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I don't understand why vC's would think this way: "While this is a lower margin business than software’s traditional 90%, we expected to be able to get to a 50

I don't understand why vC's would think this way: "While this is a lower margin business than software’s traditional 90%, we expected to be able to get to a 50% margin in time. It took me way too long to realize that VCs would rather a $1b business with a 90% margin than a $5b business with a 50% margin, even if capital requirements and growth were the same. And growth would be the same. The biggest limiter of autonomous deployments isn’t sales, it’s safety." In either case, returns are gated on fleet deployments, and the teleoperator approach seems more likely to deploy sooner at scale. Is it that VC's in this case were not investing in logistics, but in AI?

redwood 4y ago
That math doesn't add up. If growth were truly the same many would prefer the more than 2x gross profit dollars. However in many cases the growth profile is different between such different models
O__________O 4y ago
Believe concept you’re missing is Opportunity Cost: https://en.m.wikipedia.org/wiki/Opportunity_cost https://en.m.wikipedia.org/wiki/Opportunity_cost You cannot say all things are equal, then x5 the total revenue of a company with significantly lower margins and say you’re comparing apples to apples. Like to like comparison would be six companies each making one billion of which half have a 90% margin, other half having a 50% margin. If you only have the capital to invest in three, which would you pick, assuming all other factors were identical?
- kuhewa 4y ago
  Capital requirements are the same in the hypothetical
  - O__________O 4y ago
    Capital requirements in this context are the funds required to reach profit. If both companies are the same except for profit margins, the 90% margin company would reach profits sooner that the 50% margin company. In my opinion, odds they would have the same capital requirements to me sounds like magical thinking. That said, even if the 50% margin reaches 5 billion in revenue, in theory cash flow might be more that the one billion in revenue company over a long period, but VC invest to flip investments, not for cash flow.
    - marcosdumay 4y ago
      Well, the company in the article looks like something that would be profitable starting from a very small fleet. I can easily imagine it being profitable with 4 or 5 trucks. And from the numbers on the article, it would get a 50% margin, with something around 3 to 5 times ROI in an year. That's certainly not young Google, but why the hell would somebody refuse to finance this pivot? (There's something clearly missing, either from the company of from the VC's side, but VCs seem to get on that situation again and again.)
      - O__________O 4y ago
        Those were not real numbers and were based on set of assumptions that did not hold true, including but not limited to the core assumption — Starsky was not able to reach an AI drive autonomy level needed. They also assumed margins would not be razor thin if two or more logistics companies succeed in creating autonomous trucks; governments would not allow this, it’s a pipe dream.
        marcosdumay 4y ago
        > Starsky was not able to reach an AI drive autonomy level needed. The numbers were for fully manual remote driving. This thread is all about asking why they closed down instead of going in the fully manual remote option. The article makes it look like the manual remote driving was perfectly viable already. Although there are obvious connectivity problems for scaling it over huge distances. > They also assumed margins would not be razor thin if two or more logistics companies succeed in creating autonomous trucks Any midsized investor would expect to reap the high margins during the transition, and deal with (maybe sell) a fully established very large and lucrative logistics company afterwards. A smaller investor would expect to sell it as a service to all logistics companies, and reap a share of that 3x ROI with much smaller investment during the transition, and then probably sell the company for relatively cheap.
        O__________O 4y ago
        Not able to find any proof Starsky was successful in legally and remotely operating trucks at speed at any distance on public roads without special constraints that would not representative of normal daily driving conditions. For example, this test was on a public road, but it was closed to the public during the test: https://www.thedrive.com/tech/28520/starsky-robotics-becomes-first-unmanned-truck-to-hit-55-mph https://www.thedrive.com/tech/28520/starsky-robotics-becomes... Please don’t depend on a single source, especially when that source is biased and likely has an agenda.
deleted 4y ago
[deleted]
ggm 4y ago
You're treating VC's as rational economic entities with only money at play. VCs have personal interest, and sometimes have other stake in the situation. If your background is coal mining, and you are a VC who also holds significant stake in coal mines, you are very likely to fund CCS ventures with high risk for reasons which do not equate directly to the ROI inherent in that specific CCS venture and its future share worth. See Twiggy Forrest and Mike Cannon Brookes. They're investing in solar to power a long-line HVDC feed from NT Australia to Singapore, and Forrest is funding H2 plants in Gladstone, Qld Australia to supply a future Hydrogen market which doesn't yet exist. Why? because they WANT TO. "oh, if you want to, then you aren't a VC" .. sorry, its not always just about the money.

redwood 4y ago

That math doesn't add up. If growth were truly the same many would prefer the more than 2x gross profit dollars. However in many cases the growth profile is different between such different models

O__________O 4y ago

Believe concept you’re missing is Opportunity Cost: https://en.m.wikipedia.org/wiki/Opportunity_cost https://en.m.wikipedia.org/wiki/Opportunity_cost You cannot say all things are equal, then x5 the total revenue of a company with significantly lower margins and say you’re comparing apples to apples. Like to like comparison would be six companies each making one billion of which half have a 90% margin, other half having a 50% margin. If you only have the capital to invest in three, which would you pick, assuming all other factors were identical?

kuhewa 4y ago
Capital requirements are the same in the hypothetical
- O__________O 4y ago
  Capital requirements in this context are the funds required to reach profit. If both companies are the same except for profit margins, the 90% margin company would reach profits sooner that the 50% margin company. In my opinion, odds they would have the same capital requirements to me sounds like magical thinking. That said, even if the 50% margin reaches 5 billion in revenue, in theory cash flow might be more that the one billion in revenue company over a long period, but VC invest to flip investments, not for cash flow.
  - marcosdumay 4y ago
    Well, the company in the article looks like something that would be profitable starting from a very small fleet. I can easily imagine it being profitable with 4 or 5 trucks. And from the numbers on the article, it would get a 50% margin, with something around 3 to 5 times ROI in an year. That's certainly not young Google, but why the hell would somebody refuse to finance this pivot? (There's something clearly missing, either from the company of from the VC's side, but VCs seem to get on that situation again and again.)
    - O__________O 4y ago
      Those were not real numbers and were based on set of assumptions that did not hold true, including but not limited to the core assumption — Starsky was not able to reach an AI drive autonomy level needed. They also assumed margins would not be razor thin if two or more logistics companies succeed in creating autonomous trucks; governments would not allow this, it’s a pipe dream.
      - marcosdumay 4y ago
        > Starsky was not able to reach an AI drive autonomy level needed. The numbers were for fully manual remote driving. This thread is all about asking why they closed down instead of going in the fully manual remote option. The article makes it look like the manual remote driving was perfectly viable already. Although there are obvious connectivity problems for scaling it over huge distances. > They also assumed margins would not be razor thin if two or more logistics companies succeed in creating autonomous trucks Any midsized investor would expect to reap the high margins during the transition, and deal with (maybe sell) a fully established very large and lucrative logistics company afterwards. A smaller investor would expect to sell it as a service to all logistics companies, and reap a share of that 3x ROI with much smaller investment during the transition, and then probably sell the company for relatively cheap.
        O__________O 4y ago
        Not able to find any proof Starsky was successful in legally and remotely operating trucks at speed at any distance on public roads without special constraints that would not representative of normal daily driving conditions. For example, this test was on a public road, but it was closed to the public during the test: https://www.thedrive.com/tech/28520/starsky-robotics-becomes-first-unmanned-truck-to-hit-55-mph https://www.thedrive.com/tech/28520/starsky-robotics-becomes... Please don’t depend on a single source, especially when that source is biased and likely has an agenda.

deleted 4y ago

[deleted]

ggm 4y ago

You're treating VC's as rational economic entities with only money at play. VCs have personal interest, and sometimes have other stake in the situation. If your background is coal mining, and you are a VC who also holds significant stake in coal mines, you are very likely to fund CCS ventures with high risk for reasons which do not equate directly to the ROI inherent in that specific CCS venture and its future share worth. See Twiggy Forrest and Mike Cannon Brookes. They're investing in solar to power a long-line HVDC feed from NT Australia to Singapore, and Forrest is funding H2 plants in Gladstone, Qld Australia to supply a future Hydrogen market which doesn't yet exist. Why? because they WANT TO. "oh, if you want to, then you aren't a VC" .. sorry, its not always just about the money.