By Paul Lienert
(Reuters) - U.S. startup companies focused on transportation technology could be among the casualties of COVID-19, according to venture investors who say new funding and investment exits are drying up 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 who spoke with Reuters.
Seven investors in different parts of the country spoke with Reuters about the situation in the transportation startup industry. All have transportation-related startups in their portfolios. They spoke on background because they were not authorized to speak on behalf of their investment partners.
“Almost all transportation startups are at greater risk” from the economic shock waves caused by the coronavirus pandemic, a Silicon Valley investor told Reuters. “Will there be cascading effects that last for years? Absolutely.”
The startups at greatest risk are the ones that have not closed recent funding rounds or have just started fund raising, according to the VCs, who represent 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 urging companies in his portfolio to draw down existing credit lines "before the bank shuts it down.”
Meanwhile, new 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 a third investor. “There are still a lot of investors sitting on money, but they’re gun shy.”
Corporate investors are pulling back from new investments as their stock prices drop and their financial outlooks become uncertain, said another of the managers.
Self-driving vehicle startups are among the hardest hit. Valuations have been declining for more than a year as automakers and suppliers continue to delay development and deployment deadlines.
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.”
Risk appears to be rising in other subsectors, including ride sharing and micromobility, a term that includes scooter sharing. Scooter-sharing company Lime, for example, has paused its service 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 remain focused on specific subsectors such as delivery robots, battery technology, industrial automation and infrastructure.
With the scarcity of cash and reduced 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.”