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Kleiner is not so great at investing in auto tech

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There’s been a string of bad news for vehicle startups in recent months, including electric car company Fisker suspending its Nina project in Delaware and laying off workers, electric car company Think filing for bankruptcy, and next-gen car company Next Autoworks (formerly called V-Vehicle) cancelling its factory plans. Other than the difficult market for electric cars and the recession, what’s something that ties these companies together: funding from Valley firm Kleiner Perkins Caufield & Byers.

Fisker has been one of Kleiner’s largest auto bets to date, and Fisker has raised over $850 million in private funding from dozens of investors including NEA. Kleiner Partner Ray Lane helped lead the deal and was the public face of the investment back when it won its loan from the DOE in 2010.

This week Fisker announced that while it will continue to sell its Fisker Karma, it has suspended its plans to build a second car, its Project Nina, and hasn’t been able to draw down on the remainder of its DOE loan award. Fisker could end up doing alright if its Karma car takes off, but to date the investment hasn’t exactly been a slam dunk.

What was Lane’s idea when he put Kleiner’s funds in Fisker? Lane told me in an interview last Summer that:

When I did Fisker and another car company, my partners thought I was out of my mind. But I had a thesis. We can invest in a car company and either have a way to get the valuation high enough so you don’t get crushed on dilution or get low-cost loans that are high leverage for equity investors.

Then there’s Next Autoworks, formerly called V-Vehicle, which had plans to build a gas-sipping plastic four-seater car in Louisiana at an uncommonly low cost. In addition to Kleiner, that venture managed to also get funding from Google Ventures and oil baron turned green crusader T. Boone Pickens, despite that the company never showed off a car prototype or really explained much about what it’s new development would be.

The company hit some rocky ground in 2010 when its founder Frank Varasano left, and Lane temporarily took over. Then in late 2010, it reformed as Next Autoworks and brought in another CEO. However late last year, it finally stopped pursuing the DOE loan, withdrew its application and shelved its proposed factory.

Lastly there’s Think, a Norwegian electric car company that has tried for decades to build an urban small electric car in both Europe and the U.S. At an event in 2008, Lane announced how Kleiner and investor Rockport Capital would create a joint venture with Think, called Think North America, which would sell electric cars (beginning with the Think City) in the U.S., made in the U.S. Kleiner and Rockport owned 50 percent of the venture, while Think Global held the remaining 50 percent.

Think had a plan to build cars in Indiana back in 2010 and was also waiting on approval of a DOE loan. Think had a plan to invest some $43.5 million improving and equipping the Indiana Elkhart plant, and planned to create more than 400 jobs in the area by 2013. Think never got that DOE loan and declared bankruptcy last Summer.

In an interview last Summer, Lane told me the financial details behind his Think investment. He said Kleiner never put equity in the company, but that RockPort and Kleiner paid $2.5 million each to buy the North American rights to Think if it ever came to the U.S. But when Think restructured later, he said,  it bought back the American rights from Kleiner.

Investing in the auto space is a whole different ball game compared to investing in software, computing and mobile. The time lines and capital needed and much different, and the auto sector is also much more susceptible to economic downturns.

4 Responses to “Kleiner is not so great at investing in auto tech”

  1. Isn’t the common thread Ray Lane? Come to think of it, how did he do as a board member at HP? Or perhaps lets ask the question this way: which of his investments at Kleiner HAS succeeded in a significant way? None.

    So why would we expect his investments in Auto Tech WOULD not fail?

  2. What the EV evangelists forget is the HUGE sums it takes to create a new model, crash test it and develop technology and styling that gives it an edge over legacy tech ICE autos. Looks to me they have just not raised enough cash to make it to the delivery bay for their distributors & dealers.

  3. Jason Rupert

    Kleiner had lost it’s way it seems. This is just one of many missteps after pulling back from Greentech in the latest fundraisings.. Without Bing Gordon Kleiner wouldn’t even make it to the front page anymore. How many truly disruptive and life changing software/internet/hardware startups could have been given a chance with all that money flowing into a car company not even the partners consider swapping their existing gas guzzlers for?

  4. Marin Perez

    I think the last paragraph really sums up the issue with the automotive startups and the green-tech startups. There is a bit of arrogance in some investment companies who think that it will be as easy as it is with software and I believe that some just aren’t fully aware of the real costs and time.