It is hard to believe, but the first major in-person parking conference since COIVD is upon us. I am looking forward to seeing everyone in Dallas at the PIE Conference this month. Based on all of the changes that have occurred since the NPA show in 2019, it should be an exciting trade show floor this year. Our question this month is related to what is driving some of these changes.
Dear Kevin,
Recently, and over the past year, there seems to have been a lot of money invested into parking technology companies. Why is this happening now, and what does it mean for the parking industry?
Mystified in the Midwest
Hello Mystified,
Thanks for the question! I have to say I am also mystified at the large dollar amounts spent for and invested in companies in the parking and larger smart mobility space. Over five years at NuPark, I raised a little over $2M, which seemed like a crazy amount of money at the time, but is now a “small investment.” Looking at the size of investments made today is amazing to me. But in today’s world, the average has been completely redefined. There are a few reasons for this change.
One key reason why there is so much investment in the parking market is there is a lot of money to be invested. Over the past few years, interest rates have been kept (some would say, artificially) low. This decision has led investors to look for new and riskier investment opportunities to find suitable return levels. One of these higher-risk investment types is venture capital.
According to the Oxford dictionary, venture capital is “capital invested in a project in which there is a substantial element of risk, typically a new or expanding business.” During the past ten years, the total venture capital investment in the United States increased almost 400 percent, from $26.1B in 2010 to $130B in 2020. Venture capital is typically invested by a company that raises a pool of money, called a fund, to make investments. This idea is similar to a managed mutual fund you might have in your 401k. (Except hopefully, your mutual fund doesn’t lose money on 8 out of 10 investments.)
The dramatic increase in the amount of money invested in venture capital has increased both the number and size of venture funds on the market. This expansion has also increased the number and size of venture investments inside and outside the parking market. Many of these funds (I am sure there are some exceptions) generate revenue by charging investors a management fee on the money in the fund and another fee for the funds deployed (invested in companies.) The more money in the fund and then deployed, the more money the fund owners make.
Beyond this, from a practical perspective, the amount of work needed to find a deal and then performing diligence on a company (think finding and then doing a presale home inspection, just for a business) is very similar if you are making a $1 million investment or a $10 million investment. So, if you have raised a $50 million fund (which is considered a smaller fund these days), would you instead put the work into doing fifty $1 million deals or ten $5 million deals? Additionally, once you invest in a company, it is easier to make the next investment in that same company.
While it might seem that the trend of parking investment is a new one, venture funds have been investing in the parking industry for many years now. On the previous page is a selected list of technology companies that raised venture capital (with publicly available numbers) in the parking market over the past 15 years.
Not included on this list is the elephant in the room, ParkJockey (now Reef), which has raised at least $1.5B, but I would argue more a parking operator, not a parking technology company.
Beyond the capital available for investment, there are additional reasons why so much venture capital has been spent on the parking market. First, parking is a big industry, and for many people, it is a big problem. Venture investors like making big bets to fix challenges they believe they understand. Especially in the large cities where most investors live, parking is an issue that affects many people and is a clear source of frustration. Who wouldn’t want to be the person who “solved” parking?
Of course, as someone who reads a parking publication knows all too well, many of the parking industry problems are rarely just technology-based. The real underlying issues that affect parking are political, geographic, historical, and often due to the person driving the vehicle.
With all of this capital flowing into parking, what does it mean for the industry? Simply, it has, and will continue to create disruption. Large amounts of investment money flowing into companies allows for new companies to be formed, products to be developed and improved, expansion into new markets, and new jobs created. When managed correctly, this change is positive and can dramatically improve the lives of those who use the product and people who work for the company.
However, it also allows companies to make poor decisions that negatively impact their customers, employees, and the overall market when not managed correctly. These include, but are not limited to, lowering pricing to rates that are not sustainable, buying deals, acquiring companies to eliminate competitors, and growing at rates not supported by their actual product or company structure.
This situation can be especially true of companies that do not hire staff experienced in the parking market. There is a Silicon Valley mantra that you “can’t innovate from the inside,” which leads some companies to avoid hiring people with industry experience. Now, while it is true, innovation does require new ways of looking at a problem, it is short-sighted to assume anyone with experience can’t innovate.
Customers should look past the hype and ask hard questions about what companies can do today and require real expertise from their technology partners. Companies that can find that balance of experience and capital will be the ones who genuinely make a difference.
My prediction is that capital will continue to flow into the parking market, and the market (as we know it today) will look very different in a few years. Overall, the key is to find a partner who you trust and be willing to hold them accountable.
Kevin
If you have a question you would like answered in this column, please reach out to kevin@omnipark.com. Also, if you will be attending PIE, please stop by and say hello at the show!
