- General Motors
- GM’s $2.25-billion SoftBank investment in the Cruise division has given the company equity value that it can use to attract new talent.
- Cruise has grown dramatically since GM bought it in 2016. What started as a 40-employee startup now has 800 people working it.
- GM President Dan Ammann said that another leg of significant growth is on the way as Cruise heads into commercialization in 2019.
GM kicked in an additional $1.1 billion, bringing the total funding to $3.35 billion and giving Cruise a stand-alone value of $11.5 billion. GM acquired Cruise in 2016 for about $600 million, with follow-on growth expenditure bringing the total deal up to $1 billion.
In an interview with Business Insider, GM President Dan Ammann explained why the carmaker pursued the SoftBank investment.
“We’d been talking to them for a pretty extended period of time,” Ammann said. “They’d done a lot of work on the autonomous-vehicle space and a lot of work on us. So there’s a very robust foundation to this alignment.”
“This wasn’t a show-up and ‘Here’s some money’ kind of thing,” he said.
GM has been steadily profitable since its 2010 IPO, bringing over $70 billion while executing an aggressive share-repurchase program under CEO Mary Barra. The company has also paid a dividend to offset a stock price that’s been flat relative to the overall markets. And GM has plenty of cash on hand.
But Ammann pointed out that the SoftBank investment identified a new value-generator inside the company, which will turn 110 years-old in September.
“To have SoftBank come in and make that bet tells you something about what they see in terms of the opportunity, because they are not investing in an $11-billion valuation to see it go to $13 billion.”
“For the Cruise team, this creates some equity currency that we can use to attract talent, and that’s a big deal and a big part of why we did it,” he continued.
“We’ve grown the team from 40 people to nearly 800, and we’ve got another huge leg of growth to go. It was becoming clear to us that by not having that kind of currency available, we were handicapping ourselves. We’ve seen already in a couple of weeks people resurfacing who hadn’t signed up, so there’s anecdotal, but early evidence, that’s going to be a big deal in attracting people.”
Ammann also indicated that the investment provides GM with flexibility in the event of a US market downturn, which many industry observers think is overdue after three straight years to record-setting or near-record sales.
“The deal creates this currency that we can use to raise capital through a separate channel for the [Cruise] business. We didn’t want to end up in a situation where we’ve launched commercially, where we want to go to maximum scale, and that business needs a lot of capital at a time when the mainline business is under pressure.”
Ultimately, GM’s approach to the Cruise deal and to the latest investment demonstrates how significant of a player the old-economy stalwart has become in the new-economy world of Silicon Valley and high-tech entrepreneurship. The SoftBank investment effectively revealed eleven “unicorns” – Valley-speak for billion-dollar companies yet to stage IPOs – within GM.
Ammann said he is pleased with how the original deal has progressed.
“The typical thing would be ‘big company buys startup and screws it up,'” he said.
But GM has given Cruise and CEO Kyle Vogt abundant autonomy and put the right people on both sides of the relationship to manage Cruise’s development.
As a result, Cruise is now worth over 1o times what GM paid for it and it could be a model for how established companies can acquire, integrate, and grow startups.