John Krafcik, the CEO of Waymo, stands with the Jaguar I-Pace vehicle, Tuesday, March 27, 2018, in … [+]
Since 2009, Alphabet has funded Waymo, which is focused on developing autonomous vehicles. But this week there was a big change in the strategy. Waymo announced a $2.25 billion in outside funding—the first one in its history. The investors included a mix of venture capitalists, private equity firms and strategic operators like Silver Lake Partners, Andreessen Horowitz, Canada Pension Plan Investment Board, Mubadala Investment, Magna International, AutoNation, and of course, Alphabet.
Keep in mind that this will likely not be the end of this round. Waymo has indicated that there has been inbound interest from other investors.
So what’s the valuation? Well, there was no disclosure on this. But a report from the Financial Times estimates that it is about $30 billion or so.
While this is certainly big for a private company, it is actually well below expectations. Less than two years ago, Morgan Stanley pegged the valuation at a hefty $175 billion. However, to put things into perspective, GM’s own autonomous driving unit, called Cruise, was valued at $19 billion last year.
It’s also important to note that Alphabet is in the midst of a campaign to reduce costs. And yes, Waymo has been a big-time burner of cash!
“Alphabet and Waymo have realized over the last few years that real autonomous driving will be harder than they expected,” said Chris Nicholson, who is the CEO of Pathmind. “It’s going to take more time and money than they planned to make this vision a reality. And under Sundar Pichai, Alphabet is behaving more responsively to its shareholders, who don’t care so much about the moonshots that Larry and Serguey focused on. Bringing in outside funding means that Alphabet can distribute the risks of this venture, and also involve partners that could help Waymo succeed, by building stronger relationships with the automotive industry, like Magna International and AutoNation.”
Going forward, there may even be a spin-off of the unit, such as with an initial public offering. Although, this may not be imminent since it looks as if Waymo has relatively small amounts of revenues and the public markets have quickly gone sour.
Implications of the Deal?
The autonomous driving market has been a bit of a disappointment so far. The fact is that building effective AI systems has proven quite challenging. If anything, the lower-than-expected valuation on Waymo is a sign of this.
So then what are the other implications of the recent funding? To answer this, I reached out to Dave Mawhinney, who is the Executive Director of the Swartz Center for Entrepreneurship at Carnegie Mellon University. Here’s what he had to say:
What does this deal mean for autonomous driving?
The $2.25 billion outside investment in Waymo is continuing the validation of the Autonomous Vehicle (AV) industry. While we are still years away from Level 5 Full Automation, every major player in the automotive industry is making serious bets. In Pittsburgh alone, three Carnegie Mellon AV companies (Waymo is too), UberATG, ArgoAI, and Aurora Innovations have over $7.5 billion of committed capital. This massive investment in AV is akin to the investment in industries like steel that we saw during the Industrial Revolution.
How has this category been progressing?
There are cars on the market today with Level 2 “hands off” Partial Automation, such as Tesla’s Autopilot or Nissan’s ProPilot in the Nissan Leaf, and Level 3 ”eyes off” Conditional Automation, such as Audi’s A8L. Waymo is in the Level 4 “mind off” High Automation Category. The race is to Level 5 Full Automation, but that is still years away.
Why get outside funding?
Waymo has completely different potential business models than Alphabet or Google–such as having a fleet of on-demand ride-hailing like Waymo One or selling custom lidar sensors to other industries. Bringing outside investment also means bringing outside industry expertise, partners and governance with experience with these different business models. Magna is an especially interesting investor in that Magna can be both customer and supplier to Waymo.
What about the prospects/strategy of Waymo?
Waymo, in many ways, is in the lead in AV. Chris Urmson–now the Founder/CEO of Aurora Innovations–founded Waymo in 2009 as an extension of his work with AV at Carnegie Mellon during the DARPA AV Challenges in the mid-2000’s. With the resources of Alphabet and Google, Waymo was able to establish the leadership position in the industry.