Mobility startups, venture capitalists plot ways to weather COVID disruptions

From the smallest scooter startups to the largest global airlines, the coronavirus has wreaked economic destruction across nearly the entire transportation landscape.

No company has gone unscathed. The prospect of reduced mobility in a quarantined world has rattled the most stable of companies. But amid the uncertainty, venture investors long enamored with the disruptive potential of new transportation technology are still searching for fresh opportunities.

"We're definitely still bullish on transportation and mobility in the long term," said Julie Lein, a co-founder and managing partner of the Urban Innovation Fund, a venture capital firm that provides seed money to early-stage companies. "We're still talking to entrepreneurs and deploying capital."

Data from PitchBook shows she may not be alone. Investors pumped approximately $34 billion into startups during the first quarter of 2020. Analysts from the financial data firm caution it's not yet clear how much of that figure came before March, when COVID-19 began shutting down much of the economy. Even with a drop-off in March, the amount is still larger than the $22 billion invested during the fourth quarter of 2019.

As with every other business sector, the impact of the coronavirus on fledgling transportation startups and their fundraising efforts remains uncertain. While venture investors are focused on longer-term goals and not quarterly returns, they're not impervious to the crisis. The duration of the shutdown may hold clues.

"There might be a bounce back if lockdowns are lifted soon, but if we're in a lockdown for two more months, the damage will be catastrophic," said Olaf Sakkers, general partner at Israeli venture capital firm Maniv Mobility. "We're in the midst of the fog and trying to find our way through it. We're trying to mitigate the damage, but few will escape it."

Sakkers and others say they place importance on in-person meetings with founders of companies in which they are considering investments. Travel restrictions are making it difficult to vet prospective investments. So venture capital firms are spending time ensuring the companies already in their portfolios are set to withstand recessionary forces.

Their trajectory may be a matter of timing. Startups that stocked their coffers with fundraising rounds over the past six months likely can afford to sit on the sidelines; startups that planned to seek funds in the second quarter may face a more arduous road ahead.

Reilly Brennan, founding general partner at Trucks Venture Capital in San Francisco, says he's counseling founders in his portfolio to stretch their financing plans. If they had anticipated raising funds to last 18 months, it's better to seek funding that will last for two years.

"One of the hardest things about this is that we don't know how long this will last, so if they don't raise enough now, even if prices are great, they could be out of business," he said. "So the thought is they need to extend their runway."

In some sense, that's a reversal of conventional thinking, which has emphasized long-term potential with less regard for short-term cash burn.

"In the short term, to survive and thrive, that's cash," said Lein, speaking during a CoMotion webinar on the prospect of a COVID-caused "nuclear winter" across the capital landscape. "The advice we're giving is to act like you're never going to raise another round of funding. What does that do? It means put fundamentals in place, find a pathway to profitability and look at unit economics. A lot of the things that, frankly, were not as sexy or talked about in the venture capital landscape."

Tal Cohen, founding partner at business incubator Drive TLV and mobility-minded investment fund Next Gear Ventures, sees bigger changes afoot. Big corporations may be bogged down by the current crisis, but smaller companies and their founders can pivot toward new opportunities faster.

"I think the real leap is going to happen when they are brave enough to take more distance from their current ideas and make a larger leap, more focused into where the industry is going to be when we come out of this bubble," he said.

Along those lines, companies that survive the tumult could be in prime position to lead over the next decade. Noting that the likes of Airbnb, Uber and Twilio all started in and emerged from the Great Recession, Brennan says at least some founders who launch into today's economic headwinds will later flourish.

"Founders from the fourth quarter of this year will be cut from an unusual cloth," he said. "That's what investors will look at."

They'll also be looking at a sea change in technology advances, consumer behavior and shifts in demand. One already is apparent. In the age of the coronavirus, consumers have become more reliant on delivery services, which have transformed from a convenience into what's arguably now an essential component of everyday life.

Ride-hailing networks Uber and Lyft were losing hundreds of millions of dollars even as the pre-COVID economy hummed. With automated ride-hailing for passenger vehicles still far away, several investors posited there will be a shift from AV-minded ride-hailing applications toward delivery ones.

While he cautions against painting mobility companies with too broad a brush, Brennan expects one constant: fertile opportunities.

"One of the key things in venture capital is that the money you put in today gets harvested and returned to shareholders over a 7- to 10-year window," he said. "So if there's a softening over the next 24 months and valuations go down on great companies and great founders, I'll be first in line in wanting to support them."