China backing helps Nullmax detour funding roadblocks

By Reuters - Global Times Source:Reuters-Global Times Published: 2017/11/10 5:03:39

Nullmax CEO Lei Xu drives a Lincoln MKZ sedan equipped with his company's prototype self-driving hardware and software in Fremont, California, US on October 9. Photo: VCG

The Waymo driverless car is displayed during a Google event in December 2016 in San Francisco. Photo: IC

Lei Xu and Justin Song formerly worked at electric car maker Tesla Inc, one of the hottest companies in Silicon Valley.

But with interest and investment in autonomous vehicles mounting, they left to pursue what they see as the next big thing.

Their company, Nullmax, is one of more than 240 start-ups worldwide, including 75 in Silicon Valley, that are attempting to design software, hardware and systems for autonomous vehicles, according to a Reuters analysis.

Xu and Song are backed by corporate money, but unlike many of their fellow entrepreneurs, they skipped funding from Silicon Valley venture capitalists.

Founded in August 2016, Nullmax got $10 million from a Chinese company, Tianjin-based high-tech equipment firm Xinmao Science and Technology Co.

By seeking corporate backing in China, the Nullmax founders managed to sidestep an issue facing other start-ups in the sector: While big automotive and technology companies are pouring billions into autonomous vehicles, Silicon Valley investors have so far been less enthusiastic.

Headlines have been dominated by old-line players such as General Motors Co, which jolted the industry last year when it bought a tiny San Francisco software company called Cruise Automation for a reported $1 billion.

Just recently, top-tier supplier Delphi Automotive acquired Boston-based software start-up nuTonomy for $450 million.

Now, "every start-up thinks it will get $1 billion" in valuation, said Evangelos Simoudis, a Silicon Valley venture investor and an advisor on corporate innovation.

However, investment in untested start-ups remains relatively modest despite buzz and lofty expectations. Total funding of self-driving start-ups from both corporate and private investors has barely topped $5 billion, the Reuters analysis of publicly available data shows.

Except for Andreessen Horowitz and New Enterprise Associates, few of the big Valley venture capital firms are heavily invested in the sector. Only seven of the top 30 self-driving start-ups have received later-stage funding, the Reuters analysis shows, an indication that some venture capitalists are ambivalent about the industry's potential.

Skeptics note that few of the start-ups are making money, and established vehicle and parts companies have not demonstrated a clear path to revenue and profitability in autonomous vehicles despite their big bets in the space.

Also, while the initial wave of self-driving vehicles is expected to begin commercial service in 2019 or 2020, experts expect the transition from human-driven to automated cars could take a decade or longer.

"You can destroy a lot of value by chasing your tail in autonomous driving," said Sergio Marchionne, chief executive officer of Fiat Chrysler Automobiles.

Corporate investments

US automotive and technology companies likely have invested some $40 billion to $50 billion in self-driving technology in recent years, mainly through acquisitions and partnerships. The full extent is hard to know because big players such as Alphabet Inc, whose Waymo subsidiary is considered among the front-runners in the segment, have not revealed the full scope of their investments, although it is believed to be in the billions.

Among the top corporate investors in the sector are Samsung Group, Intel Corp, Qualcomm Inc, Delphi and Robert Bosch GmbH. Corporate investors also have backed five of the six self-driving start-ups with valuations of $1 billion or more, known as unicorns.

Whether the industry will produce more unicorns is a topic of debate.

Two former investors in Cruise Automation, for example, have divergent views.

Veronica Wu, managing partner in Palo Alto-based Hone Capital, said her company continues to invest in "quite a number" of self-driving start-ups, while acknowledging that the technology will take time to develop.

"It's a matter of when, not if," she said. "We're fairly optimistic."

In contrast, Sunny Dhillon of Signia Venture Partners, another Cruise investor, said his company does not see any attractive investments in the sector right now.

The price paid by GM for Cruise, he said, "made the space very frothy, with every computer vision and robotics PhD student seemingly emerging with a new self-driving car start-up."

In addition, he said many established players "already have made their big investments [and] acquisitions" in the sector, which could limit investors' potential returns and entrepreneurs' payoffs.

Quin Garcia, a partner in San Francisco-based AutoTech Ventures, agrees that the space is crowded and valuations are inflated. There may still be "a select few IPOs, but there will be many failures of autonomous vehicle start-ups" by 2021, he said.

Nullmax in China

Those odds haven't deterred Nullmax founders Xu and Song, who are looking to differentiate themselves.

With many self-driving start-ups looking to supply US and European automakers, the Chinese-born entrepreneurs, whose specialties are camera-based vision systems and artificial intelligence, are focused on China. They expect to deliver the first partially automated systems to Chinese automakers by 2020.

The US-educated entrepreneurs, both 35, work out of a small shop in Fremont, California, not far from Tesla's home factory. Xu once worked at Tesla as a senior engineer while Song specialized in supply chain and quality engineering. Tesla declined to confirm their prior employment.

Xu said the company employs about 50 people, most of them in a larger office in Shanghai. He said the company wants to keep a foot in California, which is a hub of US technology talent, and where regulators have smoothed the way for testing of self-driving vehicles.

As for how Nullmax plans to cash out, Xu avoided that question.

"We're pretty busy," he said. "We don't have much time to think about an IPO right now."

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