On the podcast: Cities as stakeholders in mobility

Last week, we talked about the promise of autonomous cars and recent advancements in self-driving technologies. This week, as a continuation of that discussion, we're taking a closer look at the role cities play as stakeholders in mobility and how the pandemic may have impacted our thoughts on movement. To provide their perspective, we are joined by Peter Barrett, founding partner at Playground Global, and Joy Tuffield, partner at Generation Investment Management.

Explore more of Season 2 and subscribe to get new episodes of "In Visible Capital" every Tuesday on Apple Podcasts, Spotify, Google Podcasts or wherever you listen. For inquiries, please contact us at podcast@pitchbook.com. Transcript Asad Hussain: When I think about the future of mobility, I think the most successful operators will be those that can establish goodwill with cities and generate strong relationships with cities and partner with them to help them solve their transportation issues.

Lee Gibbs: Welcome back to "In Visible Capital." I'm your host, Lee Gibbs. As someone whose job it is to stay up to date on industry trends, I work closely with PitchBook research analysts and industry professionals to understand market drivers across private and public capital markets. In our last episode, we touched on a few factors driving the autonomous vehicle space. And while there are numerous technological challenges to overcome in the development of autonomous vehicles, deployment is another matter entirely. Today, we're taking a closer look at the role cities play as stakeholders in mobility and how the pandemic may have shifted priorities across the myriad ways we move. We're welcoming back our emerging technology analyst Asad Hussain, who focuses on mobility.

Asad: I think cities were facing challenges even before this pandemic, but the pandemic has brought these challenges into the forefront in a way that wasn't the case before. It's really stepped up the challenge for these cities because the way people are moving has changed so substantially.

But I think this actually creates opportunity for mobility companies in terms of being able to actually step up and align with cities in solving these issues associated with congestion and emissions.

What you've seen is a continued aversion to mass transportation and people moving on to driving, moving back to driving a lot more. And so that's actually creating a lot of congestion in these cities. And so I think a lot of cities all across the world are looking at this and taking a step back and thinking, "Hey, look, we don't want to take one step forward, two steps back. We don't want to get back to normal and have even less people going through buses and mass transit and have just gridlock everywhere and emissions impacting people's health."

And so I think right now, I think there's a lot of opportunity for cities to partner with, for example, micromobility companies, and I think you're seeing that.

Lee: If you're not familiar with the term micromobility, think of short-term bicycle and scooter rentals that can be used throughout cities without docking stations. Prior to the pandemic, many shared bike programs were experiencing a decline in funding and profitability. But due to COVID-19, more consumers have opted for the socially distant form of transportation. Since the start of the pandemic, electric bike sales have increased substantially. Market research firm NPD Group reported that sales of e-bikes rose 190% year-over-year in June 2020. Transportation options like this can help cities reduce traffic congestion and emissions, but the impact of numerous bikes and scooters littered throughout cities is also well-documented.

Asad: When you have these shared assets and they're just kind of out there, the city has a lot more jurisdiction and power in terms of its ability to influence what happens with those scooters. You've seen that with scooters being impounded in many cities or being charged municipal fees. Basically, I think what we're going to get to is a situation where, similar to Europe, cities are increasingly only going to give out a few limited licenses to these shared mobility operators and say, "Hey, these three companies are allowed to operate in our city. No one else. If anyone else tries to, we're just going to impound your scooters."

And so I think that really highlights and puts into sharp focus the expanded role of cities as important stakeholders in mobility, and also ultimately gatekeepers.

Lee: Increased adoption of bikes and scooters could meaningfully expand the market for micromobility, which PitchBook estimates has a total addressable market of $32 billion in the United States and $105 billion dollars globally. And Asad notes that cities aren't just gatekeepers, but also partners.

Asad: Maybe instead of charging scooters with fees, cities will actually subsidize them because they'll see them as important partners in helping pick up the slack for their buses and trains that are seeing a lot of financial strain and pressure from people not wanting to go on there and not being willing to share spaces with others. Again, it just ties back to success indicators for this space. I look at scooter companies in this space and it's still such a fragmented market. I think the companies that are going to be most successful are going to be those that partner with cities that can effectively align with them and build goodwill with city officials.

Lee: And as mobility companies and cities begin to shift to more of a partnership mindset, investors may also be shifting their investments with new trends in mobility.

Asad: When we look at how venture investment in mobility has taken shape over the last five years, we really break it out into two pieces. One is Mobility 1.0, and we think we're right on the edge of Mobility 2.0. And for us, Mobility 1.0 refers to these software solutions and software platforms—companies like Uber and Lyft, which garnered a ton of investment. But at the end of the day, what they really are all about is connecting people with people, connecting people with drivers and couriers who then operate their own transportation assets. And there's a lot to like about that business from an investor perspective, right? It's flexible. It can scale very quickly. There's less downside risk associated with it. You don't have to take on transportation assets on your balance sheet. And I think that's what's driven a lot of the investment in the space, and that's what's driven a lot of the success of these companies. But I think as I look forward into the future of mobility, and especially with this pandemic, I'm increasingly seeing more investment into what we call Mobility 2.0, which is about connecting people directly with transportation assets. So there we think scooters, we think e-bikes, we think car-shares and ultimately autonomous vehicles.

Lee: Joy Tuffield, a partner at Generation Investment Management, is optimistic that cities will be open to incorporating autonomous vehicles into the transportation infrastructure.

Joy Tuffield: And the reason for that is because cities are pretty desperate to get cars out of the city because congestion is a huge issue, obviously. But also, I mean, if you think about it, so much space is dedicated to vehicles that are essentially just idly parked on the side of the street. And so it's such a headache and there is such a kind of impetus to get cars out of cities that I'm sure, more often than not, cities are going to be pretty excited about the prospect of autonomous vehicles. And the other thing I would say is autonomous vehicles will be a real accelerant to electrification. And so if you're thinking about cities having these pretty aggressive mandates out there to get gas-powered vehicles out of their cities, this will be an accelerant on another element, which is reducing carbon emissions and dirty, polluted air across cities in the world.

Asad: And so when you look at it from that perspective, I think it makes a lot of sense for cities to proactively go out and reach out to these companies because it's in their best interest to get commuters out of gas-powered vehicles and into electric vehicles or electric air taxis or electric bikes and scooters, and better facilitate the adoption of autonomous vehicle technology because that's going to reduce vehicle collisions and overall improve the lives of people living within those cities in urban areas.

Lee: But how autonomous vehicles will fit into the larger mobility ecosystem is certainly up for debate.

Peter: Setting aside the fact that I don't think anybody actually knows how to build an autonomous vehicle, it wasn't clear how the advent of that technology would make the lives of people that live in cities any better.

Lee: Peter Barrett is a founding partner at Playground Global, an early-stage investment firm.

Peter: Playground is really focused around deep technology—things that almost certainly won't work, but they will be consequential if they do.

Lee: And while autonomous vehicle technology didn't feel like the consequential bet that Peter wanted to make, he did see potential in a different type of solution.

Peter: We pretty quickly came to the realization that cities were going to go through a transition where code would become the new concrete and that they needed an underlying digital infrastructure to be operable—to be able to manage the rapacious interest of new private technologies and manage them in a way that didn't cause the city to collapse under its own weight. And so we quickly went from, well, why do I want to make a sentient autonomous vehicle that needs 700 watts of GPU to figure out whether the light is red, when we could have cities with APIs and infrastructure, where all of these new technologies could collaborate in a common substrate that could be managed by the city and give them agency over their infrastructure. And that's what very directly led to our early investment and the creation of Lacuna.

Lee: Playground led a $30 million Series A for Lacuna in May 2020. As a developer of transportation management software, Lacuna helps airports and cities better manage air and ground transportation through open-source alternatives. According to Peter, Lacuna's first application was a partnership with the Los Angeles Department of Transportation to develop solutions for managing micromobility within the city.

Peter: And once they built that application and service for one city, that's broadly applicable now because all of a sudden all the cities are using the same common representations and have very similar goals to Los Angeles for micromobility.

But we see many, many, many applications that are enabled by these marketplaces around pricing the infrastructure that the city operates and being a partner to a city to generate revenue from that infrastructure. You're replacing revenue that we get today from, say, gas taxes, which mercifully will go away in the electrification world. But cities still have to operate, and they need to find other sources of revenue and pricing. Their infrastructure allows them to dynamically craft behavior of private interest on their infrastructure and return revenue. But you need applications and services to do that, right? You need people to build the tooling and find those applications. And we see Lacuna is uniquely suited to doing that.

Asad: What we're seeing is just such a dramatic rise in ecommerce, last-mile delivery of things like food, groceries and convenience items, and along with that, a move toward things like micromobility, scooters and bikes. And what that's doing is it's shifting the landscape of who's on our roads and why. And so when you think about it from that lens, the way our roads within cities are currently allocated—and not just the roads, but parking spaces for cars, which are primarily meant for passenger cars—they're not really set up in a way that optimizes for the future of these trends. And so I think cities are going to be paying really close attention to things like curbside parking going forward as they see services like ridesharing continue to gain adoption, but also last-mile delivery really accelerate and the need for quick stop-and-go parking spots for for delivery vans, for example, the need for that continue to be highlighted. I think as that occurs, the need for startups and software solutions that can collect data on traffic trends and parking trends and create platforms connecting cities to these vehicles, that's only going to become more important.

Peter: What would taxis be like if they had common infrastructure that was plugged into the ground truth of the city? And what if I could have all the dynamics of an Uber and Lyft being delivered by taxis within an urban environment.

Asad: For mobility services to be successful, the customer experience has to be really good and the customer experience isn't going to be good if they get into a mobility service, whether it's an autonomous vehicle, a robotaxi or a ride share or even a non a non-car, like an electric scooter, an electric bike. It's not going to be a positive experience if they're stuck in traffic, if they can't work, get where they need to go efficiently. And so the infrastructure needs to be there from a city perspective, providing things like bike lanes and avenues for micromobility. It needs to be safe and it needs to be accessible. And that goes for things even far flung in the future. When you think about things like flying cars and urban air mobility, it's going to be paramount for these companies to partner with cities and work with them, share data proactively to best facilitate the proper investment into things like bike lanes, verdict parts for urban air mobility, maybe dedicated lanes for autonomous vehicles. All that is going to be central in terms of accelerating the adoption curve and improving the commuter experience as much as possible.

Lee: But cities have found it hard to keep up in the midst of this technology acceleration.

Peter: Traditionally, cities have been using physical infrastructure to manage their physical infrastructure. LA was the first city on earth to paint a line down the middle of the road. We've been using those affordances, which are static as the infrastructure is, in order to make the cities livable. But now the cities are being reshaped by algorithms, right? They're being reshaped by the Waze app and the Lyft and Uber app and they're dynamically making up their own stop signs, making up their own thoroughfares, making up stuff which may not be in the interest of people who live in the cities and is really in the interest of the algorithm. And having those separate private interests untethered from an underlying platform is going to get you into trouble.

We've seen that in changes in the traffic patterns, changes in pedestrian deaths, changes in, you know, the utilization of the loop around LAX. The airport example is particularly poignant because I don't think anybody wants to go to an ancillary lot to get their Uber and Lyft. Certainly Uber and Lyft don't want people to do that. The airport doesn't want people to do that. But if they can build a marketplace to allow a range of services to be priced appropriately, you've got other choices for managing the experience of customers at the airport. So, you know, airports are good microcosms of cities and good sort of canaries in the coal mine as to what happens to cities when you let those inbound private interests run amuck. So we saw Lacuna as a leader in recognizing this new world and being uniquely suited to execute against a broad set of opportunities across a bunch of cities and a bunch of airports and other infrastructure that could all of a sudden scale like no smart city opportunity ever occurred. And until now, we've really not had a good way of getting those platforms and infrastructure into cities. I think the watershed moment there was the creation of the Open Mobility Foundation.

Lee: The Open Mobility Foundation is a city-led, open-source foundation that manages a series of technologies and data formats focused on mobility that can be shared between cities. This is to help improve the safety, equity and quality of mobility systems. Overall, the foundation is made up of public and private entities, which includes Lacuna.

Peter: It's been adopted now by over 100 cities and in about a dozen countries now. But inevitably, if you want to operate a city with different modes of transportation and different infrastructure, like, drones or even traditional transit, all of those things need a common underlying data infrastructure. And once you have that common substrate, you can build marketplaces, you can build applications, you can build services, you can integrate private interests with public interests. You can provide ways of letting cities operate, say, a micromobility service without having piles of burning scooters or bikes; that you can see that the operator is equitably distributing those scooters on a particular day and not just piling them all in the rich end of town, you know, but it can also help them build marketplaces for things like the curbs or the constrained resources that can provide revenue to the city. That also lets the city spend that revenue on their obligations for equity and safety and operability that everybody in the city needs to need to benefit from.

Lee: What's been made clear throughout this season of the podcast is that aspects of how our lives have changed amid the pandemic will endure, and that will have an impact on how we think about our city infrastructure going forward.

Peter: When we go back, there's going to be parts of what we did that people like. They don't want to get rid of being able to sit outdoors and have a nice meal, that reduce the primacy of vehicles in the city. And I think that people who run cities are very good at policy in the public interest. And I love same-day delivery, but not at the expense of drowning the city and generating gigatons of carbon because nobody can get anywhere because my you know, my Zagnuts needed to be delivered in an hour or two. But I think that there are measured modes that emerge once you have the data that supports how people are going to use it. And I believe that there are great opportunities in transportation and in dynamic routing and scheduling of things like busses, you know, the interactions with with trains and other dense modes of transportation, which are so much better than drowning a city in sentient AV vehicles that we don't know how to build. And to me, I don't know how you do any of it unless you can measure it and then modify behavior using economics to serve everybody's interests.

Asad: I think the way cities look at it is how can we maximize the public good? What are the externalities we need to be aware of? Cities have a lot of control over transportation systems, and a goal for them will always be to expand cost-effective, convenient transportation for as many people as they can. And I think mobility technology has played and will continue to play, even beyond this pandemic, a really important role in bringing down costs, improving affordability, improving convenience and also reducing emissions.

So when I look even beyond the pandemic, let's say we go back to normal. I think the future is very bright. I think there's going to be persistent demand for the solutions in electric vehicles, in micromobility and car-sharing and all sorts of autonomous vehicles. Ultimately, it'll be all about this push to expand mobility for everyone, no matter what your income status is, where you live. And so when I think about the future of mobility, I think the most successful operators will be those that can establish goodwill with cities and generate strong relationships with cities and partner with them to help them solve their transportation issues.

Technology on its own can't solve the problems that we have today within cities, which is access to cost-effective, affordable, convenient and clean transportation.

Peter: Ultimately, cities have a responsibility to the people who live in them, and they need these tools in order to best address those responsibilities. And it's not just how many same-day delivery companies can I pile in? It's equity, it's safety. It's building a city that works for everybody, not just white-collar workers driving into the city at 9 o'clock and driving home at 5. It's carbon footprint. It's the health and well-being of of people in that city. So I think that they own the ground truth. They own the responsibility. They ultimately are the ones who are on the hook for making them places we want to live. And so I think they're incredibly central to any of these. And I think we ignore the interests of the broader community at our peril and that we absolutely need common infrastructure and modern software and modern tools and services to be able to do that. Otherwise, it's just not going to work for anybody.

Lee: It's been made clear that there's no shortage of challenges when it comes to creating the transportation solutions of the future. From understanding how people will move to creating equitable solutions that prioritize public health all the way to creating a shared underlying data infrastructure accessible to all cities, solving those problems will require both companies and cities working together under a shared set of interests. In our next episode, we're going to change the conversation for moving people into moving freight as we better understand how technology is reshaping the supply chain. In this episode Peter Barrett
Founder and CTO at Playground Global Peter Barrett is a founder and CTO of Playground Global. He believes the computing revolution—and arguably even the industrial revolution—hasn't happened yet, and he's drawn to the toughest challenges at the boundaries of deep tech and hard science. Barrett has been writing software since he was a teenager. At 19, his first security program caught the attention of the NSA. From his first company, Rocket Science Games, he's had an adventurous career in technology and holds over 100 patents.

At Playground, Barrett delights in the opportunity to deeply collaborate with entrepreneurs and help create transformative companies with multigenerational impact. He thrives on technologies that lie somewhere between improbable and impossible and companies whose success will help move civilization forward.

Barrett lives in Palo Alto with his wife, two children, a surly cat and a friendly dog.


  Joy Tuffield
Growth Equity Partner at Generation
Joy Tuffield joined Generation in 2013 and is a member of the Growth Equity strategy, focusing on enabling technology investment without planetary and societal trade-offs. Tuffield has led the firm's industry roadmaps on everything connected to transportation, from electrification to autonomous vehicles to supply chain software, and spends a lot of time talking to truckers about how their lives are changing with technology. She led Generation's investments in DeepMap, Asana, Gogoro and Convoy, where she also sits on the board.

Tuffield was previously an investment banking analyst at Jefferies International, where she focused on the Oil & Gas industry and before that, she conducted research on resource and climate security in the Energy, Environment and Resources Department of Chatham House (The Royal Institute of International Affairs). Tuffield graduated with honors from St. Hilda's College, Oxford University with a Masters in Physics and Philosophy.

Asad Hussain
Emerging Technology Analyst at PitchBook Asad Hussain is an emerging technology analyst at PitchBook, where he contributes to the company's emerging technology research covering the mobility tech and supply chain tech verticals. Hussain leads PitchBook's mobility and transportation tech coverage, which includes sectors such as autonomous vehicles, ridesharing, car-sharing, micromobility, last-mile delivery and fleet management, among others. His expertise has been regularly featured in top media outlets including CNBC, CNN Business, Financial Times, Forbes, Fortune and Reuters. Hussain has also appeared on Bloomberg TV's "Balance of Power" and "Bloomberg Technology" segments to discuss emerging trends in ridesharing, autonomous vehicles and food delivery.

Prior to joining PitchBook, Hussain was an equity research associate at Westwood Holdings, where he supported the coverage of 100+ publicly listed US companies within the technology and industrial sectors.
 
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