Market Overview

Startups In The Transport Space Overlook A Fertile Investment Landscape

Startups In The Transport Space Overlook A Fertile Investment Landscape

The growth in the relevance of technology within the transportation sector over the last decade has been nothing short of spectacular. The technology jolts that have run through the industry over the last few years can be focused on two distinct companies – Amazon and Uber. 

In many ways, both these companies grew to define the precincts of the quintessential startup, disrupting the way commerce and mobility was thought of and rewriting traditional power equations with their consumer-first policies and aggressively lean business models. 

The ‘Amazon effect' as it is widely termed, forced businesses to care more about the customer experience, which meant overhauling of antiquated delivery models and siloed operational processes, leading to a greater use of data to improve efficiency and ushering in transparency across supply chains. 

The Uber business model led to the ‘gig economy' becoming mainstream, with mobility being increasingly thought of more like a service, than as a purely ownership-based model that was in place for over a century. 

This led to the proliferation of startups in the space. Many are looking to ape the business model and disruption possibilities of Amazon and Uber within specific niches in the transportation space. And with a fertile ground of startups came investments, primarily in the form of venture capital (VC) firms that rushed in to fund the new crop of promising businesses in the market. 

FreightWaves spoke with venture capital firms Autotech Ventures and Deutsche Bahn Digital Ventures, which invest predominantly in the mobility and logistics space, to understand the funding ecosystem and the promises they see taking shape in the future.

"Mobility has been impacted by many trends over the last few decades. One of them is the rise of mobile phones, which have unlocked multiple opportunities across several dimensions," said Dan Hoffer, the managing director of Autotech Ventures. "There is a rise in popularity of the theme of ‘access versus ownership' – it has led to consumers increasingly finding comfort in not owning vehicles and instead simply having access to them. Technology has also led to the rise of an autonomous driving future."

Hoffer spoke about how investment in the space is high, and that "there is so much money available that any number of approaches and business models can and will get funded." That said, the return on investment (ROI) is usually determined by the niche the financing goes into – say, electric scooters or the Hyperloop. While e-scooter startups can scale up quickly across different markets and look at making a profit, a Hyperloop startup is more cost-intensive and will take at least a few years to start recovering its investment.  

Christian Lowe, a senior investment manager at Deutsche Bahn Digital Ventures, spoke of the conundrum of innovation within the industry – the disconnect between what the market can offer and what the company requires – for instance, in the context of digitalization. 

"On the other hand, startups need to find a viable way to commercialize and monetize their businesses. Autonomous driving companies started a few years ago, stating that they'll sell to the automakers. But the market and the technology is just not there yet, and so they are now broadening their focus on the customer side and looking to sell not just to the OEMs [original equipment manufacturers] but to Tier 1s as well," said Lowe. 

As several companies eye the same market niche, there is a real possibility of several mergers and acquisitions between rival companies. For instance, the last-mile food delivery space is witnessing consolidation – especially across Europe – with some going for a merger, while some see investment from bigger logistics firms that want a seat on the table. 

For companies looking to raise funding, Lowe pointed out that investors expect them to understand industry dynamics and be clear about their sales cycle, especially when they work business-to-business (B2B), where sales cycles are predictably drawn out. "If you can show the right traction at the right point of time – whether it is through customer attraction or technology development or commercialization perspective, it must be feasible to raise funding," said Lowe.

Image Sourced from Pixabay

Posted-In: Freight Freightwaves transportation industryNews Startups Markets General


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