Funding for mobility startups in the United States is fast disappearing in the wake of the coronavirus, according to Reuters. It’s a problem for the entire transportation sector as the economic outlook for the country continues to slide downward.
- Mobility startups across the United States are facing funding challenges due to the impact of the coronavirus.
- Funds were already on the decline for the sector as investors searched for less risky ventures.
- The financial uncertainty caused by the coronavirus only increases that uncertainty and further hampers fundraising efforts.
Reuters spoke with seven venture investors in different parts of the country, all with transportation-related startups in their portfolios. They expressed uncertainty about what the market will look like after the coronavirus passes.
The large number of mobility startups means there just isn’t enough money to go around. (Photo: Getty Images)
Too many startups, not enough investors
The greatest risk, they said, is to startups that have not closed on newly acquired funding or those who are just starting their funding searches. Adding to the challenge of securing funding is the vast number of mobility startups. There is an overabundance of those looking for funding, but fewer investors willing to meet that demand.
Both corporate and financial investors are leery of putting money into risky ventures right now. They’re struggling to simply maintain and break even rather than worrying about growth in their portfolios. Investors with an unwillingness to take on significant risk hurt mobility startups.
Self-driving startups are facing some of the biggest challenges. Even before the impact of coronavrirus, funding was disappearing, according to Wired. Investors have been moving away from risky investments in autonomous vehicle startups and toward potentially more profitable options like vehicle electrification.
Even corporate investors are scaling back as they decide where best to spend limited financial reserves. (Photo: Getty Images)
Corporate investors scaling back
It’s not just individual investors that are cutting funding. Automakers are also reducing their investment in mobility ventures, with Ford shutting down its Chariot shuttle service last year and General Motors winding down its Maven car-sharing business. There’s also car-sharing service Share Now, which is jointly owned by Daimler and BMW and recently exited North America to focus on Europe.
Part of the challenge comes from overestimating the demise of traditional car ownership, according to Bloomberg. New mobility options tap into people who don’t own cars in the first place rather than those who do own cars. Electric scooters, for example, are often used by pedestrians who would otherwise simply walk or take public transportation. Ridesharing services like Uber and Lyft likewise simply offer an alternative for those who weren’t driving their own car in the first place rather than convincing people to ditch owning a car altogether.
Fears of investing in risky ventures are made worse as capital firms advise corporate clients to take stock of their businesses and carefully consider expenditures. According to Medium, Sequoia Capital warned to expect a drop in business, supply chain disruptions, and limited travel opportunities to secure business with new and existing customers. It advised to take a close look at available cash and determine if expenses should be trimmed now or in the future. The firm further warned that private financing could soften, which could make funding any business – not just startups – a challenging proposition in the coming months.
WHY THIS MATTERS
The future of mobility is far from decided, which leaves plenty of room for mobility startups to gain traction. The challenge for those start-ups in the current climate is to come up with a new idea that isn’t so risky that investors balk. Even those with funding for the moment and a solid business model may find it difficult to secure additional funding as their businesses grow. While this is hopefully a temporary problem, it stands to slow the introduction of new mobility solutions.