Reilly Brennan, general Partner, Trucks VC

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Ali Tabibian: 00:15 Welcome, welcome, welcome, everyone, to this episode of "Tech. Cars. Machines." It's been a while, but we're back, we're happy, and I think you'll be happy, too. My name is Ali Tabibian. As usual, you'll find plenty of supplemental information in the episode notes. 

Today, we're going to get familiar with one of the earliest and most focused investors in the future of transportation. Trucks Venture Capital, trucks.vc, was founded a few years ago by individuals with a personal history of investing, of interest, of authorship, and, also, of intellectual property legal work in the automotive space. Trucks invests in companies at their formative stages, typically very early, and their track record of finding the winners has been really quite impressive. 

Here's an example of some of the entities in their portfolio. Aurora Labs, which is a full-stack autonomy software company. They had been a long-time investor in May Mobility, an autonomous shuttle company with actual operating shuttles and with a recent round of investment from BMW and Toyota, and they've had exits such as nuTonomy, which was acquired by automotive supplier, Delphi, for about $450 million in 2017 as one, and that really was one of the biggest exits in the space. 

Our guest is general partner, Reilly Brennan, and we tape this episode at their offices in the South of Market neighborhood of San Francisco. Reilly and I first met about three years ago when he was a director of the Stanford Auto Lab. He was also teaching a course on entrepreneurship in the transportation industry at Stanford. And there's a fair bit of background about Reilly and trucks in the interview, so I won't do as much of it as I normally do in the introduction. Let's get to it.

TCM Handle: 02:12 Tech. Cars. Machines. Subscribe here or at GTKPartners.com.

Ali Tabibian: 02:18 Reilly Brennan, thank you so much for taking time with us today.

Reilly Brennan: 02:28 Thanks so much, Ali, for having me. I really appreciate it.

Ali Tabibian: 02:31 It's, obviously, our pleasure and one of the things I wanted to let our readers that we've first met each other, what, three or four years ago, right-

Reilly Brennan: 02:31 Maybe.

Ali Tabibian: 02:40 When you were director of the Stanford Auto Lab.

Reilly Brennan: 02:42 That's right. We met at Stanford one day, probably in the garage, and you went to Stanford, right?

Ali Tabibian: 02:42 I did.

Reilly Brennan: 02:47 That's why you were hanging around, and, yeah, that's was a great ... I think that was three or four years ago, yeah.

Ali Tabibian: 02:52 That's exactly right. I was actually introduced through somebody I knew at the engineering department. I sort of expressed some interest and said, "Let me tell you who you need to know," and it's turned out to be the right introduction for them to have made. Maybe, Reilly, before we get to that point where we met while you were the director of the Stanford Auto Lab, tell us a little bit about your background and how you wound up in the world of auto as well. I know you've got a journalism background. There's just a lot of richness there that you could share with our listeners.

Reilly Brennan: 03:20 Well, at a high level, I would say I was raised by a single mother and educated by the Jesuits. That's kind of how I think about my foundation. But I grew up in Detroit. I always loved cars. I was one of those kids who had pictures and posters of cars on the wall, Red Car magazines, and so I was obsessed with being a part of the car industry as really obsessed with the object of vehicles. And since I grew up in the '80s, there weren't a lot of great American cars. It was really the ... for me, it was all about Volkswagens and Audis and Porsches, things like that. 

And I went the University of Michigan. I got a job my freshman year as a motor gofer at a magazine called Automobile, which meant that I got to wash and gas cars that they were reviewing for the magazine for seven dollars an hour, which was the best way to make seven dollars an hour legally in Ann Arbor, Michigan. And that's what I did my whole university life, and it was really my first entrée in the automobile business, and I loved every minute of it. 

And after school, I went to General Motors for three years. I worked there in mostly the racing part of the organization, and so I got to go to racing, go to events every weekend. I was a part of the endurance sports car program, which was the Corvettes that go to La Mans. I did a year of Nascar. I loved that. And I was in the car world, really, in communications and marketing and journalism for the first ten years of my life. And then, about 10 years ago, we moved out the California, trying to figure out what I was going to do next, and it opened me up to things like Stanford and, really, ultimately, other things like software and robotics, and then, ultimately, investing. So, I've always been in the car world, or the transportation world, just coming at from different angles. 

Ali Tabibian: 05:11 That's pretty interesting because when people think about what's going on in The Valley, the presumption is that everybody's running around with an engineering degree. Tell me a little bit about what were the strengths and challenges of coming from that different background where you just had a very different view and not necessarily a technology-based one.

Reilly Brennan: 05:31 I'm certainly not an engineer, and I didn't go to school for engineering although, oddly enough right now and for the last six or seven years, I've been teaching in Stanford's School of Engineering. When I arrived in the Bay Area, I knew only three or four people, and one of those people was a guy named David Kelley, who is the founder of a company called IDEO, and who helped start the Stanford d.school. And he and I had lunch a few times and he said, "Hey, there's this thing that is starting at Stanford, and there's all this car stuff and they need somebody to go in and be a part it who can help organize it." And that was essentially the job I took when I moved to California, was helping Stanford's automotive things kind of get up and get running. 

So, I learned a lot of stuff at Stanford, including how to fundraise and that was, for me, an entrée into robotics, into engineering, into software, really, into seeing how researchers were trying to build companies and the insight that I took from those years was, "Man, it's really hard for researchers to start a company because nobody wants to give them financing." And, nowadays, it seems like everybody can get a trillion dollars for their autonomous strawberry-picking robot. 

But, in 2010 through 2015, it was not that way, and so my simple insight was, "Gosh, there's a lot of smart people here who are leaving labs, specifically at Stanford, but at other places as well, and they're not able to get financing. And I'm going to go and get them their first check. I'm going to help them build their business and get off the ground." And that's ultimately was led me to start my own fund, which is called "Trucks," which I have with two partners, Jeff and Kate, and that's what I've been doing, really, since you and I met, is doing that. So, I invest, very early stage, usually the first check, into a founder's company that's trying to change transportation.

Ali Tabibian: 07:36 That's an excellent synopsis. Thank you. You know, when you say change transportation, it reminds me of a publication I read religiously and it comes out Sunday nights and it's Future of Transportation and it comes from Reilly Brennan. Tell us about why you started that distribution.

Reilly Brennan: 07:57 Well, we all have our learning mechanisms. I don't know what your preferred learning mechanism is, but one of my only reliable one seems to be reading and digesting something enough where I could write a little bit on it. And so, I primarily started doing that because there were enough things going on that if I didn't find a way to condense it, I really didn't understand what was going on, and this was five years ago now. 

So, I started in the fall, 2014, and at that time, there were only a handful of deals per week, only a handful of news items. Now, it starts with three or four hundred items per week that ultimately become 30 things in FoT when you read it on Sunday. And so I use it as a way for myself to understand what's going on, and I write it, fortunately, there's a benefit for other people like yourself and it's not read by a lot of people, it's read by about ten thousand people, but it's the right ten thousand. It's CEOs of car companies and a lot of the bankers and analysts and, certainly, a lot of founders read it. And so, for me, even if zero people read it, it would be vitally important for me to do. 

In fact, I consider it like you would think of a martial arts practice in that you need to do it every week and doing it actually feels really good. And it is fatiguing to do it because it requires, obviously, a lot of reading, a lot of thinking about what you're going to write, and then the actual production of it tires me out, but it's a good kind of tired. So, by the time I send it Sunday night, close the computer, go to bed, there's a good feeling about-

Ali Tabibian: 09:42 Satisfaction.

Reilly Brennan: 09:43 You finished something that's really meaningful, and you can go to bed with the notion that you feel like you kind of got the handle on the last seven days of stuff. And I like that feeling.

Ali Tabibian: 09:53 That's excellent. That's excellent, and, for those listeners who are interested in subscribing, if you just go to trucks.vc, the link is right at the top and you can subscribe to it. And you really should. Just as an aside, it's interesting to hear you say that. My learning mechanism is to teach, and I already know that I understand something when I can teach it. And I think, for me, writing the occasional thought piece on whether it was Tesla or on the future of autonomy, etc. That, I noticed, is was forces me to organize my thoughts, so that's a similar mechanism to what you're describing. Trucks VC. Why "Trucks?" Why that name? And this is ... I'm pointing you to the genesis of how you got into, on a specific basis, how you sort of kicked it off.

Reilly Brennan: 10:41 Well, the name ... I mean, primarily for us, we didn't want to put our name on the door. Maybe it's because we're all Midwesterners and didn't want it to be our last names, so that's one fundamental idea. And we also wanted to be generally automotive but not too specific, and my partner, Jeff, always tells the story that the word 'truck' was probably the second word he every said. And there's a bunch of other things we love about that word. 

I love proper names that end in 's,' and there's a few other qualities to the word 'trucks' that we really like. There's a couple songs from artists we like that feature the word 'trucks,' so that's it. And maybe, from an investment perspective, we have a belief that commercial vehicles are some of the best initial markets for technology. 

They've historically always paid a lot of money for transportation services. They have a need both for risk and for other aspects where you want to introduce technology. So, we don't only invest in trucking companies, but we certainly love logistics and trucking and about a third of our portfolio likely touches trucking in some way.

Ali Tabibian: 11:59 Excellent. What was your first investment?

Reilly Brennan: 12:02 The first investment of the fund was Zendrive, which is ... I think of funds almost like you would think of a record label in that we're a school of thought, and, for us, Zendrive ... we didn't plan it this way, but almost represents kind of all the things that we think about when we think about trucks. So, fundamentally, Zendrive takes data off of a smartphone and tries to make an assessment of how much risk the driver is taking on. So, a good example would be a deliveryman is on the way to a job, and he happens to be looking at his phone, looking at Facebook or something like that, while he's driving, and so the use of a smartphone in a vehicle is now highly correlated to risk, right?

Ali Tabibian: 12:55 Mm-hmm (affirmative).

Reilly Brennan: 12:56 And it's hard to know about that unless you have a, maybe, a cabin sensor or a camera pointed to the driver, or Zendrive's brilliance was as an SDK in other apps. So, Zendrive's running in the background, picking up a lot of data about braking and steering, but what's going on with the driver if they're picking up their phone and things like that. It's grown, has a great CEO, and is really emblematic of a lot of things we love at Trucks. So, it's probably, for us, it's one of the ... the one company's ... it's almost an anti-autonomous vehicle company. We invest in a lot of autonomy, but Zendrive is representative of humans and technology coming together and the problems that are brought to bear when those things ... when we use technology all day in the cabin. That's really what Zendrive is about. 

Ali Tabibian: 13:52 Excellent. And it really is about the future of transportation. It's not necessarily about autonomy. It can be about business models. It can be about a lot of other things other than just the core technology, right. 

Reilly Brennan: 14:03 Transportation is a wide tent, so we invest in things that move, like automated trucks and automated shuttles and things like that. But we also, in one of our recent investments is a new type of car wash that doesn't use any soap or chemicals, so we have a pretty broad view of what it means and some of the secondary impacts. 

We even have a company now that, in some ways, you can describe as more of a real estate company because they're doing curbside management for vehicles that pull up the curb and want to interact with the curb someway, which is not about moving vehicles at all. It's about fixed things like curb spaces, so that's a broad tent. The only thing we do is transportation, but we like to put an asterisk on that, which is that all those things don't necessarily have to move with four wheels.

Ali Tabibian: 14:56 Excellent. So, tell me ... let's roll history forward a little bit. What were the next few investments? What kind of themes were developing in the beginning and how do those carry forward to today, or is there a different composition to what you're doing?

Reilly Brennan: 15:11 In the beginning, we were starting to see some early robotics teams building automated vehicles, so one of our investments in the early part of the fund was in nuTonomy, which was a research team which was ultimately acquired by Delphi and is now a big part of their active group and was ... at that point, a few early bets on autonomy were really robo-taxi companies. And what I would say has changed there significantly is we don't see as many robo-taxi startups these days. 

What we really see is that that idea of autonomy has become more and more structured. So, of the robo-taxi founders that didn't make it three or four years ago, they've now moved into trucking, and I would imagine that a few of the trucking startups that don't make it will move into ag or mining over time. So, it seems like the trend line on autonomy is moving more and more structured, primarily because you can get to market faster, and they come to those realizations later. 

But, in the early days before Cruise was acquired, which was midway through 2016, it was still Wild Wild West, in terms of valuations were relatively low, some of the ideas were ... there weren't that many competitors. There might have been one or two teams working on an idea. So, to get back to your question, nuTonomy was an early bet. Another one was a company called Nauto, which was doing, really, a driver-end forward-facing camera, again, in the risk category. And then, another one would be Roadster, which does e-commerce for car dealers. So, we had pretty wide diversity, even in the first few investments there, in 2015 and '16.

Ali Tabibian: 17:12 It was very impressive. And one of the reasons I was glad to meet you and follow Trucks was that, even though it was only a few years ago, you really were one of the very people that was focused on the future of transportation and, substantially, autonomy. I guess you can go to Detroit. There are a couple funds there, one through funds that are people who had side-cars as, essentially, as investors, but it was really ... it was amazing how much you were focused on it and how early. B

ut we're talking about four years ... three or four years. It's still a short amount of time between when these things started happening. Cruise printed a big ticket, and that brought all the bankers and other VC out of the woodwork to proclaim how interested they had always been in the States ... into space, as it usually happens. And here we are, barely three years later, and the market has gotten a lot deeper, a lot more competitive. But also, I think, going through, maybe, the first bits of rationalization. Do you sense that as well?

Reilly Brennan: 18:17 Yeah, we've seen prices come down in certain categories of areas where we invest. So, for example, if you just take the autonomy category, prices have come down about 30% of over the last eighteen months. And one of the contributing factors to the prices going up in 2017, which was when we saw the highest prices ... this isn't entirely all of them, but I would say one of the factors in the summer of '17 was ... it was the first wave of a lot of departures from Uber. 

So, if you remember all the troubles that Uber was having with their CEO in the spring and summer of that year, a lot of good people left the company in that time, and many of them, at least ... I would say at least a dozen ideas sprouted from people who had left in that first wave. And they were all putting slide decks together and all raising money in the summer of '17. 

And the prices were really high. We're talking prices that you probably think were series A prices or maybe even series B prices and they were giving seed rounds, so that was, for us, the peak of pre-money valuation expectations from very hot market. Since that time, they've come in autonomy. There are other categories that maybe are more expensive. 

For example, last year, we saw 12 companies building automotive simulators, and those prices started to go up towards the end of 2018. So, there's pockets of transportation that go up and down, and as long as you stay close to the market, you can kind of feel them happening over time. And, all of a sudden, you have four or five companies in the same spot in 60 days. 

Ali Tabibian: 20:12 It is an interesting history, and if I look at ... your portfolio has always been diverse from the beginning, but it probably had a little bit more robotics in it than it even does today, right?

Reilly Brennan: 20:12 Right.

Ali Tabibian: 20:22 You're a little more of the Component in Business Model level that you're investing, and I think that's really consistent with what the success markers in the space have been. I mean, if you look at ... I remember, Reilly, I think it was eight years ago, that I went to a session at Stanford Law School, and they were saying that, "Self-driving cars are coming. We going to figure out, if they have an accident, whose fault is it," right?

Reilly Brennan: 20:49 Sure.

Ali Tabibian: 20:50 And, at that session, they showed that famous Google video with a blind gentleman who was being driven around by the Google Prius. Yeah, it was a Google Prius car. And where is it? Where is everybody, right? Where are these cars, right? They're still not around, but what's fascinating, in that same time frame, you and I have stopped using our car ... use our car a lot less. We basically don't use taxis anymore, but we use all of the alternative modes of transportation, whether it be Uber, Zipcar, or Turo or whoever else you want to mention. So, the business model changes in innovation.

Reilly Brennan: 21:25 It does.

Ali Tabibian: 21:25 We already have [Ready-out 00:21:26] strip the technical innovations over the last several years.

Reilly Brennan: 21:29 And they're very geographic. If you look ... for example, take your point about ride-hailing. Ride-hailing is fundamentally a geographic phenomenon. If you look at the heat maps of where rides originate and where they end you're really looking at particular pockets around airports in dense cities and a little bit in the suburbs. Automated vehicles, for the most part, in a robo-taxi environment will follow that same path. That's the most likely scenario.

Ali Tabibian: 22:04 Interesting.

Reilly Brennan: 22:04 So, there are some impacts on that that change ... transportation in the past, if you were an automaker, you were selling a global platform, and it really didn't matter too much if your buyer was living in the exurbs or the city, they were buying the same Toyota Corolla. Now, that's actually a fundamentally different idea, and so if we take this one step further and say, "How could I make an estimate of when car dealerships are going to go out of business based on these trends?" 

I'm not a public equities investor, but let's say, for example, we were trying to figure out: do I sell my AutoNation stock? And AutoNation historically has been a car dealer group in the United States with a ton of car dealerships, usually in urban or slightly suburban areas. I think one of the trend lines you could say, both for ride-hailing and potentially for AVs, is that a dealer that was highly aligned with those urban areas is going to suffer more of those trends over the coming decades as opposed to, let's say, another car dealer group that only sold pickup trucks in rural areas. 

There's actually a big dealer group called Lithia that does just that, and they're probably in a much higher water position because the geography they're associated with is much different than the urban areas. So, a friend of mine named Sven Beiker who, I think, you might've met at Stanford over the course of the last few years, has always said, "It's not a question of when autonomous vehicles will happen, it's where." And so, I always think of that and these technology changes right now are having a significant impact in certain areas, and the time is really ... it's a time question as it relates to those geographies.

Ali Tabibian: 23:59 Those are some excellent insights. Reilly, map those into some of your specific investments for us? Should we talk about, maybe, some of the specific things in your portfolio? Plenty of exciting companies. In fact, Bear Flag Robotics was the subject of one of our podcast episodes as well.

Reilly Brennan: 24:14 Yeah, that's right. You had the founders on.

Ali Tabibian: 24:15 We did. And, in fact, one of our affiliates owns a substantial amount of the Central Valley nut farms. Quite a substantial business now, and they were ... Bear Flag was one of the people who went our there and sort of mapped their farm ... their capabilities into those farms. Great, so I have the list here. By the way, May Mobility was featured in our CES podcast.

Reilly Brennan: 24:40 Oh, that's right. I remember that.

Ali Tabibian: 24:41 Because CES asked us to do an episode from their floor, so I grabbed May, and it was just before they announced their recent big investment from, I believe, Toyota and BMW.

Reilly Brennan: 24:51 Toyota and BMW are some of the investors in May.

Ali Tabibian: 24:54 So, pick any ones you want and use them as a way to tell people what you're looking for and how it maps into some of these thoughts on the industry that you just gave us.

Reilly Brennan: 25:05 I will say, we used to look for ideas and then hope people would walk in the door with ideas, and I found that, over time, we tend to make mistakes if we do that because, you know, if you and I got together and said, "Man, what the world really needs is this," the tendency is the first to walk in the door, you're probably predisposed to say, "Yes," to that idea, even if there's a bunch of other problems with it. 

What we prefer now is to ride along with an entrepreneur who has a great point of view that we might not even have been thinking about. For example, we just invested in a car wash company, I told you, that doesn't use soap or chemicals. Now, we never came up with that idea, but we met the founders and wanted to back their visions, so we did. 

But some of the companies in the portfolio that might be worth chatting about ... May is a good example because we led the first round in May and two really talented researchers in, Edwin Olson and Steve Vozar, who were putting together the idea. They needed somebody to commercialize the idea early on, and we were part of the team that helped them find Alysen Malek, their COO. And one of the things that Trucks does, which, I believe, is somewhat unusual, is that we'll take on an incomplete team. 

So, some people will say, "Oh, you guys actually need a COO or some other function that you don't have. So, I'm going to tell you 'no' until you find that for me." And, in certain cases, we will actually commit to teams and help them find that additional co-founder, and that's one of the parts about May that I find to be quite fascinating is that we were part of the architecture of the early, sort of, executive finding function, right?

Ali Tabibian: 26:57 Right.

Reilly Brennan: 26:58 That team's focused on urban shuttle AV, so their customer's either a property owner or a municipality that wants to run shuttles in a particularly dense, low-speed environment. And what we find interesting about that is May is actually running the same route over and over and over again, so they're not like Waymo or Cruise, who, ultimately, you'll be able to get a Waymo or Cruise by calling an app like you do with Uber and telling it where you want to go. 

May runs circulator routes, so they go to the same stops, and that means they can get a lot better at those by doing it day-in and day-out hundreds of times. And they can also hang sensors in the infrastructure if they want, so they can ... if there's an intersection where there's always kind of problem, seeing around a truck to see a traffic light, they could just hang a camera or hang a sensor to see that. 

And we liked the pragmatic simplicity of that idea, and they've actually made a pretty good amount of progress in selling that idea into cities, so they're officially in three cities that they've announced: Detroit, Columbus, and Providence, Rhode Island. There's a few more that are coming this year, and it's a highly technical team, and we really like them. I also am from Michigan, and they're headquartered in Ann Arbor. We have two Ann Arbor companies now, so that makes me feel good in some sort of overall Michigan way, and I wish we had more companies there. So, if you're a founder listening to this and you're in the state of Michigan, please give us a call.

And then, another one that might be representative is Starsky Robotics because it, like May, it's a structured environment. They're not going to any address. It's a class A truck that is moving goods over long distances, so, typically, these are long-haul routes, where you might be moving from a distribution center to distribution center. And there's a lot of interesting qualities that autonomy brings to bear on that. One is you can run the trucks longer than the typically 14-hour period that a truck driver could do. Right now, a truck driver in the US could do 11 hours in a row or 14 hours within a 24-hour period, so the trucks are kind of sitting fallow half the day because of that. 

And autonomy changes the economics of that dramatically. And another benefit of it from a testing environment is if you're not carrying passengers, you don't have too much of a risk if you want to pull over and restart the engine or fix something on the vehicle whereas if you're running a prototype robo-taxi service, you have people sitting in the back who need to get to their meeting. When you do commercial AV like that, like trucking or logistics, it's a much different kind of testing environment, which has its own benefits.

Ali Tabibian: 29:58 Absolutely. And a lot of the equipment that need to make it run can't fit within the form and cost factor of a truck.

Reilly Brennan: 29:58 There's a lot of room in the back of the truck.

Ali Tabibian: 30:06 Exactly. A lot of room and it sits high, nice field of view, but, also, a truck will cost you a few hundred thousand dollars, depending on what you order, right?

Reilly Brennan: 30:06 Right.

Ali Tabibian: 30:16 So, it can tack on thirty thousand dollars’ worth of additional sensing, and you're still within the zone of potential commercial viability. You can't add two thousand dollars’ worth of equipment to a consumer vehicle without it falling out of that range of commercial viability because that adds five thousand dollars a cost to the consumer by the time it gets to them, and most people will order the stereo and the nice leather if you're asking it for that kind of money if it's going to be something that helps them a little bit. But you still going to keep your hands on the wheel and you still going to be like, "Right?"

Reilly Brennan: 30:51 I think that that point is, for passenger vehicles, really important because it's showing the strength of what the auto industry would call ADAS, or advanced driver assistance systems, which, if you think about just the longitudinal control of if you have an automatic cruise control system that can basically always keep the same distance between you and the car in front of it, in some cases, can come all the way to zero and crab along in traffic and things like that. 

Those systems are in the hundreds to thousands of dollars and are incredibly valuable to consumers once they've used them, almost like the way you maybe felt about a TV remote control when you first got one. There's just simply no going back after you have a system like that, and I think that the coming five-to-ten years are going to prove that every vehicle is going to be outfitted with that level of ADAS capability for those kinds of prices. 

When we get into passenger vehicles that need full autonomy, my view on this is we are much further out for passenger vehicles getting full autonomy or even level four autonomy. I mean in the order of fifteen, twenty years, and the spend required from a manufacturer or supplier perspective to do that is in the tens of billions of dollars per company, so I'm very optimistic and vehicles making us safer and hugely pessimistic about wild timelines wherein CEOs get up at TED and say, "Our robo-taxi system is going to be ready in 2020." I think that most of those CEOs who made those pronouncements were thinking, "Well, by the time 2020 rolls around, I'm going to be playing golf in Palm Springs, so what do I care if it's true or not?"

Ali Tabibian: 32:43 You know, in finance, for long-term financings, there's something that says, "IBGYBG," which stands for "I'll be gone, you'll be gone." So, for a thirty-year bond with that, with balloon interest payments at the end, "Well, I'll be gone, so we make a statement ... whatever statement we want."

Reilly Brennan: 33:01 That's not a good management technique.

Ali Tabibian: 33:04 IBGYBG. No.

Reilly Brennan: 33:04 But, nevertheless, I think that's what you've seen in a lot of big pronouncements from the car industry.

Ali Tabibian: 33:08 It's very very true. I couldn't get them to go on the record, if you will, and do a podcast episode, but, actually, I talked with a couple of the very high-end manufacturers of passenger vehicles, and, basically, what they said is safety equipment when it's standard or when it's optional but below about five hundred dollars, people will buy it. Otherwise, nobody selects it. And an example of that, and it's interesting, you can all, listeners, you can all go and search a car site for yourself, Mercedes has had radar cruise control since 1999. Go take a look at S-class, very high-end vehicles that are out there, and search for that option, I think, Distronic Plus or whatever it was as an option. It's hard to find a vehicle at that price point where the individual actually ordered it.

Reilly Brennan: 33:59 That's true, but the auto industry does a pretty good of bundling, right?

Ali Tabibian: 33:59 They do.

Reilly Brennan: 34:02 So, usually, what they'll say is like, "Well, if you want to the Bose audio, you'll also have to get the this and the that, which includes the radar cruise because you're into the mid-tier or the premium package." And so, the take rates on individual options in the car industry are usually low if you just look at the individual take rates. 

If you look at the bundling, which they all do, and they make it so easy for you when you're doing your financing, you know, "Oh, it's just another $12 dollars a month, right?" That's where you usually see it, and then you get into these instances like we talked about, where somebody realizes, "Wow, I've got radar cruise control. Wow, this is actually really amazing. When I get my next one, there's no way I'm going to not get that package."

Ali Tabibian: 34:43 That's right. They significantly undersell the fatigue reduction benefits of those things. I mean, I've had a car that does these things since the 2015 model year. Not a Tesla, folks. It was a Mercedes. That was really the only other person that was delivering at that time. It was an E-class 2015 Mercedes, and I specifically bought that vehicle because I wanted that capability. 

Reilly Brennan: 35:07 But, now, every car ... I mean, we have ... our family car is a Mazda CX-5, and it's got radar cruise.

Ali Tabibian: 35:14 Toyota across the board in the United States. Absolutely.

Reilly Brennan: 35:16 It's kind of permeated everywhere, right?

Ali Tabibian: 35:18 It really has, but that one had steering assist. The 2015 actually managed the steering for you as well and yelled at you to put your hands on the steering wheel after ten second and all that. And my point was a little disappointing in terms of visibility to drive the car itself, but, my God, was the fatigue reduction substantial. Stuck in commuting from Cupertino to San Francisco on Friday night, two-hour drive, really was amazing how much it reduces fatigue, and I think that that aspect of it is undersold. Let me leave the world of technology a little bit and maybe point to two really interesting companies that you're invested in, both of them that focus on tires. Should we talk about that a little bit? Is that exciting to talk about?

Reilly Brennan: 36:00 I love tires. I mean, to me, it's one of the weirdly fascinating high-water areas for what technology is going to do in the car business. So, if you look at what electrification does to traditional vehicles and, specifically, the repair sector, it's actually quite destructive to the average auto body repair shop, the average maintenance shop if you think about ... if you look at the categories of what type of maintenance is done to a vehicle, you're usually talking about things like brakes and belts and things like that, oil changes, for example. 

Those are things that your vehicle needs quite regularly and are all significantly negatively-impacted by electrification. The things like belts and oil are just pretty obvious because electric vehicle have far fewer parts and they don't have any oil, so not, at least, around the engine, so there's no engine that you'd expect. It's a motor. But even brakes, so if the power train in an EV has a significant impact on braking, and a lot of original Priuses are still running around on their first set of brake pads because they use regenerative braking. 

So, if I run a brake shop, even though all cars are going to have brakes in the future, they're using the brakes differently. One exception of repair and maintenance which remains is tires, so we, as a society, have been doing greater vehicle-miles-traveled every year. Cars are on the road longer because cars are more durable. So, cars are going through more sets of tires over time because we're driving more and keeping the cars longer. And the other thing is electric vehicles eat tires at a faster rate.

Ali Tabibian: 37:58 Because they're better acceleration. Is that-

Reilly Brennan: 37:59 They're heavier. They have more torque right off the line, so some estimates are as high as 25 or 30% greater tire usage rate than a normal internal-combustion engine vehicle. So, the tire manufacturers actually love electric vehicles for that reason alone because you're likely to buy a set of tires much faster. Now, they are developing tires that are specific for EVs which might extend that life, but the consumer perception of those tires early on has been that they haven't been as good, so people have usually optioned more "normal" tires for their EVs. 

So, where this leaves us is tires are just a really interesting area to focus on if you're a manufacturer of tires, if you're in the retail sector on tires, if you're in the repair and service sector. And car dealerships and those guys have sold tires for decades. They will continue to do so. Our theory is all these other aspects that are negatively impacted by technology, like oil changes, brakes, belts, things like that, it's going to be really difficult to have those businesses over the coming 10 or 20 years whereas tires appear to be a much safer place. 

And so, we've put a lot of thought and effort into finding interesting and new approaches in tires. We've looked at a lot of startups. We've made two investments. One is in a commercial truck application called Aperia, which does truck tire inflations. It's actually within the hub itself for large truck tires, and there's some interesting stuff that they're building to monitor those tires well beyond just tire pressure monitoring that's really fascinating, and then-

Ali Tabibian: 39:44 And, by hub, you mean in the hub of a wheel, right?

Reilly Brennan: 39:46 In the hub of the wheel itself. It actually will inflate the tire within having to pull over to the side of the road, and so things like that. And then, we have a consumer-facing team, which is called ZORE and they do tire delivery, so they're focused just on tire replacement. So, if you, instead of going to the tire shop and waiting in the lobby for four hours, you can push a button on your phone and schedule to come to your office within a tight delivery window. They'll replace the tires. 

They have basically an entire tire shop in the back of a sprinter van, and the only thing they do is tires. And tires, for them, are usually a set of four tires or a one as replacement if you get a puncture or something like that. Tires are ... average transaction price is five to six hundred dollars. Most people, when I ask, "What do you think the most expensive part is in a vehicle?" Most people say it's the engine. It's not. It's actually a tire. An engine is a composite of two thousand individual parts, but the expensive single part spec'd on a brand new car is typically a tire. 

And so, there's a lot of value in that. There's a lot of interesting value that's lost in the retail part of this. And so, ZORE is a direct experience with a consumer that does not have a physical retail store. They come to you. And we think they're going to build a lot of value over the coming years. And they had started in Kansas City, where they got to just over a million in run rate, and they're moving it to Dallas this month, actually. They're going to open up in Dallas.

Ali Tabibian: 41:23 That's excellent. And so, it sounds like that also is a geographically-specific concept, right?

Reilly Brennan: 41:23 Mm-hmm (affirmative).

Ali Tabibian: 41:30 It's hard for that van to go around New York City or San Francisco, but, in a suburb, everybody has a nice driveway with a car-

Reilly Brennan: 41:35 And ZORE, for ... I would think the ZORE exemplar would probably be a company like Safelite, which change the dynamics of window replacement by having a nice uniformed experience where the guy would come to you and replace your thing. And I believe that those ... many of our company owned it, but I believe it went franchise eventually. And you can mostly find Safelites nationally, and that would clearly be the objective of ZORE long-term is you open up more of these really important cities. 

And, for ZORE, interestingly enough, the more valuable cities are the ones where you have better communities where you have people who own two or three vehicles with a garage and you have bad roads and you have long commutes. So, as lucky would have it, for ZORE, a lot of America looks like that, but ZORE is probably not as valuable in downtown Manhattan as they would be in the suburbs of Connecticut, where people are doing a 45-minute commute into the city, for example. So, they're strategy about where to go is usually kind of in that outer ring where people own two or three cars or something like that.

Ali Tabibian: 42:46 That's incredible. I don't want to overstay our welcome here, and I think we covered most of the things that you and I talked about before we started taping. Anything else that we should cover? And don't that Midwestern modesty get in your way. Go ahead and advertise if you want to about how to get in touch with or what you're looking for.

Reilly Brennan: 43:08 We're looking for people with really interesting perspectives on transportation. And we, I like to say, we're early or way to early, so we'll back stuff when it's quite early and there's maybe just the beginnings of an idea, and we love diverse teams. It's funny. Over the last six months or seven months, maybe, we haven't made one investment in California. We've been investing in Seattle area, Kansas City, Ann Arbor, Africa, Toronto. So, when we first started Trucks, a lot of our investments were really in the Bay Area. It seems like, over the last year, there's been a blossoming of entrepreneurship in a lot of other areas, and happy to get on an airplane and meet founders in new areas. So, if you're working on something interesting in transportation and it's early. Please give us a ring.

Ali Tabibian: 44:06 Great, so that's already a differentiator, just given how broadly you're willing to consider.

Reilly Brennan: 44:11 We'll go early, and we'll go anywhere.

Ali Tabibian: 44:13 Early anywhere. And, it sounds like you're a lot more likely to invest in people that you've met recently as opposed to ... when people think of venture capital, they frequently think, "If I don't know the person already, or at least one type of degree of formed relationship already, it's not happening." Sounds like you're not quite in that category.

Reilly Brennan: 44:31 I have a fundamental problem with that because it certainly makes your investments look a lot like your GPs, and I just think it'd be really foolish to do that. It also assumes a lot of your own network, and transportation founders specifically come from adjacent industries. If you look, for example, at the founding team of Cruise or the founding team of nuTonomy, those people didn't come from Bosch and GM and Toyota, even though they're significantly having an impact on those companies. 

They came from video games and research labs and things like that. So, for us, the wave of founders is going to come from unusual pockets of the world, and we need to be really open to that. As an early stage investor, I can't wait to find out about a company in TechCrunch or The New York Times or VentureBeat. I have to know about them almost before they're starting their company, and so I have to be really open to meeting people who I've never met with. 

By the way, it's also important if you do that to have an evaluation system that you really trust, and we do have one now that we really rely on that allows us to make assessments of really early stage founders and ideas. But if we didn't have that, then I would fall back on, "Well, I'm just going to trust my network to assess these," but I don't think that's good for very early stage evaluation.

Ali Tabibian: 46:07 Well, thank you so much.

Reilly Brennan: 46:08 Thanks, Ali. I really appreciate it.

Ali Tabibian: 46:10 This has really been nice. Great. Thank you so much.

Reilly Brennan: 46:11 Thank you so much.


TCM Handle: 46:13 Tech. Cars. Machines. Subscribe here or at GTKPartners.com.