Four Things on our Mind after our AV Panel

Recently we were honored to host a discussion focusing on the theme of Private Equity and Venture Capital investment opportunities in the Autonomous Vehicles (AV) and Smart Cities space, which was the first event in our new Choate Innovators and Markets Series.

A special thank you to our four panel experts who are currently sitting squarely in the middle of this developing ecosystem, for their acute insight:

• Bob Davis, General Partner, Highland Capital
• Jennifer Krusius, Venture Partner, Columbia Capital
• Jeff Osbourne, Managing Director, Cowen and Company
• Bryan Reimer, Research Scientist in the MIT AgeLab and the Associate Director of The New England University Transportation Center at MIT

The discussion focused on the opportunities and use cases that are ancillary or complimentary to the emerging AV ecosystem. As the future of mobility evolves, there may be debate over when we will be in a society supported by fully autonomous vehicles (Level 5) on our roads, but there is little doubt that countless new business models will emerge and some existing businesses will face extinction, and that there will be massive opportunity for those with the vision and the willingness to make big bets on these changes.

Beyond that, we walked away with some insights around the themes we expect will take hold as clarity surrounding how new market opportunities takes shape over the next five, or more, years.

Flash Now, But Implementation Waits

AV technology has made leaps and bounds during the past decade and may be as much as  95% of the way toward the successful integration of AV in society. However, despite many consumers already noticing some fantastically flashy cars on the road appearing to drive autonomously and brands continuing to flood social media with amazingly produced concept videos, the last five or so percent to reach full automation will be the most difficult to achieve and may even take another 10 or more years to complete. This is due mainly to significant product development and technology hurdles as well as the absence of clarity surrounding what economics and cost structures are needed to scale the new market to achieve profitability.

Competing Choruses

It is apparent that even the greatest gains in technology can still be met with skepticism. As consumers digest the reality of abdicating one of their greatest individual freedoms (the right to drive themselves) to an army of robots, we may experience mass resistance to full adoption and implementation.

How will cities adjust their urban planning strategies to offset new types of traffic congestion? Who will absorb the cost of outfitting smart cities with the technology to power the grids? What will make up the funding gap that results from fewer vehicles being registered as greater reliance emerges on AV ride-sharing vehicles?

These are some of the many questions that will need to be answered before AV can be a reality. But the cities leading the charge are the ones who have a combination of great minds, great talent and progressive administrations willing to be different. Boston figures to be one of them.

Safety Will Govern

Safety concerns will have an impact on how technology and the ride experience develop, but there will be accidents. The primary tipping points will be congestion-related backup and distracted pedestrians unable to anticipate an AV’s decision-making. When they do occur, regulation may overreact, triggering significant resistance and developmental delays. 

Responsible Investing Will Be Rewarded

New markets have always provided incredible opportunities to make money. But with that great reward lies substantial risk. It appears to be undisputed that the smarter, more nimble organizations have the strongest striking potential. Consensus also seems to be that placing bets on the software side of the equation is the safest choice, as smart grids will rely on a tremendous infrastructure of connected software in order to operate efficiently and safely. Technical understanding will also be in rapid demand as companies will be relied on for the creation and maintenance of the systems. As of today, bets on OEMs will prove risky as the physical products in this space have a risk of becoming commoditized quickly and will prove challenging to scale.

In the short-term, expect the brightest minds and the smaller niche players to create revenue streams by licensing their AV products for alternative use through larger organizations, like contracts with the Department of Defense and joint-agreements with larger enterprises.  The larger innovators, like Google, will take advantage of their large market-caps and capitalize by placing multi-decade bets because they have the capacity to hold off until the market evolves and their technology is in high demand.