The founding story of Peloton Technology sounds like a Silicon Valley cliche.
Promising young engineer Josh Switkes graduates with a doctorate from Stanford University. He uses his research to launch a startup. The company raises millions from venture capitalists.
But Peloton takes a significant detour from this timeworn tale thanks to the industry it’s trying to disrupt: trucking.
Two worlds that once seemed far part – Silicon Valley and trucking – have been colliding with growing frequency in recent years.
Nothing whets the valley’s appetite like a global, tradition-bound, inefficient industry worth billions of dollars that has struggled to embrace change. Thanks to rapid advances in technologies such as autonomous sensors and artificial intelligence, a growing number of entrepreneurs believe they have the tools to turn trucking upside down.
A look at Switkes’ journey from Stanford to starting Peloton to raising $78 million in venture capital illustrates how Silicon Valley’s attitudes toward trucking have evolved over the last decade and why companies like Peloton may be key to a revolution that fundamentally changes the trucking industry’s image.
“The public doesn’t think about trucks as important,” Switkes said. “Most of the time when the public interacts with trucks, it’s because the truck is in the way, or making a lot of noise, or spouting black smoke. They don’t realize how much stuff is still moved by trucks.”
Truck tech wasn’t on Switkes’ mind when he started working on his doctorate in mechanical engineering. Though he had grown up in the Bay Area, Switkes attended Harvey Mudd College in Claremont. After graduating in 2001 and being accepted at Stanford, he returned to a Silicon Valley grappling with the economic chaos caused by the bursting of the first dot-com bubble.
Entrepreneurs were still focused on the opportunities that had been opened by the virtual markets of the Internet, but Switkes became interested in a far more physical challenge: lane-keeping assistance. That is, how to develop systems that help a driver and car stay in the center of a lane when a road is banked or uneven. Finding a solution involved engineering, of course, but also understanding how humans might react if a steering wheel moved on its own to correct a car’s trajectory.
In 2006, toward the end of his research program, he spent three months working for Volkswagen. The German company, like many of its automotive counterparts, was displaying a growing curiosity about Silicon Valley. That same year, the company opened the Volkswagen Electronics Research Lab in the valley, and Switkes jumped at the chance to join and continue his work.
Automotive tech was advancing, but talk of self-driving cars was still over the horizon. “Vehicle automation was not nearly the topic then that it is now,” he said.
After two years, Switkes felt the pull of the startup world. He was attracted by the idea of being part of a smaller company where he could have more impact. He joined Tula, a venture-backed startup focused on improving signal processing to engines to allow for greater efficiency and lower fuel consumption.
Until now, Switkes had mostly been thinking about cars.
“I was not a trucking guy at all,” he said. But by chance, he looked at some statistics around trucking and quickly discovered the numerous pain points that industry insiders knew all too well.
“I was blown away by the statistics about money spent on fuel, and labor costs and crashes,” he said. “And I wrote that down because it really struck me.”
That started a gradual process of connecting dots. All around Silicon Valley, entrepreneurs were launching social media companies designed to grab a slice of the ballooning digital advertising markets. The trucking industry economy was far larger but with hardly any startups targeting it.
“There were thousands of startups trying to get a tiny part of that advertising market,” he said. “But with trucking, if we had the right product that could get just five percent of the market, it would be huge.”
That inspired him to start his own company. He was joined by an all-star lineup of co-founders: Dave Lyons, former director of engineering for Tesla; Chris Gerdes, the first chief innovation officer for the U.S. Department of Transportation and director of the Center for Automotive Research at Stanford University; and Steve Boyd, a former White House assistant press secretary.
Officially founded in 2011, Peloton was created to capitalize on the work that Switkes, chief executive, and his co-founders had been doing in different places to advance autonomy. But the first step was actually to gain a better understanding of the trucking industry. They wanted to know how they could help trucking companies today, not just in 25 years.
“We started going to a lot of trucking shows,” he said. “We’d talk to OEMs and suppliers and fleets. That was invaluable. I’ve found every fleet is truly distinct and different. And the fleet owners were very open about what their challenges and opportunities were.”
The co-founders decided to focus on platooning technology. Thanks to advances in wireless networks and cloud computing, Peloton founders saw a chance to develop a vehicle-to-vehicle communication system that would facilitate the creation of trucking platoons that controlled braking and acceleration. There would still be a human behind the wheel, so there would be no need to wait for fully autonomous capability to deploy the system. And fleet owners could benefit from fuel savings and reduced crashes in the near term.
But to continue development, the team needed money, no easy task in 2013. They managed to raise $1.5 million from Sand Hill Angels and Band of Angels, both notable Silicon Valley names. The round also included Birchmere Ventures, a firm with offices in Pittsburgh and San Francisco. And Castrol innoVentures, the investment arm of the British automotive lubricant giant.
They used their investment money to recruit former Yahoo and Oracle executives and engineers from eBay, Google and General Motors.
That year, the company completed a successful test of the system on a Utah highway, including clear indications of significant fuel savings.
Peloton’s timing was fortuitous for other reasons. Google had started its self-driving car project in 2009. But in 2012, it became more public about its ambitions by posting YouTube videos and holding public demonstrations. This created a wave of hype around autonomous vehicles that grew rapidly as companies like Tesla and Uber also signaled their ambitions.
Other Silicon Valley companies took note. Intel, for example had started a connected car fund in 2013. Initially, this focused on things like entertainment in the car. But Intel soon broadened that mandate to include vehicle automation.
When Peloton went searching for its next round of funding in 2015, raising $16 million, Intel was one of the first firms to sign up. Mark Lydon, managing director of Intel Capital, joined Peloton’s board. Other investors in the round included Denso International, Volvo Group Venture Capital, UPS Strategic Enterprise Fund and Nokia Growth Partners.
This past April, with Peloton getting close to releasing the product, the company raised a $60 million round of venture capital. The round was led by telematics pioneer Omnitracs and came just a few weeks after the two announced a partnership to integrate their telematics and autonomous technologies.
For industry insiders and tech firms, autonomous vehicles no longer seemed like a distant dream. But just as critical, they believed that autonomous technology might have a bigger effect on trucking than passenger cars in the short term.
“We think that Peloton is a very interesting example of where there is a practical application today,” said Paul Asel, a managing partner for Nokia Growth Partners. “You can use semi-autonomous driving to reduce the distance between lead truck and following truck and you can save 10 percent on gas. And that will be on the market in a few months.
While success is far from assured, the wide range of strategic investors gives Peloton enormous momentum. In addition, Volvo is working to integrate its technology into trucks. UPS is potentially a huge customer. Many of these companies are eager to invest to be able to follow up close the work Peloton is doing to help shape their own product roadmaps.
“We find a lot them, to their credit, they realize the world is changing, and they need to change with it,” Switkes said. “They need to be involved in the transition, and not just watching it from the sidelines.”
Of course, the biggest challenges lie ahead. The company has said it plans to release a version of its technology for two-truck platoons later this year. There will only be limited availability, with the company expecting 2018 to be the first full year of sales.
Though Switkes remains confident, even he expresses some surprise at how rapidly the conversation around truck tech has changed since the company was trying to scrape together its first round of funding in 2013.
“Definitely the world has changed in the past four years,” he said.