$200 Million for Electric Cars?

Software industry hotshot Shai Agassi has a well-funded plan to shake up the auto industry with a new approach to the electric car

by Steve Hamm

In one of the largest-ever initial fundings for a startup, a company led by former SAP (SAP) executive Shai Agassi has raised $200 million to fund a plan to shake up the auto industry. The new project is a sharp professional departure for the 39-year-old Israeli, who launched two small software companies in Israel before he joined SAP. His goal is nothing short of audacious: to jump-start mass adoption of electric vehicles by introducing a radically different scheme for selling the cars and handling their batteries.

The company's name is Better Place, a sign of Agassi's hopes for its impact on the world. It has received $100 million from Israel Corp. (ILCO), a large Israeli industrial holding company, and lesser amounts from Silicon Valley venture capital firm VantagePoint Venture Partners, a large New York investment bank that wasn't immediately identified, and angel investors including Edgar Bronfman Sr.

A Business Model with Big Aspirations

The project attracted some of its backers not just for the potential financial returns but because they see it as a catalyst for fundamental shifts in transportation and energy. "We take on transformational projects. This squares with our notion of what needs to be done to effect change," says Alan Salzman, chief executive of VantagePoint, which has made a number of investments in green ventures, including Silicon Valley's Tesla Motors, an electric car company.

Agassi's company plans on operating much like a mobile-phone service provider. It hopes to sell or lease electric cars to consumers in packages that include monthly service fees. It will also operate networks of charging locations and service stations that replace batteries for people who are on the road. The whole system, called a "smart grid," will be coordinated by networking software developed by Agassi's programmers.

Agassi hopes to pilot the project in a few countries next year and begin mass deployments in 2010. He says he's close to signed agreements with several car companies and countries, but won't reveal their identities. Yet Agassi is anything but shy about his ambitions for electric cars. "If what I'm thinking is right, this will be the largest dislocation in the history of capitalism."

An 'Inevitable' Shift

Agassi and his allies expect a lot of criticism from the powers that be in the auto and energy industries. A smattering of analysts and industry observers who had been briefed ahead of the company's formal unveiling, scheduled for Oct. 29, were both intrigued and skeptical. "When I first heard about it, I thought it was just another crazy idea. It sounded far-fetched," says Stephen Girsky, a managing director at private equity firm Centerbridge Partners who was an auto analyst on Wall Street for 20 years. "Then I sat down and listened, and it just might make sense." Still, Girsky cautions that the old ways of doing things will be difficult to dislodge: "Change doesn't happen quickly in the auto sector," he says.

While Agassi's backers agree that a lot of things have to go right for this business to take off, they're totally sold on the concept. "It makes so much sense from the environmental point of view as well as the business point of view," says Idan Ofer, chairman of Israel Corp. and board chairman for Agassi's new company.

Ofer first learned of the plan from Agassi in a June meeting. Israel Corp. is a major investor in oil refineries, ocean tankers, and chemicals, but Ofer says he's not concerned about the seeming paradox of making an investment in technology that could slacken demand for gasoline. "If I didn't do it, somebody else will," he says. "What's the point of fighting something that's inevitable?"