In case you’ve been sleeping under a rock or hiding in your car, I’m here to share the news – ebike investments are booming. Just yesterday, Rad Power announced a $154M funding round, bringing their funds raised this year to over $300M.
But what’s driving the investment boom? Why are ebikes so hot right now? What makes a company a good investment, and how does the market differ from Europe vs the US?
I sat down with Clement Pointillart, Executive Director of growth-equity fund Verlinvest, and Bailey Morrow, Director of consumer and frontier tech at Silicon Valley Bank, to find out what’s really happening in the world of ebike investment behind the headlines.
Ebike company Rad Power announced a mammoth $154M funding round yesterday.
Pop up bike lines made cycling safer during COVID-19 in many cities.
Pointillart asserts:
From an investment standpoint, you just need to go back to the penetration numbers — where are ebikes selling? What’s the level of penetration today? Look at the Netherlands, penetration is at 42%. If you look at Belgium and Germany, it’s 32%. If you turn your eyes to the US it’s 2%.
Either you believe that fundamentally, Americans will never hop on an ebike for whatever reason or you need to believe in a catch up that will that will happen. And COVID has been to me the perfect catalyst to stimulate that adoption curve.
COVID-19 has been a tremendous accelerator, the trend that was latent, but that was about to explode. Now, you’re seeing, especially in the US, infrastructure deals in road bike infrastructure, allowing more and more people to take their bikes to work.
Pointillart also sees a trend of ebike purchases or subsidized by employers to aid employee retention.
Battery innovation
Both agree that battery innovation has also driven the acceleration of interest in ebikes, with batteries faster to charge, stronger, lighter, and longer-lasting than ever before.
— Companies like Cowboy are leading the charge for fast long-life batteries.
A new kind of consumers
Changes in consumer behavior are also responsible for ebike investments. According to Morrow, there’s a significant millennial trend where “the next generation of consumers are buying fewer cars and have less desire to own big purchases like houses. They prioritize sustainability as a lifestyle choice.”
Ebikes are a popular choice for transporting kids and pets in many cities.
What’s the reason for all the investment in direct-to-consumer ebikes over micromobility?
While micromobility continues to attract funding, the direct-to-consumer market has several upsides.
Morrow asserts:
With micromobility, you’re not tied to a brand. It’s about whatever is closest to you and convenient. There’s no brand loyalty. With a VanMoof or a Cowboy, you are building brand loyalty.
Further, there is a much higher margin from a standalone purchase of ebikes. Micromobility ebikes also have problems with a decrease in lifetime value and low resale value.
Morrow also notes that investing in consumer bikes takes out the political challenge of working with local governments that that can take away your city operating permit for various reasons, like bikes incorrectly parked and bike rider behavior.
What kinds of factors make investors put their money towards one ebike company over another?
I asked Pointillart what makes an investor choose a brand. He explained:
First of all, the question is, how big is that population? And how price sensitive is that population? And then, if you want to expand to establish proper differentiation and a long-lasting presence, you’re betting on the creation of a brand. To me, the community will be the ultimate win.
He gave the example of companies offering group bike tours every weekend to build a community around their brands. “Creating community creates a feeling of belonging, that will create stickiness, and will create positive word of mouth.”
Building community around your ebike brand is a critical part of attracting investors.
The importance of localization in the direct-to-consumer market
According to Morrow, your local market is critical:
When you launch a direct-to-consumer brand alongside raising VC funding, you promote to your local market. Locally marketing ebikes is hard. You can’t take these bikes into your local bike store on the corner and ask them to fix them for you.
So there’s a lot of growing pains, thinking about how you keep the brand integrity and keep the customer happy.
Pointillart believes:
There will remain very strong brick and mortar retail presence, given the necessity or all the desire to talk to a professional, get advice, and have your bike set up without you having to build it.
If you’re just competing online without much product differentiation, that’s where we get a little worried about the longevity of the model to generate profits. And to me, I’m most excited about a continuation of the retail with smart integration of direct to consumer selling.
A VanMoof ebike service center
America remains the holy grail for ebike investors
Expansion to the US is the next step for many ebike companies. Morrow explains:
Typically, you raise Series A, you prove out your local market, then maybe you tackle one more market. So if you’re in the Netherlands, you want to ship to Germany. But ultimately, all their goals are always going to be towards the US.
She notes VanMoof’s intention to ship 10 million bikes and believes:
If they’re not already in the US, they’re absolutely going to the US with that kind of firepower. Because that will be over 300 million people that could potentially buy their product with the need for only two distribution centers on each coast.
When you see companies get to the billion-dollar mark, they have figured out how to jump borders.
Investor interest in ebikes shows no sign of waning. It’s a highly competitive market and it will be interesting to see how brands use their funds for R&D and to cement brand loyalty. Additionally, I think we can expect to see a substantial amount of M&A activity in the first half of 2022.
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