Way Mo’ Cash for High-Tech Cars

Alphabet’s self-driving car subsidiary Waymo on Wednesday said it raised $2.5 billion from investors, with an asterisk: Alphabet was the lead investor in the round, according to a person familiar with the deal. 

In Silicon Valley, the lead designation usually belongs to the party that contributed half of the total amount in the round. So either Alphabet CFO Ruth Porat wanted to make sure the new investment didn’t reduce her company’s roughly 90% stake in Waymo by much, or none of the other investors—including the only new investor in the round, Tiger Global, a name that should surprise no one—would pony up that kind of cash. That makes today’s Waymo funding round different from last year’s $3 billion round, which was led by private equity firm Silver Lake. Alphabet’s contribution was significantly lower.

Waymo isn’t saying what the valuation of the latest round is, but it probably wouldn’t be much higher than its reported $30 billion valuation from last year. How such valuations are calculated for a minuscule business with unproven tech and many years of hardcore R&D ahead of it is anyone’s guess. But given the uncertainty and risk, many people in and around the self-driving car industry view Waymo’s private financing as admirable in light of less-advanced companies in the sector that have gone or plan to go public, shifting those risks to public investors.

The deal also puts an exclamation point on the notion that there’s never been a better time for autonomous vehicle-related developers to raise money. Over the past 12 months they’ve hauled in $11 billion in public and private equity funding collectively versus $5 billion in the prior 12 months, despite question marks surrounding when any of these efforts will be commercially viable. 

Waymo’s current cash hoard will fund its operations for another two to three years, given the company’s growing headcount of 2,000 and a costly fleet of 700 prototypes that operate largely in the southern Phoenix suburbs and in San Francisco. So Alphabet, which has already provided at least $5 billion of cash to Waymo and its predecessor unit within Google, will need to raise additional funds from other investors in the future or send over more of its plentiful cash. Don’t be surprised if Waymo announces an extension to the current round later this summer as it looks to get more breathing room and also boost the business world’s confidence in its new co-CEOs, who took the reins about two months ago.—Amir Efrati