Return to search

Detroit gets serious about automotive startups

Call it a wake up call from new business to old business. Startups are out to change the business of transportation and incumbent auto manufacturers are taking them seriously.

General Motors’ investment in ethanol maker Coskata last week is one example. The details of the deal are undisclosed, but the investment comes with a partnership. GM will receive ethanol deliveries from Coskata’s pilot plant by the end of this year to use in its test vehicles. Coskata has raised $10 million to date from Khosla Ventures, Advanced Technology Ventures and GreatPoint Ventures.

GM has embraced the ethanol market faster than most automakers. It sells a variety of “flex-fuel” models that can run on either gasoline or a mixture of gasoline and ethanol and has plans to make half of its fleet capable of using “flex-fuel” by 2012.

“We were awestruck by how motivated [GM and other investors] were about ethanol and flex-fuel vehicles,” says Coskata founder Todd Kimmel. “I believed a lot of what was in the press, that they lacked vision, but they get that the status quo is not OK anymore. It’s not OK to have another decade where 98% of our transportation fuel is oil-based.”

Coskata isn’t the only company GM has taken an interest in. The automaker has partnered with Sequoia Capital-backed A123 Systems. GM tapped A123 to work on its electric-powered Chevy Volt. Together, the companies are developing nano-phosphate battery cells powerful enough to drive cars.

GM has not invested in A123, but the battery company has received significant interest from other corporate investors. General Electric, Motorola, Qualcomm and Proctor & Gamble have each contributed to the nearly $127 million that the battery company has raised.

General Motors does not have a corporate venture arm to make investments from. The money comes from business groups inside the company, such as the one focused on ethanol energy, and is approved through its CFO.

The company took two to three months to diligence Coskata’s technology and set up a deal, Kimmel says.

Last week, just in time for the North American International Auto Show, VCs invested in several automotive related startups.

For example, Khosla Ventures invested an undisclosed amount in EcoMotors, a Detroit-based manufacturer of a next-generation diesel engine, with a focus on fuel efficiency. The company expects its first delivery in 2011.

Meanwhile, Kleiner Perkins Caufield & Byers invested in Fisker Automotive. The company is the product of a joint venture formed out of Quantum Fuel Systems Technologies Worldwide (Nasdaq:QTWW), an Irvine, calif.-based energy systems company. Fisker is making a plug-in, gasoline-electric hybrid car that will use proprietary power systems developed by Quantum.

Kleiner Perkins General Partner Ray Lane described the company’s design as “groundbreaking” and “forward thinking” in a prepared statement. The value of the deal was undisclosed, but a recent regulatory filing shows that Fisker raised $5.5 million. Kleiner Perkins is not mentioned in the Dec. 3 filing, but more than $3 million of the funding came from six accredited investors in California.

The investments in the automotove related companies come less than a month after a new law boosting fuel efficiency and biofuels was signed into law in the United States. Under the new law, all automakers must improve fuel economy by 40% beginning in 2011, and achieve a fleetwide average of 35 miles per gallon by 2020.

The new energy legislation also calls for annual production of 36 billion gallons of biofuels by 2022, a 5x increase from current production levels, with 21 billion gallons of that required to be cellulosic ethanol.