Time goes by fast...
I decided to wait and post only when when had a concrete answer from Rustic Canyon, and it has been two weeks. Several meetings and one trip to San Francisco later, here is the report (and I am afraid it can't be as positive as I hoped for).
Mark and I had a total of three meetings with Rustic Canyon, and the response was positive, with only a couple of (big) caveats:
- Capital efficiency. Was there any way to get to positive cash flow faster than five years?
- Why do we need the car part, when we can get a bunch of Smarts and be set up in a few months for a fraction of the price.
In other words, there was strong interest for the service side of itMoves (the challenge of solving LA with a car-sharing operation, similar to the French Autolib system coming on line next year). The automotive side was considered the main problem since it involves big technological risks (would we be able to develop ME on time and on budget?) combined with a high capital investment.
Despite those remarks, we felt positive about their response, since they seemed quite positive about the team and very intrigued and excited about the challenge. As a next step, we were sent to seek a second opinion. If other funds were willing to share the risk and invest as part of a syndicate, that would mean that combining product and service development made sense.
With that in mind, we left for the Bay Area last Wednesday, where we met with Rockport Capital. The reception was polite, but the issues seemed to be the similar (can you do it without a car?)
We then drove back to Santa Barbara, where we met Mr. S, an investor at NGEN Partners, and we encountered a different situation... here was an investor who had just pulled out of another EV company (Venture Vehicles) after loosing several million dollars, telling us that, not unlike itMoves, Venture Vehicles had:
- a target COGS of $12k for the vehicle itself.
- an estimated investment of roughly $30M to reach Job 1.
- a three years development program.
Mr. S told us that, by the time he got out of the deal, the part count had more than doubled, COGS had ballooned to around $24k per vehicle, and they were looking at an investment in the order of $140M to get to Job 1.
Even more importantly, at least from my personal perspective, was the fact that he was completely dismissive of the several product development companies located in Orange County, which according to him were completely incapable of delivering a ready for production vehicle. Since the possibility of developing ME quick and inexpensively using local medium size suppliers was a big part of itMoves' equation, it is fair to say that his last comment made me think very seriously about the viability of the whole project.
We could have fought over lots of technical details, and the reasons why ME would help avoid a lot of the mistakes made by Venture Vehicles (a company started by a someone without auto experience, that spent tons of money going to Designworks for a few sketches, developing a three wheel, hybrid, tilting thing, etc, etc), but it would be all a waste of time. When confronted with Mr. S reality check, any sensible investor would take his word as gospel and simply pass on our offer.
Which is a shame because I still firmly believe that:
- Automotive OEMs are incapable of delivering the innovation needed for a truly sustainable XXI century transportation. Why? incumbents are always set up to make incremental changes that make current businesses more efficient. Radical innovation that changes the rules of the game will always demand inferior products that can't be justified by traditional metrics. Only over time, when the new players have develop a method to do more with less the new business model is considered a no brainer, but it is always in hindsight. When the expensive crop of Leafs and the like are purchased by first adopters, where is Nissan going to find the hundreds of thousands of people every year who are willing to pay more for less? Because OEMs need to sell cars in the hundreds of thousands (the 20,000 Leafs are just an expensive drop in a big bucket) to get their meager 4% ROI.
- If Mr. S is right, all EV startups (and I mean all of them) born in the last few years are doomed. In the new economic climate, these companies fall into a weird investment hole where their funding needs are too much for venture capital while their clout is too small for Washington handouts. Since the only two with a slim chance to survive are not changing anything about the business, their inferior products (they will be fighting Lexus and BMW, so less for more will be a tough sell) along with their massive investment needs (almost on par with OEMs) will eventually catch up with them.
- Only a separation between driving and owning (like my friend Dan Sturges has been saying for years) will allow electric cars to take off. It is a very hard to ask people to part with $30k for an inferior product. But to ask then for $0.10 a minute, when they need to go from A to B, is in my mind a more attractive proposition.
- The previous point seems to transform vehicles into a commodity, where the service is what counts and no one cares about the product itself. That might be true in the long run, when we all live in Wall-e world, but in reality we still live in an physical, product, branded world. Apple has demonstrated again and again that service is exponentially more powerful when is married to fantastic product and interface design to create a seamless, intelligent and irresistible Experience. That's why I still believe, despite all the heartaches of the past few months, that what we were trying to achieve with itMoves (the combination of an iconic product with a ground breaking mobility service) is one of the few ways to move us forward into this hot, flat and crowded XXI century.
So we are not dead yet, but we have been wounded, no doubt. There are still a few options left to explore, that I will post them as they come. I am also looking forward to get the other side's opinion about efficient product development in Southern California, and whether is still a posibility or not.