Two weeks ago, auto giant General Motors shelled out a reported $1 billion to acquire Cruise, a two-year-old startup building an autonomous driving system.
In the words of one San Francisco-based investor, it was autonomous driving’s “Oculus moment.”
GM’s (GM) acquisition of the startup was largely shocking to the tech industry, with many struggling to reconcile the price tag with the mere $19 million in venture capital that Cruise had raised in the past two years. But one thing was certain: Cruise’s acquisition was not only a nice return for its early investors, but it also proved that even startups can make a splash in automotive technology.
News of the acquisition happened to come out at an interesting time—roughly 10 days later, a new crop of startups concluded their three-month stint at Y Combinator, a prestigious Silicon Valley accelerator program. Two years earlier, almost to the day, Cruise graduated from that same program. What’s more, a handful of startups in this group are focused on transportation, and one, Varden Labs, has built self-driving shuttles for college campuses, .
On the morning of the first day of presentations, Shaun Abrahamson, whose fund Urban.Us focuses on city and transportation technology, heard several whispers about Cruise and its impressive exit from patrons at the Starbucks across the street where he was catching up on email before heading in. But did it have a real effect on Y Combinator’s startups and investors?
“Everyone seems to have bought into the self-driving thing,” Varden Labs co-founder Alex Rodrigues told Fortune a couple of days after his team’s big presentation. He added that Cruise’s big acquisition likely helped show to investors that there’s potential in not only this type of technology, but also for startups working on it.
In the last few days, Rodrigues and his team have been meeting with investors, and he says that about half of them bring up Cruise and its massive exit. Some were investors in Cruise and are understandably eager to invest more money in autonomous driving (presumably with the hopes of another huge return), and some missed out on investing in it and don’t want to make that mistake again, he says.
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“The reception they’re getting is probably different than they would have gotten three weeks ago,” Homebrew partner Satya Patel said when asked about Varden Labs and its fellow automotive startups in the program. Patel’s fund was an early investor in Cruise.
Another startup in Y Combinator’s latest batch is OSVehicle, a two-and-a-half year-old startup from Italy that’s designed a free blue print for building an electric car and sells kits to assemble its parts. Though it’s not in the autonomous driving arena, founding brother-and-sister duo Tin Hang Liu and Yuki Liu say Cruise’s success has definitely spilled into their own conversations with investors (it’s seeking to raise a few million dollars), adding that several investors have already brought up Cruise’s acquisition.
“This is a very big sign that the automotive industry is changing,” said Tin Hang Liu.
In fact, GM is only one the latest major automaker to join the race to get autonomous cars on the market. In the last several months, everyone from Ford (F) to Mercedes Benz has shown off their ambitions for the next generation of cars, not to mention Google’s (GOOGL) own project that has been around since 2009. In January, the annual Consumer Electronics Show in Las Vegas was taken over by car companies exhibiting their autonomous driving plans.
Still, not everyone is rushing to write Varden Labs a check, and especially not because of Cruise’s success. For Vivek Ladsariya, head of investments at Fenox Venture Capital, autonomous driving technology is still in the early stages of development. Though we’re certainly on a path to having driverless cars someday, even large automakers have multi-year roadmaps, so there’s no way a small startup today could have a viable business model on their own, he said.
And even then, Ladsariya points out that there are complications. He pointed to Varden Lab’s focus on a self-driving shuttles as one example of what he he sees as a serious limitation. Technically speaking, there’s no easy way to jump from autonomous driving in controlled environment like a campus, with pre-determined routes and few unpredictabilities, to an uncontrolled one like open roads.
But Varden’s Rodrigues disagrees, and later told Fortune that the company sees a spectrum of possible uses for its shuttles such as last-mile deliveries and other semi-controlled situations.
Other investors, like Y Combinator COO and former GM engineer Qasar Younis, also pointed out that while Cruise’s success story is a reminder that moonshot-like projects shouldn’t be discounted, it won’t necessarily change the fate of other similar startups.
Cruise had a special recipe for its success, including “the right team,” as Patel said.
Haystack Fund’s Semil Shah, who didn’t put money in Cruise, but has met co-founder and CEO Kyle Vogt, echoed that sentiment. “What happened to Cruise is an outlier,” he said.