Argo and Ford and Volkswagen

A few weeks ago, Volkswagen closed a multi-billion dollar investment in Argo AI. The investment was originally announced last summer, so this was hardly a shock. Nonetheless, the deal results in a really interesting ownership structure for Argo, that is shared by Cruise, and is pretty uncommon among startups.

When GM purchased a 40-person startup called Cruise Automation in 2016 for a reported $1 billion, a self-driving acquisition race began.

About a year later, Ford announced that it “would” invest $1 billion over four years in a little-known Pittsburgh-based startup called Argo AI. Confusingly (at least to me) for $1 billion Ford was not “acquiring” Argo — it was becoming a shareholder. It wasn’t even clear whether Ford would be a majority shareholder.

There is a certain logic to this structure, but it’s really unusual. The logic is that Argo, as an independent company, would be able to grow rapidly, like a startup, unencumbered by Ford’s constraints and brand. It would just have a lot of Ford’s cash.

On the other hand, Ford made a tremendous bet on what was then a very small team. If Argo hit a home run, Ford wouldn’t necessarily reap most of the reward. And if Argo took all that money and drained it, Ford had limited power to prevent that.

In the time since the Argo investment, Cruise has essentially spun out of GM into a similar structure. It’s taken major investments from both Softbank and Honda, to the point that Cruise is once again an independent company with corporate investors who have poured in billions of dollars but have a lot less control than you might imagine.

Volkswagen’s investment in Argo seems to be a vindication of this unorthodox approach. Unlike Ford, Volkswagen is investing in a real company — still a startup, but one with hundreds of employees and solid technical progress. Volkswagen’s investment shows they think this may be the path forward.

So often when you see a corporate investor try to become a venture capitalist, things go poorly for both the big company and the startup. In this case, things seem to be going quite well.

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