When Elon Musk first teased the concept of the Hyperloop on stage at the D11 conference in May 2013, he described it cryptically as a "cross between a Concorde and a railgun." Three-and-a-half years and lots of private development later, we now have a better idea of what he was talking about then.
Using pressurized tubes, solar power, and customized pods, Musk believes the Hyperloop offers a better alternative for transporting passengers between cities such as L.A. and San Francisco at speeds in excess of 700 mph. (Download the full paper at the SpaceX website)
Full implementation could still be a decade or more away, but there's no shortage of enthusiasm for Musk's idea. Hundreds of student teams participated in a SpaceX-sponsored contest to design a Hyperloop transport "pod" last year and real-life tests are expected to take place in January of 2017. In the meantime, two startups with big ambitions—to be first to commercially deploy the Hyperloop—are going to head-to-head, and drawing serious investor interest as a result.
Hyperloop Transportation Technologies
Founded three years ago, you can think of Hyperloop Transportation Technologies—or HTT, as the company calls itself—as a high-tech cooperative created with the help of crowdfunding platform JumpStart Fund and staffed by a team of over 500 "professionals" working on the project in exchange for stock options.
"If you have 500 or 1,000 people that are passionate about the same things you are, then you can build a better company," CEO and co-founder Dirk Ahlborn said in a March interview with Inc.
As of today, HTT lists SupraStudio UCLA, ANSYS, AECOM, and Oerlikon Corporation as collaborators. They've advanced the concept far enough that HTT has unveiled plans for a five-mile test track to be built in a new "startup city" located in Quay Valley, CA. Meant to be entirely self-sustaining, HTT's home base will "operate on 100 percent solar power as its energy source and set new standards in self-sufficient energy use, water conservation, resource reuse, and environmental responsibility," the company says in an online press kit. HTT's test track and Hyperloop are intended to serve as the town's public transport.
While we don't yet know how close HTT is to having a working Hyperloop, there's undeniable business momentum. In April, the company announced a deal with the government of Slovakia to develop a Hyperloop line connecting Vienna, Bratislava, and Budapest. Plus, in the Inc. interview, Ahlborn said that over 600 institutional investors want to invest and that corporates such as ANSYS and AECOM had donated some $60 million worth of useful assets in exchange for equity. It's a novel funding approach that could lead to a transportation breakthrough—unless its main rival gets there first.
Hyperloop One
Founded in 2014 by two partners, Shervin Pishevar and Brogan BamBrogan, Hyperloop One has raised $141.1 million in equity and convertible debt financing from 18 investors, including Sherpa Capital, where Pishevar is a co-founder and Managing Director.
No doubt a big chunk of that money has gone into building out Hyperloop One's "Innovation Campus," a 55,000 square foot office and manufacturing space located in downtown Los Angeles where components are designed, built, and tested. The company says the facility is built to support the speed with which components must be built; Hyperloop One plans to have three operational Hyperloop lines running by 2020. Whether that's just U.S. or global isn't clear at this point, but earlier this summer the company signed a letter of intent to bring the Hyperloop to Moscow, Russia.
Getting to that point could require an Apollo-program-level effort that includes hundreds of tests and simulations. The good news? Hyperloop One has already banked at least one milestone. A propulsion test held in May in the Nevada desert showed a 10-foot sled rocketing forward at 116 miles per hour for five seconds. Not bad for a first try, and it's a sure bet we'll see many more tests in the months to come.
Behind the scenes drama could hurt the company in the meantime. In July, BamBrogan and a handful of others left Hyperloop One and filed a lawsuit alleging misconduct, including violating labor laws, wrongful termination, and breach of contract, among other things. The company has since fired back with accusations of its own, including theft of corporate equipment and files. Turmoil and potential legal losses won't help Hyperloop One raise new rounds of funding, which it's sure to need. Estimates just for completing an L.A.-San Francisco Hyperloop run between $7 and $16 billion.
Why Corporates May Want the Hyperloop
Longer term, the Hyperloop could change not only how people commute or spend their weekends, it could also alter the economics of transportation logistics. GE Ventures seems to understand this intuitively, having participated in Hyperloop One's $80 million series B round completed in May, around the same time as the successful propulsion test. Here's a list of other corporates who'd benefit from ferrying cargo as well as passengers via Hyperloop. All of them have a history of investing in innovation:
- UPS. The package delivery giant's private equity arm—UPS Strategic Enterprise Fund—has made 29 investments in 19 companies, Crunchbase reports. Betting on the Hyperloop could give UPS early access to freight trials and eventually the capacity to offer same-day regional delivery. (Think Chicago to New York or Los Angeles to Dallas.)
- JetBlue. Unique among major carriers for its willingness to try corporate venturing, JetBlue's Technology Ventures has made three small investments since its founding in February. Betting on the Hyperloop as a fourth investment would make sense when you consider what Musk wants to achieve. Fast, cheap transport between shorter routes such as New York to Boston would reduce or eliminate the need for regional jet service between those cities. In that scenario, JetBlue would not only earn on its investment in the Hyperloop but also be able to reduce capacity and concentrate capex on long-haul routes where it can clear the most profit.
- Amazon. Can you think of a company that ships more packages, more often, and who has more to gain from better logistics? A successful investment in Hyperloop technology would change the economics of the business while adding a chunk of return to a portfolio that's already bulging with 50-plus private equity investments.
- Disney. This one isn't as far out as you might think. After all, the House of Mouse already has a cruise line and a well-developed investment arm in Steamboat Ventures. Funding the technology to create direct Hyperloop service to its major parks could open up a whole new way to sell lucrative vacation packages.
No doubt HTT and Hyperloop One have their own thoughts about partnering. The point is that disruptive technology always presents opportunities for those with bold ideas. Musk has made his contribution. Others have made theirs. What will be yours?
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