Retail auto technology startups can count at least one thing in the months ahead, according to Daniel Hoffer: Venture capitalists are still pursuing investments and making deals.
That’s worth noting in the wake of the recent failure of Silicon Valley Bank, which used to support much of the innovation industry. Inflation and rising interest rates already had made access to capital more difficult, and some predict SVB’s collapse will make things worse.
But Hoffer, a managing director of Autotech Ventures in Menlo Park, Calif., insists venture capitalist investment continues to be business as usual.
“Neither auto tech nor any VCs that I know are changing their deal cadence or investment interests as a result of the failure of Silicon Valley Bank,” Hoffer, 45, told Automotive News.
With that in mind, venture capitalists will likely be paying close attention to some key areas of retail auto technology in the months ahead. Hoffer spoke with Staff Reporter Mark Hollmer about areas of investment interest, the dominance of dealer management system giants and why retail technology innovation is more evolutionary than revolutionary. Here are edited excerpts.
On investment opportunities in the retail technology space
In terms of investment areas, there’s a variety of pain points that come up in retail tech, including areas like titling, CRM for dealers, valuation tools for cars, infrastructure for financing and insurance, finding technicians and labor to do automotive repair and automotive logistics , among other things.
On the evolutionary nature of retail automotive tech innovation
Much of the innovation that we’re seeing in automotive retail tends to be more evolutionary than revolutionary. Some of the most significant deep tech innovations tend to go more towards areas such as autonomous driving and artificial intelligence rather than automotive retail.
On why retail technology innovation is not revolutionary
The retail ecosystem is mature and characterized by a number of incumbents, which means that in order to engage with it, more integrations with incumbent platforms and processes are required. It is important to understand the product and technology stack that is already in place at an automotive dealership, and if you can do that, then you can expose innovation.
On the chance of innovation without a dealer management system provider in play
You can’t really run an automotive dealer without a DMS. But at the same time, the presence of that makes it more challenging for other startups to successfully plug into that ecosystem because dealers rely on those systems to manage their operations.
On auto retail technology innovations that haven’t happened yet
I do believe there’s opportunity around warranty claims processing, and there are some startups operating in that space. Beyond that, titling is an area where there’s a lot of pain and a lot of opportunity for improvement. CRM consistently comes up as a pain point.
On whether startups in the retail auto space can be “sexy” enough to win funding
Startups that solve a pain point that is too obscure or a niche often struggle to get funding, because generalist VCs are unable to appreciate the need for it.
But returns are sexy. Any good company that can chart a path toward significant growth and eventual market dominance should in theory be fundable.
On the trajectory of retail auto technology investment
Auto retail in general is a mature market that is growing but not growing quickly. At a high level, there are areas within it that represent the promise of faster growth, and those areas are likely to be more appealing to investors.
On whether a retail technology startup can get VC funding in the current climate
Any startup that is successfully solving a pain point in the larger market with a path toward a differential market dominance has a shot at getting funded.
It’s less about the overall massive auto retail market and more about which opportunity inside that massive market [that] might be attractive.