Tag Archives: Electric vehicles

John Doerr’s Biggest Mistake

In 2007, venture capitalist John Doerr met an intriguing young entrepreneur. His name was Elon Musk.

Musk pitched Doerr on investing in his new car company, Tesla. Doerr passed.

The mistake cost him billions.

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The legendary investor opened up on this major regret in an interview out this morning on Bloomberg:

The billionaire chairman of Kleiner Perkins had the opportunity in 2007 to back “an ambitious, slightly crazy entrepreneur” named Elon Musk before he became the world’s richest man, but ultimately decided against it, as new car companies traditionally fail far more often than they succeed. 

“That’s probably the worst investment decision of all time,” Doerr, 71, said…

Doerr did wind up investing in an electric car startup. But it wasn’t Musk’s:

“There have been 400 new car companies in the nation’s history. Every one but one has gone bankrupt. But I was still very attracted to the market, and we had the choice of backing a brilliant car designer by the name of Henrik Fisker, or an ambitious, slightly crazy entrepreneur by the name of Elon Musk at Tesla. Well, we made the wrong decision.”

On paper, Fisker seems like a great bet. He designed iconic cars like the Aston Martin Vantage and had deep experience in the auto industry.

What he didn’t have was a strong background as an entrepreneur.

Musk had no real auto industry credentials. But he had co-founded PayPal and sold it to eBay for $1.5 billion.

Whatever he may have lacked, Musk was an ace entrepreneur. He took that experience to Tesla and built it into a colossus.

The lesson for me here as an angel investor is to not overvalue industry expertise. Sometimes it takes someone from outside an industry to revolutionize it.

Amazon was Jeff Bezos’ first store. Travis Kalanick never owned a cab company.

Founders should be familiar with the market they’re operating in. But if they need deep industry expertise, they can always hire for it.

But what’s most instructive about Doerr’s mistake is how it never mattered! He backed Google, Amazon, and countless others early, changing the modern world and making a fortune in the process.

Doerr’s experience illustrates one of my favorite things about venture capital. You don’t have to be right all the time.

In fact, you only have to be right once.

Investors: how much do you value industry expertise? Founders: how important is industry background to your startup?

Leave a comment at the bottom and let me know!

More on tech:

Talking Startup Fundraising with Travis King of Launch Point Labs

Record Funding for Climate Startups in Q2

The Power Law (Part Four): The First Venture Deal

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Photo:John Doerr” by Thomas Hawk is licensed under CC BY-NC 2.0.


In Norway, 60% of Cars Sold are Electric

Norway’s electric car market is powering ahead, with most new cars registered in September either fully electric or hybrids.

Electric cars accounted for 61.5% of the 15,552 cars registered that month in the country. When hybrids are included, the total jumps up to 89%.

The new Volkswagen ID.3 was the bestselling car, with 12.8% of sales, followed by the Tesla Model 3 and the Polestar 2.

Globally, too, we could be on track for an electric car breakthrough as battery technology gets less expensive. The cost of a lithium-ion battery pack for an electric car fell 87% from 2010 to 2019, according to research by BloombergNEF.

More here.

In the US, by contrast, only 2% of new car registrations are electric.

So why is Norway leading the world while the US, a major producer of electric vehicles, straggles far behind? Are Norwegians just a lot more environmentally conscious?

Well, not exactly. Norway currently has big tax incentives for buying an electric car as opposed to an internal combustion one. Those incentives are set to be pared back this year, but will still provide a tax advantage for electrics. US tax incentives are less generous, which is one major factor behind slower adoption.

Another factor: gas costs the equivalent of about $8 a gallon in Norway, compared to about $2.75 in my neighborhood in New Jersey.

High gas prices and huge tax incentives mean that Norwegians don’t have to be environmentalists to choose an electric car. They just have to be frugal.

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Photo: “IMG46347-2” by odd.bakken is licensed under CC BY-NC-SA 2.0

SPACs Are a Bubble and Nikola’s Fake Truck Is Proof

So Tesla is doing great, right? And I sure would love to make as much money as Elon Musk! So let’s make our own vehicle startup.

What should we call it? Hmm, picking a name is hard. Let’s just go with Tesla’s first name, Nikola!

Now we have to make a truck. But making the whole engine thingy is a pain! How about we just let it roll down a hill, take a video and raise lots of money? Yay!

Believe it or not, this is exactly what Nikola, the electric truck startup, did. And they even admitted it…once they were caught. But hey, they didn’t technically lie:

Nikola described this third-party video on the Company’s social media as ‘In Motion.’ It was never described as ‘under its own propulsion’ or ‘powertrain driven’.

How is this company with no real product even public? That’s where Special Purpose Acquisition Companies, or SPACs, come in. A SPAC raises money from investors to buy a private company to acquire. They’re exploding in popularity:

Amid the global stock market volatility, last year’s $83 billion haul by SPACs was six times the amount raised in 2019 and nearly equaled the figure mustered by IPOs.

Nikola went public via a merger with a SPAC in March of 2020. Just a few months later, it wound up under a federal investigation for securities fraud. Its stock is down from a high of over 60 to barely 20.

What made this SPAC want to acquire such a questionable company? SPACs collect a big fee if they acquire a company, but if they don’t acquire anything, there’s no fee. This gives the people who created it (“sponsors”) a strong incentive to acquire anything, regardless of merit:

More than 300 SPACs need to pull that off this year or risk being liquidated. But with only so many quality targets to go round, and SPAC founders’ strong incentive to close deals — even at the expense of shareholder value — SPACs may well end up in a negative spiral of poor quality/bad press/tighter regulation.

Since so many new SPACs are being created, and there are only so many quality private companies to go around, they’re getting less and less picky:

Then there is the fact that many firms taken public by SPACs have little to show in terms of business plan or revenue, in some cases triggering shareholder lawsuits by disgruntled investors.

Typically, a company with no profits isn’t a good candidate to go public. A company with no revenue is even more suspect. Maybe that’s why they’re not going the traditional IPO route.

Indeed, research on a large pool of SPACs and normal IPOs (127 SPACs and 1128 IPOs) show that the SPACs do much worse:

SPAC firms are associated with severe underperformance in comparison to the market

If they have such a well-documented record of underperformance, why are SPACs so popular? My hunch is it has to do with the fees for the sponsors, which are often several times greater than for a traditional IPO. That’s peachy for the sponsors, but I think investors are better served by avoiding all but the strongest SPAC deals. You’ll probably just wind up paying too many fees and buying an inferior company.

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Photo: “Nikola Two Semi Truck” by 666isMONEY ☮ ♥ & ☠ is licensed under CC BY 2.0