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Startups like Nauto look to cash in on automakers' need for autonomous tech

Nauto's after-market car tech business is a way to establish its value to the auto industry.

In their pursuit of self-driving cars, automakers are increasingly turning to the very industry they’re competing against: Tech startups that already have the platforms, software and data that can easily be integrated into those cars. And both tech companies and investors are taking notice.

One of those companies, an after-market car tech startup called Nauto, announced today that it had closed a $12 million series A round led by Playground Global with participation from Draper Nexus and Index Ventures.

For companies like Nauto, eventually working with automakers is the end game and their North Star, if you will. Nauto is one of a number of companies in the auto tech space that is designing products and services that people can use (and pay for) now as a way to first enhance and then showcase the value the company will eventually provide to the car manufacturers.

Co-founded by Stanford consulting professor Stefan Heck, Nauto isn’t an after-market autonomous tech company in the sense that Cruise (acquired by GM) and Comma were because its tech doesn’t drive or control cars. Instead, it involves driver safety assistance, connected vehicles and data.

Heck’s company retrofits cars with outward and inward facing cameras and a layer of artificial intelligence that together work to notify drivers of any oncoming traffic, lights or potential obstacles while gathering anonymized data on driving behavior. So far, it has launched pilot programs with a number of commercial fleet owners to retrofit their vehicles. For fleet owners, the technology provides contextual data on their drivers’ behaviors while in turn assisting their drivers with a real-time feedback system.

For Nauto, the theory is that getting the technology into as many cars as possible will help the company gather a richer data set that can later serve as the brains of autonomous vehicles.

“For now the human is doing the driving, but the robot is doing the learning,” Heck told Re/code. “It’s hard to do [a retrofit for full autonomy] in an across-the-board way, so we built the software capability, but the driving part has to be integrated at the OEM. And we’ve started working with several OEMs now.”

In other words, Nauto has managed to build a short-term business they can monetize that helps the company reach its long-term goal of working with automakers to create autonomous vehicles.

That’s not to say, however, that Nauto won’t continue to offer its current services to fleets once it fully integrates with OEMs. Heck says he expects to continue to work with commercial fleets and insurance companies for the next few years and has even put in a bid to potentially work with some cities, like New York, that have Vision Zero programs that aim to curb traffic-related injuries and fatalities.

Though investors believe there is an opportunity for Nauto’s short-term business for a number of years, they are excited about the exit opportunities Nauto’s current strategy enables.

“That’s exactly the sweet spot,” Playground Global partner Bruce Leak told Re/code. “We all realize autonomous driving is the future, but how do we get there? Working with OEMs is a good strategy; it’s just a long, hard path to revenue. But it’s a nice insight Nauto has — the automotive industry wants to work with proven leaders in the field. [So] the company just said we have to get millions of miles of experience. The only way to do that is to have people behind the wheel.”

As for Draper Nexus, which works with companies in the U.S. and Japan, there’s an opportunity for Nauto to either make a larger play for Japan or work with one of the Japanese conglomerates that help fund the firm.

“One of the unique things we found about Nauto after we looked at several companies in the space was that this was the only after-market company that had plans for short term revenue and a long-term goal,” Nauto investor and Draper Nexus partner Q Motiwala told Re/code. “But on the fleet side, Nauto has access to real world miles and really amazing drivers and the AI engine is able to continually learn from these drivers.”

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