’s bringing on SpaceX’s now former head of software engineering, Jinnah Hosein, to lead its own software engineering team in a VP role. The autonomous software provider is also opening up two new offices, including one in San Francisco, and another in Pittsburgh, in addition to its existing HQ in Palo Alto.

Bringing on Hosein is a huge move for Aurora, which will now have some additional senior leadership taken to help direct and organize its growing engineering team, according to Aurora co-founder Chris Urmson . Hosein’s background includes his time as VP of Software Engineering at SpaceX, where he spent the past four years and oversaw projects including the recent successful Falcon Heavy launch. Before that, he was Director of Software Engineering at Google working on Google Cloud, site reliability and other software projects.

“It’s a pretty incredible set of experiences he has,” Urmson said. “We’re just excited about him bringing that leadership capability, that experience in building both cloud and incredibly reliable software to our team and working with the rest of the folks here.”

Hosein also worked for a brief time overseeing Tesla’s software operations as well as SpaceX’s when he served as acting VP of Tesla’s Autopilot Software prior to Tesla hiring Apple’s Chris Lattner for the role. Urmson says that Hosein’s proven track record launching rockets, and organizing software projects on that level of complexity is more important to Aurora than any brief time he may have spent on Autopilot, however.

Aurora is also opening two new physical offices and testing locations, as mentioned, including the San Francisco one that Urmson says will be a welcome relief to some of their employees currently commuting south to Palo Alto, as well as a way to attract more talent looking to work in the city proper. The Pittsburgh office gives them a new testbed, where they can prove their tech in inclement driving conditions and adverse winter weather, and it also puts them in close proximity to Carnegie Mellon and Pittsburgh’s robotics talent pool.

“When you combine that, between the offices we have in the South Bay, the San Francisco test areas that we’ll now have more access to and the Pittsburgh test areas, we have a pretty exciting diversity of test environments and places to operate,” Urmson added.

Aurora has already announced partnerships with Volkswagen, Hyundai, Byton and more, and recently added LinkedIn founder Reid Hoffman and Index Ventures’ Mike Volpi to its board.

Video: The driver of the autonomous Uber was distracted before fatal crash

The Tempe, Arizona police department have released a video showing the moments before the fatal crash that involved Uber’s self-driving car. The video includes the view of the street from the Uber and a view of minder behind the wheel of the autonomous Uber.

Warning: This video is disturbing.

The video shows the victim crossing a dark street when an Uber self-driving Volvo XC90 strikes her at 40 mph. It also shows the person who is supposed to be babysitting the autonomous vehicle looking down moments before the crash. It’s unclear what is distracting the minder. It’s also unclear why Uber’s systems did not detect and react to the victim who was clearly moving across its range of sensors at walking speeds.

Uber provided the following statement regarding the incident to TechCrunch:

Our hearts go out to the victim’s family. We are fully cooperating with local authorities in their investigation of this incident.

Since the crash on March 19, Uber has pulled all its vehicles from the roads operating in Pittsburgh, Tempe, San Francisco and Toronto. This is the first time an autonomous vehicle operating in self-driving mode has resulted in a human death. In a statement to TechCrunch, the NHTSA said it has sent over its “Special Crash Investigation” team to Tempe. This is “consistent with NHTSA’s vigilant oversight and authority over the safety of all motor vehicles and equipment, including automated technologies,” a spokesperson for the agency told TechCrunch.

“NHTSA is also in contact with Uber, Volvo, Federal, State and local authorities regarding the incident,” the spokesperson said. “The agency will review the information and proceed as warranted.”

Toyota also paused its self-driving testing in the US following the accident.

This tragic accident is the sort of situation self-driving vehicles are supposed to address. After all, these systems are supposed to be able to see through the dark and cannot get distracted by Twitter.

Lyft is building a self-driving platform with auto supplier Magna

Lyft is partnering with Magna, one of the largest tier-one automotive industry suppliers in the world, on autonomous vehicle technology. Lyft CEO and co-founder Logan Green explained that this will help them get their self-driving tech into various automaker vehicles around the world. Lyft will be working directly with Magna on “co-developing” an autonomous driving system, with collaborative teams from both companies working on the project.

Magna is also investing $200 million in Lyft in exchange for an equity stake. The goal is to build not only autonomy into production vehicles, but also to put direct access to Lyft’s hailing platform into future autonomous vehicles using the platform. Lyft will lead the development effort of the autonomous driving platform from the Level 5 autonomous driving engineering center in Palo Alto, and Magna will take point on manufacturing, working on site at Lyft’s facility in collaboration with the ride-hailing company’s own engineers.

Green explained that the company’s goal has been to “improve how transportation works” from the very beginning, citing a childhood growing up in traffic, trying to figure out how to avoid traffic, as a motivating factor. He also noted that it’s “wildly expensive” for individuals to own and operate their vehicles.

All ridesharing makes up just 0.5 percent of all miles traveled, and Lyft’s goal is to move that to more than 80 percent, Green said. He cited examples like Netflix as showing what he wants to achieve in the transportation industry, in terms of moving from ownership to subscriptions.

In terms of helping Lyft to scale its vision, teaming up with Magna could be a big help: The supplier knows the ins and outs of putting certified, mass-produced key components and systems into vehicles that make their way to public roads and consumers from the world’s leading automakers.

Lyft and Magna are not sharing any info with regards to a timeline for when we might see the results of this partnership put into practice, in testing or in production, but Magna noted in a press release detailing the news that it should be “market-ready over the next few years” if all goes to plan. Initially, according to Green, the collaboration will aim to deploy SAE Level 4 autonomous driving tech first, but ultimately the aim is to produce the best Level 5 system available. The product of the collaboration will be “joint intellectual property,” per Lyft Chief Strategy Officer Raj Kapoor, who also explained that both companies will leverage data resulting from testing and use of the AV platform.

As for Lyft’s own efforts with developing autonomous vehicle systems thus far, the company said during a press event about the news that it’s already testing vehicles at the GoMentum autonomous vehicles proving ground in California, just five months after making its autonomous engineering efforts official.