Forget the stodgy, conservative image that once clung to the trucking industry. Thanks to the digital revolution sweeping across this industry, truck tech is hot.
And venture capitalists have taken notice.
Growing numbers of venture capital firms are pouring money into start-ups that promise to reinvent some — or all — of the massive global trucking ecosystem that remains the backbone of the world economy. The potential opportunities to disrupt this enormously complex industry have attracted investors that include corporate VCs in the trucking industry and marquee names from Silicon Valley.
The advent of smarter and more connected trucks is drawing the attention of investors who see an opening to innovate. Once these VCs grasp the size of the potential market for trucking services, their minds and checkbooks open quickly.
They see logistics and trucking technology as the key to disrupting numerous other businesses. That means even bigger investment opportunities and returns may be found down the road.
“A lot of the tasks that were previously done offline for trucks are now being digitized, and it’s going to impact this industry tremendously,” said Paul Asel, a managing partner for Nokia Growth Partners. “But if you start thinking through different industries that trucking impacts, it becomes even more significant. That’s why I’m investing in this space.”
According to CB Insights, a venture capital data firm, trucking-related startups raised $583 million across 33 deals in 2017 through July 2013. That figure doesn't include the $62 million raised by Seattle-based Convoy last week.
Overall, the sector is projected to raise more than $1 billion in 2017, well above the $763 million invested in 2016. That’s about eight times the $132 million that was invested in 14 trucking startups in 2013.
CB Insights has been tracking transportation venture capital for several years, but broke trucking into its own category last year because activity had become so significant, according to analyst Kerry Wu.
“People are realizing that trucking is a large opportunity,” Wu said. “With the driving patterns on highways, the use cases for connected and autonomous technologies are much more evident than with passenger cars.”
Four categories of investors have emerged in truck technology.
There are VCs from the traditional transport and automotive manufacturing sector, such as Volvo Group Venture Capital, who have invested in trucks for years. And there are incumbent tech truck companies such as telematics leader Omnitracs. These players have embraced the idea that technology is changing too fast for them to do everything, so they’re looking for outside partners who can innovate faster.
“Every truck is connected these days, and automotive has become more techy. These are smartphones on wheels,” said Per Adamsson, president of Volvo Group Venture Capital. “And that opens it up for more companies to come into this space.”
They have been joined by strategic investors from the tech industry, such as Nokia and Intel. Indeed, one of the largest VC investments in a trucking company in 2017 was the $156 million raised for Chinese logistics provider Huochebang, according to CB Insights. That investment round was led by Baidu Capital, the venture arm of the Internet giant.
More recently, Silicon Valley investors have joined the fray, bringing a touch of glamor to the space. In 2016, VC firm Greylock Partners led a $16-million round of funding for Seattle-based Convoy. Simon Rothman and Reid Hoffman, co-founder of LinkedIn, both joined the Convoy board and said the firm saw enormous potential in Convoy’s on-demand trucking service.
Sometimes, the interests of all four VC categories converge. That was the case this year when Silicon Valley’s Peloton Technology raised $60 million in a third round of funding for its truck platooning platform. Peloton’s previous investors included Intel via its connected automobile fund, Japanese auto tech company Denso, and some notable Silicon Valley angel funds.
The latest investment was led by Omnitracs, and followed a partnership the two companies had previously announced to integrate their telematics and autonomous technologies. It also included Volvo and Nokia Growth Partners, among a total of 17 investors in the round.
Peloton co-founder Dr. Josh Switkes said he had been in automotive tech for more than a decade before he gravitated to trucking in 2011. When he began to dig into the enormous amounts of money that trucking companies spend on labor, safety and fuel, he realized a business that helped improve each of those even marginally could be huge.
But it was a lonely journey when he began fundraising in 2013 and eventually persuaded a couple of Silicon Valley angel funds to back the company.
“Automotive investment was not a big thing in the valley,” he said. “The conversation around vehicle automation was almost nonexistent at that point.”
There were some truck start-ups that had raised VC money, but they didn’t do well.
“The VCs who were familiar with the truck industry weren’t very excited about it,” Switkes said.
Then Google went public with its autonomous vehicle program. Intel launched a connected car investment fund, which evolved into a broader vehicular focus that included trucks. Uber and Tesla started making noise about their autonomous vehicle ambitions. Intel invested in Peloton’s second round of funding. And in March 2017, Intel acquired Mobileye, the Israeli autonomous vehicle tech company, for $15.3 billion.
The whirlwind of developments put a spotlight on vehicle tech. That has shifted investors’ attention more recently to trucking.
“That has all helped to legitimize what we were doing,” Swiftkes said. “Definitely the world has changed in the past four years.”
For some of these investors, trucking is really just a starting point toward realizing a larger vision. Take another Peloton investor, Nokia Growth Partners, for example.
Its parent company, Finland’s Nokia, is best known as a maker of telecommunications equipment. It is betting connected and autonomous vehicles will fuel demand for more powerful and faster cellular networks.
For Asel, however, transportation goes beyond a question of telecom equipment.
He sees the day when autonomous trucking enables a radical transformation of last-mile services for on-demand services by making it cheaper and more efficient. Goodbye bicycles, hello roving autonomous delivery vehicles.
“If we find business models that make sense now, they will make even more sense when autonomous trucks come into play,” Asel said. “And we think the last mile is going to be a very, very big deal.”
As the marginal cost of delivering goods and services declines, there will be more services that people will want on-demand.
“As soon as you start thinking through the ripple effect, it becomes really exciting,” he said.
But in the short-term, disrupting trucking remains an enticing target on its own — enough so that it helped propel the entrance of a fifth category of investor. In July, Autotech Ventures of Silicon Valley announced that it closed a new $120-million fund, which it says is the first dedicated exclusively to automotive tech.
Co-founded by managing directors Alexei Andreev and Quin Garcia, the firm has already made six investments, with four focused on trucking. The pair want the firm, which they started about two years ago, to serve as a bridge between entrepreneurs and larger transportation companies. As such, a large portion of its fund came from vehicle manufacturers and trucking firms.
“What we observed was the ground transportation sector was being disrupted in a variety of ways,” Garcia said. “We noticed there weren’t any VCs really supporting entrepreneurs in that space. We’re very active in trucking, and we think it’s still very underserved.”
Among Autotech’s first investments was Work Truck Solutions, a company founded in 2012 by serial entrepreneur Kathryn Schifferle. She had developed a platform to serve the highly-fragmented market for dealers that sell customized trucks for specific needs, ranging from fire trucks to ambulances to repair vehicles for specific industries.
Until recently, the inventory tracking system was so limited that figuring out which dealer had which type of work truck involved making dozens of calls.
Schifferle said that raising money early on was a tough slog. She landed her first investment round in 2014, led by Golden Seeds, a female-founder focused fund. Work Trucks has signed up more than 650 dealers and reached the break-even point, so she wasn’t in a rush to raise more money.
But last year, she saw the potential to expand the company into new markets — if she could find the right investor. She began a series of meetings but never found quite the right fit. Then she received an inquiry from Autotech. Intrigued by the firm’s industry connections, she began a series of conversations that culminated with a $5-million round of funding announced in June.
“I like to say that this is probably the biggest small industry everyone doesn’t know,” she said. “But the opportunities we discover continue to expand and we wanted to scale the company if we could find the right partner. Work trucks are a $130-billion industry, and there’s so much more we can do there.”