Startup companies from the U.S. focused on transportation technology could be among the fatalities of COVID-19, as per the venture investors who say the latest funding and investment exits are on the verge of evaporating as the economic outlook darkens.
“We don’t know what it will look like on the other side of this zombie apocalypse,” said one investor, according to Reuters report.
Seven investors in several parts of the country commented on the condition of the transportation startup industry. All of them had transportation-related startups in their portfolios. They spoke anonymously because they were not allowed to speak on behalf of their investment partners.
“Almost all transportation startups are at greater risk” from the economic seismic wave caused due to coronavirus pandemic, a Silicon Valley investor told Reuters. “Will there be cascading effects that last for years? Absolutely.”
Startups that are at biggest risk are the ones that have not managed to close recent funding rounds or have just begun fundraising, as per the VCs, who symbolize both corporate and financial investors.
“We’ve been telling our portfolio companies to reduce your financing needs and readjust your focus on breakeven, rather than spending on growth,” said one Silicon Valley investor.
A Midwestern investor said he is requesting companies in his portfolio to draw down ongoing credit lines “before the bank shuts it down.” Amidst this situation, fresh investment in the transportation technology sector has dwindled since the onset of the pandemic.
“There is great demand (from startups), but very little supply” of new money, said the third investor. “There are still a lot of investors sitting on money, but they’re gun shy.”
Corporate investors taking their hands back from new investments as their stock prices drop and their financial perspective become ambiguous, said another of the managers.
Startups that work in the field of Self-driving vehicles are among the hardest hit. Valuations have been refusing for more than a year as automakers and suppliers persist to delay development and deployment deadlines.
Risk Increasing in other Sectors
With the rise of COVID-19, “we’re seeing more stress on the already fragile ecosystem around autonomous vehicles,” said one investor. “Some VCs who bet heavily on autonomous vehicles may be toast … We could see some serious bloodletting.”
The risk seems to be increasing in other subsectors, consisting of ride-sharing and micromobility, a term that consists of scooter sharing. For example, the Scooter-sharing company Lime has halted its services in U.S. and European cities because of the COVID-19 threat.
The pandemic “has raised new questions about the pace at which shared transportation will continue to grow,” said a Bay Area investor. “In this environment, there is considerable value in owning your own vehicle.”
Investors and startup founders are also finding fewer opportunities to cash out, especially acquisition deals with larger companies, venture capital investors said.
“Some automakers that are under stress are not considering further acquisitions,” said a corporate investor. “But in a crisis like this, strategic investors can find some cheap acquisitions.”
Venture investors are aiming at specific subsectors such as delivery battery technology, robots, industrial automation, and infrastructure.
With the deficiency of cash and decreased appetite for risk, one investor said, “My big fear is that the tech giants — the Amazons, Apples and Googles — are now stronger than ever before, with lots of cash just as lots of tech startups are in distress. That could really tip the balance.”
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