One definition of a venture capitalist offered by Copilot is "an investor who provides capital to startups and early-stage companies in exchange for equity, aiming to support high-growth potential businesses while seeking substantial financial returns."
I think an easier definition is simply a gambler.
An insider’s take on finding investors for startup companies is the 1954 autobiography "Slide Rule" by Nevil Shute. A man of many talents beyond writing fiction stories like "On the Beach," Shute helped start and later headed the airplane manufacturer Airspeed Ltd. amid the economic challenges of the 1930s.
A gambler is someone who feels free to risk capital for the mere chance of a return. That chance quantifies risk in terms of potential reward: The greater the risk, the greater the expectation of reward.
Shute believed the best sources of capital came from investors who had successful prior investments, usually in real estate, and felt they could risk a small portion of their profits by investing in risky startups with the potential for great returns. While dating from Jules Dupuit in the 1800s, the term "venture capital" did not really come into vogue until after World War II.
The reality of cash flow
Technology startups in the freight industry live or die not from risk-reward, but from cash flow—or a lack thereof. Every day is a battle to find some way for the ink at the bottom of the balance sheet to be black. Companies can only operate in the red for so long before their creditors and business relationships sour.
Startups need to attract seed money. They need gamblers.
Society has developed a group of people with more money than they need to reasonably survive. These people are affectionately or derisively labeled "the 1%." This tier of people has always existed to some degree. Go back in time to the late 1880s, and you’ll find Rockefeller, Carnegie, Morgan, Nobel, Vanderbilt, Stanford and more. Go back further, and you have the Medicis, Habsburgs, Wittelsbachs, Gonzagas and others. Before that, you had various monarchs and royals. Queen Isabella and King Ferdinand funded Christopher Columbus—a grand example of venture capital success.
Gamblers and startups cannot exist without each other. Someone with an idea rarely has the funding to bring it to fruition. Someone with more money than required to live has a need to do something with that excess to make it even larger. Yes, there are altruistic philanthropists out there, but the majority of startup investment is simply gambling.
High risk, high failure rates
Startups often fail. The track record suggests that the majority of startups never succeed. A common statistic often quoted (rightly or wrongly) estimates that 90% of technology startups fail over their lifetimes and only 10% make it past the first year. One analyst cites the U.S. Bureau of Labor Statistics as showing that 20% of all types of new businesses fail in the first year, 49% fail within five years and 65% within 10 years.
There are no sure things except death and taxes, according to Benjamin Franklin. Perhaps 1% of technology startups become the mythical unicorn—returning huge profits to investors. To misquote Stan Lee, "With great risk comes great reward."
The freight world has constantly been bombarded by innovators seeking investors for new ideas. Many fall into the category of snake-oil salesmen, harkening back to the charlatans with their traveling wagons and bottles of mystery cure-all elixirs. Snake oil has gotten much more difficult to discern in the digital age.
One example occurred when the world went on a dot-com binge in the late 1990s, ultimately leading to a burst market bubble. Many dot-com companies had roots in trucking, product ordering, warehousing and delivery.
Today’s technologies deserve some pondering. Are autonomous vehicles a bubble? Is artificial intelligence a bubble? Are alternative fuels some new form of snake oil? Are aerodynamic trucks a fad like Hula Hoops and Pet Rocks?
Lessons from aerodynamics
Every idea has to be viewed on the scale of time. Take aerodynamic trucks. I’ve been working with trucks since the days when the majority of trucks were cabovers. The ultimate measure of aerodynamics is the drag coefficient (Cd). While not well understood, it is often erroneously defined by comparing completely different vehicles, like sports cars to Class 8 trucks.
Properly measured, those 1980s cabover bricks pulling equivalent non-aerodynamic trailers probably had Cd values of 0.8 or worse. Today’s latest aerodynamic conventional trucks have Cd values in the range of 0.4 or even better when pulling aerodynamically equipped trailers. That is half the drag coefficient of old-school, non-aerodynamic trucks—easily representing a 25% reduction in fuel use just from aerodynamics.
Aerodynamics at various points in the trucking industry’s history has been viewed by some as snake oil. Over the course of my career, that perception has been proven wrong repeatedly. Still, there are new marketing campaigns showing old-school, non-aerodynamic trucks pulling non-aerodynamically equipped trailers in a tone-deaf appeal for freight truck sales during a time of volatile fuel prices and a massive emphasis on fleet cost reduction. The subliminal advertising arrogantly seems to suggest that aerodynamics does not matter, implying fleets should just ignore how much money they will lose to their aerodynamically equipped competitors.
Timeframe for autonomous vehicles
Autonomous vehicles are on the threshold of reality. The gamblers hope these vehicles become mainstream. The challenge is all about the timeframe. Investors seem convinced that the technology is mature enough and it’s now just a matter of increasing sales and reducing costs. It’s still a bit early to count those future dollars, in my opinion.
There are an estimated 2.4 million tractors and some 8 million Class 8 straight trucks on North American roads. Even if every truck built next year and in subsequent years is an autonomous vehicle (AV), that’s perhaps 250,000 to 300,000 new AVs a year. It will take a while for any technology to see significant numbers.
Splitting those 250,000 trucks among more than 10 manufacturers with competing products means any one manufacturer might make perhaps 25,000 AVs a year. Recall that, conservatively, 49% of startups fail within five years. Cash flow matters, and the numbers are challenging when volumes are small.
Are AVs hype? No. Clearly, original equipment manufacturers (OEMs) see them playing a significant role in the future. Fleets clearly see them as having the potential to increase annual miles while reducing operating costs. But time will tell if any of today’s companies make it to profitability and scale.
The AI gold rush
Artificial intelligence is as close to snake oil as I can imagine. Yes, it’s real, but the AI label covers a myriad of topics, and few people fully comprehend them.
Back in the dot-com days, innovators beat down corporate management doors offering potential solutions—often only ideas—if only leadership trusted them and invested. Pitch decks were full of insider acronyms and theoretical promises of increased profits and massive cost reductions. There was also more than a fair share of charlatans pitching alongside legitimate innovators.
Back then, dot-com really was the future, which we now see 25 years later. But the dot-com bubble burst in 2000. The gamblers got cold feet. The cash dried up. Profits and savings were much slower to materialize than the market expected.
Is AI in trucking going to have a dot-com moment? AI is long on promises at present. Certainly, AI has potential. Fleets and OEMs are racing to figure out how best to employ it. Some are even taking time to understand it.
The people making money right now are, in my opinion, most likely the middlemen: the storekeepers selling shovels, grubstakes and pack mules in the midst of a gold rush. That’s where the positive cash flow is happening.
Betting on alternative fuels
Alternative fuels have had a rough road to the present. Some are derided as "the fuel of the future" (and always will be), while others have never made the hoped-for dent in volume. Will fuels like renewable natural gas, renewable diesel, biodiesel, electricity and hydrogen finally see volume sales?
It’s early days yet, but the gambler in me says yes. They are all viable alternatives to the volatile world of fossil-diesel pricing and emissions. Like aerodynamics, AVs and AI, the technology has matured sufficiently to no longer be a question of if, but rather when. When will these alternative powertrains have sufficient market share to be profitable?
I have presented this information many times during the last few years, and to date, I’ve seen nothing to make me want to revise my original estimates. Zero-emission vehicles will eventually replace the majority of diesel and gasoline commercial vehicles. The build mix likely will be about 50-50 in the mid-2040s.
New truck models now take roughly five years to reach fruition, so 20 years from now represents about four generations of new technologies. Each new model also goes through a series of iterations—a lifetime of improvements—with major updates about every two to three years.
I don’t know who the mythical unicorns will be, but I have confidence there will be some. That inevitability is what powers venture capitalism, and there is no lack of capital out there for gamblers.
Signs in most gambling establishments promote responsible gambling, or simply: If you can’t afford to lose, don’t gamble. Don’t worry; there are others willing and able to gamble their money. Time will determine which technologies win and which lose.
