
Waymo raises first external investment round - rafaelc
https://blog.waymo.com/2020/03/waymo-raises-first-external-investment.html
======
mdorazio
For those not in/near the automotive industry, this is very interesting for
several reasons:

1) With this move, Alphabet is basically saying they a) don't want to continue
funding the autonomous moonshot on their own, and b) want some partners to
come on board for various reasons

2) $2.25B is a big round, and speaks to the level of confidence in Waymo as
well as the massive cost to get to market

3) Magna is effectively an outsourced automotive production company. You can
give them a vehicle design spec and they will spin up a production line to
make it for you. This points to the possibility of Waymo stepping outside the
"buy from an OEM and retrofit" plan, or of outsourcing the retrofit entirely
to Magna for scale at some point

4) AutoNation is also an interesting investor here given that they are
effectively an OEM-agnostic dealership network and they have a pretty strong
fleet sales arm. This is another indicator that Waymo might be looking to
sidestep the traditional OEM channels entirely.

~~~
rsp1984
_1) With this move, Alphabet is basically saying they a) don 't want to
continue funding the autonomous moonshot on their own, and b) want some
partners to come on board for various reasons_

They need external investors to provide validation to the business and its
valuation. Those $2.25B would have been a piece of cake for Alphabet (sitting
on > $100B in cash).

But if it is Alphabet that's funding Waymo, everyone else (and in particular
Alphabet investors) are left to guess what a fair valuation for Waymo would
be.

~~~
mxschumacher
Just because they have the money, doesn't mean they would take any deal. Think
of all the companies they could buy with a $100bn+; they prefer to hold cash
at -2% real return.

Expected returns are the crucial factor here. Alphabet is sharing risks,
waiting for better opportunities to deploy the cash.

There's a realization that beating services like Uber and Lyft on cost per
ride (to undercut on price) will be hard and require significant capital
without a clear path to sustained profitability. The economics aren't hard to
understand:

You can either pay one person (out of a - growing- pool of tens of millions of
willing drivers) ~$15 an hour (depending on geography) in a $20k car or you
can pay very little per hour in a 250k for the car + a gigantic engineering
team + compute infrastructure. It can make sense on a large scale, but it'll
be hard to do.

Alphabet is sitting on a golden goose: their ad & search business (and the
network they've built around that) is the perfect monopoly. Close to
unbreakable and getting stronger over time (you won't be able to build a
better search engine than Google unless you have as much data as Google). Why
would they dilute their superb EBIT margins, rapid growth and extreme
salability with the low-margin, ultra-high competition ride-sharing market?

Think of paying a driver as renting compute on a extremely capable vision
processing, decision making, robotic driver that costs you very little. As
unemployment (eventually) increases again, the market will be flooded with
unbelievable amounts of idle human minds.

There's a general theme here: It's not enough to teach a computer to do
something as good as a human, you have to undercut on price as well. For this
reason, I believe that hair dressers have less to fear from automation than
Radiologists.

The "we need to sell to a third party so that our shareholders can figure out
the valuation of this division"-argument is mute because it isn't applied to
the countless other parts of Alphabet (or any other company). E.g. Youtube and
Google Cloud can be valued based on financial data given to the SEC, though I
admit, sometimes spinoffs do unlock value.

~~~
smallgovt
>> You can either pay one person (out of a - growing- pool of tens of millions
of willing drivers) ~$15 an hour (depending on geography) in a $20k car or you
can pay very little per hour in a 250k for the car + a gigantic engineering
team + compute infrastructure. It can make sense on a large scale, but it'll
be hard to do.

I believe this $250K figure will end up being off by a multiple of 2. As an
example, the cost of LIDAR (the most expensive piece of many SDC's) has
dropped by an order of magnitude over the past couple years. (A quick google
search for a source on this claim yields: [https://qz.com/924212/what-it-
really-costs-to-turn-a-car-int...](https://qz.com/924212/what-it-really-costs-
to-turn-a-car-into-a-self-driving-vehicle/))

The biggest questions around SDC's seems to really be around safety &
feasibility. If these criteria are met, I can't imagine the overall cost per
mile driven will be higher than manual labor.

And, even if autonomous driving doesn't undercut on price, they will beat
human drivers on both quality & convenience. Most people don't enjoy having a
human driver who sometimes smells bad and tries to talk to you (not to mention
the uptick in assault reports). And, since the cost of under-utilization will
be much lower for SDC's, you can bet the average wait time for SDC's will be
lower than Uber.

>> There's a general theme here: It's not enough to teach a computer to do
something as good as a human, you have to undercut on price as well.

I think the more apt statement is: Consumers care about price, quality,
safety, and convenience. A winning solution has to be significantly better in
at least one of these categories (price being only one possibility).

~~~
mxschumacher
Uber does 40m rides a month with human drivers, I don't believe people are
generally turned off by the smell of their drivers. The rating system is
pretty brutal. I've certainly never had this problem.

Uber doesn't pay for the downtime, its the drivers that take all the losses.

I find the security question interesting: Would you rather have a human in the
car to potentially protect you from outside attackers, or is the general fear
that the driver him/herself with assault you? I think with cameras and
identity checks the risk from the driver can be reduced.

Regarding your last point:

Yes, do the same for less or something better for the same, both are possible
paths to winning in the marketplace.

------
harry8
Alternative interpretation to inspire your ire and anger:

Self-driving is really hard and not going to be here anytime soon. A.I. is a
hype bubble. Google now believe those two points and need greater fools to
pare back their losses on this one and to avoid a lone P.R. disaster. "We were
only starting the project and it's free to stand on it's own separate from
us."

Computational Statistical Inference is amazing. Calling it Machine Learning
was a mistake that led to this ridiculous A.I. nonsense because machine
learning sure sounds like A.I. if you don't know any better. And it has been a
tremendous hype opportunity that has been vigorously exploited. If you did, or
if you intend to, consider repositioning your pitch. Doubling down may well be
a reasonable option once you've thought it through.

~~~
throwqwerty
I love these hottakes. Like there are thousands of researchers working
tirelessly to resolve the issue in the affirmative or negative, writing
papers, giving talks, publishing code, but we should take your word on it
harry8 that the emperor has no clothes. How about anything in the way of
evidence that what you're saying is insightful? Do you have literally any data
to corroborate what you're saying? Because I can go to arxiv and find plenty
of papers with validated metrics that contradict diametrically what you're
saying.

~~~
viklove
How many billions of dollars have been spent on self-driving ai tech? How many
self-driving cars do we have? How many execs have said we would have self-
driving cars in <insert past year here>?

~~~
erikpukinskis
Your thesis seems to be

1) If billions are spent on something and it didn’t already happen, that means
it won’t likely happen soon, and

2) If people predict something will happen, and it doesn’t, that means no
prediction of that thing can ever be credible.

But those don’t seem like logically sound inferences to me.

------
eldavido
Cruise did something similar with GM.

I take this as a bad sign. If Alphabet felt the project was going well, they
wouldn't want to give equity away unless the price was very, very high. It
might be, I haven't looked.

I think situation like this test the limits of conglomerates, and are an
interesting case study in corporate governance. Waymo is too big to fail --
even if it's not working, too many peoples' names and careers are on the line,
such that they'll do everything they can to keep it going, even if doing so
isn't in the shareholders interests. So Alphabet's board has to put some
controls in place to ensure ongoing investment into this is, in fact, sound. I
wouldn't be surprised if there's some requirement internally that a certain %
of Alphabet capital be matched with external investment - that seems to get
some of the disciplining effects of the market, but still lets Alphabet keep
most/all of the ownership.

~~~
H8crilA
> they wouldn't want to give equity away unless the price was very, very high.
> It might be, I haven't looked.

We don't know the price, meaning how much was actually raised. All we know is
that the capital raised divided by % of new shares issued is equal to $2.25B.

------
Cyph0n
Interesting to see Mubadala on the list.

Mubadala owns Globalfoundries and around 7% of AMD. It is the technology
investment arm of the UAE government (more specifically, Abu Dhabi).

~~~
choppaface
Waymo is likely trying to pull all the big money that would otherwise feed the
other players. With Softbank out, there are only so many options. This round
is probably a lot more about draining opportunities for capital from others
and less about paying for cars (a factory would be about $1b) or cloud (which
they get wholesale from G, not to mention software for free).

------
rupert1234
Employees are paid stock. It's hard for prospective/current employees to take
the valuation seriously without some external validation. This is a problem
for both employees and employer. The investors (SL and AH) are seen to be
savvy. This round solves a specific problem for the company.

~~~
foota
Makes me wonder, I'd assumed that Waymo employees get Alphabet stock, do y'all
think this is inaccurate?

~~~
rockinghigh
They get Waymo RSUs.

~~~
Jagat
and from what I've heard, they give X RSU, and don't tell what that would be
worth till you accept the offer and start working for them.

~~~
djannzjkzxn
Does everyone get that treatment? Seems like it would hurt recruitment of
experienced engineers. I won’t work for mystery bucks when there are plenty of
companies (including Google) that pay well with liquid stock.

~~~
pas
You can ask for a raise, quit, look for a new job, and also take a look
around. Doesn't sound like that big of an issue.

------
smithclay
Strange thing: I saw the Waymo cars in the press release photo being prepped
for the photoshoot on Valencia Street in San Francisco last month.

Now the random sighting ("why is that guy polishing a Waymo Jaguar on a
Saturday morning in SF?") makes much more sense.

------
tannerc
Self-driving tech is expensive. It's costly to design, create, and manage. I
wonder how quickly that $2.25 billion will be used up.

For comparison (because I was curious how this ranks amongst other big funding
rounds): Uber raised $7.7b from secondary funding in 2017. Airbnb series E was
$1.5b. WeWork series G was $4.4b. And in 2018 Ant Financial raised a whopping
$14.4b series C!

~~~
microtherion
I'm reminded of a recent article in The Information that estimated that at
least $16B were spent on autonomous driving by the industry overall, and about
$3.5B by Alphabet specifically:
[https://www.theinformation.com/articles/money-pit-self-
drivi...](https://www.theinformation.com/articles/money-pit-self-driving-
cars-16-billion-cash-burn)

------
KKKKkkkk1
The key aspect is that this is a liquidity event that allows the execs and the
engineers to cash out. That's what they've been working so hard for with the
Chandler rollout and the remote-controlled driverless demos.

~~~
mkolodny
That's assuming that Waymo employees don't just have Alphabet stock.. Are you
sure Waymo employees get Waymo stock?

~~~
pas
Why ... who ... incentives! You must give them Waymo stock if you want them to
work on Waymo. (Others in the thread said they get Waymo RSUs.)

------
AndrewKemendo
I'm curious how this works as a wholly owned subsidiary of Alphabet.

Is it a new class of Alphabet stock? Was this a corporate bond?

~~~
ajhsieh
While there are probably wrinkles^, the gist is that instead of 100% of waymo
shares being owned by Alphabet, there are now 2.25B/current_valuation % shares
owned by the external investors. Alphabet shareholders now own (1-x%) of
Waymo, but it will continue to be consolidated on Alphabets financial
statements.

^ wrinkles might include different share classes of Waymo, rather than
Alphabet stock, debt-like provisions that make the investment less like common
stock ownership

~~~
anoncareer0212
dammit, does this imply that Alphabet stock grants can "leak" Waymo value
while gaining nothing in return? (other than Ruth can have $1 bil less in
expenses on next year's 10-Q?)

~~~
frei
The "leaked" Waymo value is supposed to be approximately equal to "added"
value of the cash they raised.

Theoretically, raising a round should not be a net negative for existing
investors.

------
aantix
They have zero pressure to ship.

No, that’s not a good thing.

~~~
adventured
It can be a very good thing.

Xerox PARC existed with relatively little pressure to ship. They gave us many
of the components of the modern tech industry. Their contributions were
greater than perhaps any other epicenter for the computer revolution.

Xerox didn't benefit massively from the creations at PARC (a tiny fraction of
what others did), and I'm entirely ok with that. I do not particularly care
about the existence of the Xerox Corporation. Just as I'm ok with Google
vaporizing $10 billion on Waymo and failing, if it helps push this technology
forward in the process. Worst case scenario, over time Waymo will spin out
hundreds of experienced employees that will go on to plant other technology
seeds all over the place.

Google has $120 billion in cash, $35b in operating income, $160 billion in
sales, a monopoly or two, and I do not care if they get punched in the face to
the tune of $10 billion in losses on autonomous driving. The only thing that
matters is that their expenditures move the ball forward. Maybe some start-up
that doesn't exist yet, formed by ex Waymo employees two years from now, will
be the company that builds a better Waymo. That'll be great.

I'd also rather that $10 billion go into engineer pockets and get deployed
into the economy rather than sit in Google's monopoly money vault yielding
jack squat interest, de facto being hoarded. Google has little idea what to do
with their money, they're a trillion dollar corporation with not much
imagination. I'm glad they're burning cash on something interesting.

~~~
Analemma_
> Xerox PARC existed with relatively little pressure to ship.

That's a strange example to back up your thesis, considering that Xerox PARC
got its lunch eaten by someone who had the same product but _did_ ship.

------
hcnews
I wonder how far away L5 autonomous cars are. Well funded teams have been
developing them for a decade now. Are we still 1 decade away or 2 or more?

~~~
rabuse
I think we're still far out. There still hasn't been a solution proposed (that
I've seen), of how to avoid multiple disaster scenarios (Ex. hit child chasing
ball, or veer off of cliff).

~~~
datguacdoh
The answer is probably that this isn't real. A self driving car with better
vision, perfect attention, and instant reactions won't get itself into that
kind of situation. And in any other case where an accident is unavoidable, the
answer is to just hit the brakes because it won't matter anyway.

~~~
allendoerfer
Another benefit will be that the self-driving car behind you will also
instantly hit the brakes and won‘t cause you neck trauma, making this option a
little bit more appealing than it is right now.

~~~
rimliu
There is no need for self-driving cars to have emergency braking assist.

------
gok
Presumably a stepping stone towards spinoff. Waymo never really made business
sense as a part Google. Even technically it only ever made sense in that both
AVs and advertising require very complicated algorithms that almost no one
understands.

------
jl2718
So, if Canadian lawmakers don’t approve self-driving cars, they lose their
retirement.

------
thedance
I'll tell you what, the image on this press release is a perfect microcosm of
American life. A couple of hugely expensive cars are parked on a dilapidated
street in San Francisco, in front of two ancient examples of what used to be
working-class housing but are now worth $3 million per door. Two of the three
houses in the photo are owned by the same long-time and very vocal bicycling
activist who wouldn't be caught dead in a self-driving or any other kind of
car. The frontmost car is illegally parked; in San Francisco you are not
permitted to park in a curb cut, even if it's your house.

------
throwaway122378
How can a public company take in external investment? Wouldn’t that just be
issuing a secondary offering

~~~
Axsuul
It is a wholly owned subsidiary of Alphabet.

------
NoblePublius
Hundreds of millions spent and nothing commercialized. Comma has spent $10M
and can make your car autonomous today.
[https://youtu.be/Nnh5TQ60hek](https://youtu.be/Nnh5TQ60hek)

~~~
nojvek
Comma is great but drains the battery when when the car is stopped. I have to
jump start my car almost once or twice a month. They really need to fix that
issue.

~~~
cspags
Is this a widespread issue or only certain car models? I’ve been very
interested in purchasing a Comma. Thanks!

~~~
nojvek
When you connect Comma with the OBD port for power, that’s an issue.

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justlexi93
This is a big deal, IMO. this starts the clock ticking. maybe Waymo wont care
if it takes a long time to get return on their investment, but a lot of
outside investors will want return quickly. Waymo going after investors tells
me that they believe they can start rolling out soon enough to actually seem
attractive to investors.

------
lacker
I wonder what the valuation was. When they don't disclose the valuation, it's
usually a low valuation.

