Amazon in Talks to Acquire Zoox

Our friends at Zoox, the startup that recently settled a lawsuit for stealing trade secrets from Tesla, are out of money. Self-driving is a capital intensive business.

Many have been wondering who would bite the bullet and buy them out, and now Cara Lombardo and Tim Higgins have a report in the Wall Street Journal suggesting Bezos could be interested in buying the company:

Amazon is in advanced talks to buy Zoox Inc. in a move that would expand the e-commerce giant’s reach in autonomous-vehicle technology.

The companies are discussing a deal that would value Zoox at less than the $3.2 billion it achieved in a funding round in 2018, according to people familiar with the matter. 

An agreement may be weeks away, one of the people cautioned, and the discussions could still fall apart. 

The Wall Street Journal

Even the $3.2 billion valuation from 2018 sounds quite rich considering that Waymo, the industry leader in the spatial approach to autonomy, recently raised at a $30 billion valuation. That was before the pandemic slashed valuations and dried up streams of investment capital. Bezos is famously cut throat, so expect a very painful down round if the two tech unicorns are able to strike a deal.

My guess is that Zoox probably leaked this to the press because they’re desperate for a deal. If Bezos isn’t in the mood to go shopping, they want to at least float the idea that Amazon was interested to juice up interest from other bidders.

Zoox, founded in 2014, has been working to develop the hardware and software needed to create electric-powered, robot taxis that would be summoned by smartphone app starting this year.

A successful deal could give new life to a once-high-profile startup that has seen its fortunes dim as it struggled to raise money. 

The Wall Street Journal

If they’re really ready to launch this year, why would they be having any trouble raising capital? I call bullshit. Besides, what’s left of the ride sharing market these days? Are they planning to fight Uber and Lyft over the scraps at a time when all three companies continue to burn massive piles of cash?

Zoox said in a statement that it “has been receiving interest in a strategic transaction from multiple parties and has been working with Qatalyst Partners to evaluate such interest.” 

The Wall Street Journal

Translation: We’re out of cash and about to go bankrupt unless someone buys us out. Investment bankers will sell our organs to the highest bidder if needed.

The company’s rise and fall mirrored the explosion of interest in autonomous-vehicle technology and subsequent slower-than-expected pace of deploying robot vehicles.

Co-founder Tim Kentley-Klay was initially extremely effective at winning over investors, using an air of mystery in the press and possessing a showman’s knack for stoking excitement. In October 2016, he talked obliquely of his vision for a ride experience like “Disneyland on the streets of … San Francisco.”

The Wall Street Journal

The shit has hit the fan in the self-driving car market. After a decade of hype, people are finally starting to realize that its unclear whether any of these products will ever become available to the public at all.

Zoox’s investors include Lux Capital and Primavera Capital.

The Wall Street Journal

My condolences to Josh Wolfe, who unfortunately spent more time shitting on Tesla on Twitter all day than thinking critically about his portfolio companies. If the company is sold at a lower valuation than their last round, Lux Capital will likely take a loss on the investment. My heart goes out to anyone foolish enough to have provided investment capital to Lux.

The company’s emergence came as Silicon Valley excited investors with a vision of autonomous taxis and delivery vehicles rewriting the rules of the road. 

General Motors Co. in 2016 did a deal valued at more than $1 billion to acquire a small startup called Cruise Automation Inc. to bolster its own self-driving efforts. Uber Technologies Inc. followed with a $680 million deal to acquire a startup by one of the earliest pioneers in the modern effort, Anthony Levandowski — a deal that later soured after his previous employer, Alphabet Inc.’s self-driving unit now-known as Waymo, sued for trade-secrets theft. Uber settled and Mr. Levandowski was subsequently charged by federal authorities and in March pleaded guilty to stealing trade secrets. 

The Wall Street Journal

Amazingly, none of these products have launched to the public in any way, shape, or form.

The challenge for Zoox was that Mr. Kentley-Klay had sold investors on the idea of a company built on three of the hottest trends in the automotive industry: driverless technology, electric vehicles and ride-hailing. Each leg of that stool was a major, costly challenge being pursued by much larger and better-funded competitors. 

The Wall Street Journal

It’s a great plan, but did he really think he could do it better than anyone else? To be clear, Zoox planned to build their own electric vehicle from the ground up. It was supposedly able to travel both forwards and backwards in the initial mockups.

In 2018, the Zoox board removed Mr. Kentley-Klay after the company raised $500 million in a fundraising round that valued it at $3.2 billion. It was clear then that the company would need much more to bring his vision to the roadway.

He was replaced as chief executive early last year by Aicha Evans, who had been chief strategy officer at Intel Corp. As it came time to raise more money, however, the market had shifted, making Zoox’s job of finding more cash even harder. 

The Wall Street Journal

Always a good sign when they have to replace the CEO as a condition for raising cash.

Interest in driverless startups has been waning while money has shifted to bigger names such as Waymo and GM’s Cruise, a situation exacerbated by the coronavirus pandemic. 

That investment by Amazon and another in which it led a $700 million round in electric-car maker Rivian Automotive LLC signaled a growing interest by the tech giant in the future of transportation as it faces increasing logistics costs. 

The Wall Street Journal

Why is Amazon so interested in transportation and autonomy? Because they know if they don’t own it, it could kill them.

Think about it: Let’s say Google or Tesla is the first to get Robotaxis running on public roads. Would you rather order from Amazon Prime with free 2-day shipping, or Tesla Market with 5 minute delivery and much lower fees?

Autonomy will make Amazon the biggest store in the world -– unless someone else uses it to destroy them. That’s why they’re taking a serious look at this deal. But the acquisition price is just the beginning: this would require a lot of investment and cash from Amazon well into the future, for a technology that looks unlikely to generate revenue anytime soon.

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