Self-driving-car company Waymo closed a US$2.25-billion funding round on Monday, co-led by the Canada Pension Plan Investment Board (CPPIB). The investment, which comes with a board seat for CPPIB, marks the biggest known technology deal in which the pension plan has participated since launching its San Francisco-based office in September 2019. It also ends a long effort by the Alphabet subsidiary to secure its first outside investment. 

How the deal was made: Waymo, which spun out of Google in 2016, had been seeking outside financing for at least a year. The Information reported in March 2019 that the firm had courted German automaker Volkswagen and Menlo Park, Calif.-based technology investment firm Silver Lake for the investment round. According to Ryan Selwood, interim head of CPPIB’s San Francisco office, the pension fund wasn’t brought in as a potential investor until early 2020, and it was Silver Lake—not Waymo—that pitched it on the opportunity. The deal was signed less than two months later. 

Why Waymo? Selwood told The Logic that CPPIB had been exploring investments in self-driving-car technology before the Waymo deal crossed his desk. That preparation helped it move quickly once the opportunity came up. Its past experience co-investing in tech with Silver Lake made the opportunity doubly attractive, said Selwood: the two had invested in Skype in 2009—CPPIB exited the deal less than three years later, having tripled its original $300-million principal. “Waymo is the proven leader in self-driving technology, is the only autonomous vehicle company with a public ride-hailing service, and is successfully scaling its fully driverless experience,” said Silver Lake co-CEO Egon Durban in a statement.

The investment also fits with CPPIB’s broader emphasis on growth equity and technology companies in its tech portfolio. The Logic reported in November 2018 that the pension plan, which traditionally finances late-stage companies, would invest between $500 million and $1 billion in venture capital. And its new office in the Bay Area was opened in part to support its growing tech portfolio, said Selwood. 

Weighing the risk: Morgan Stanley slashed its valuation of Waymo from US$175 billion to US$105 billion in September 2019, citing longer-than-expected timelines for commercializing fully autonomous cars and rolling out ride-sharing services. Meanwhile, Waymo is reportedly costing Alphabet at least US$1 billion per year and only bringing in revenue from its Phoenix-based robo-taxi service. CPPIB wasn’t deterred. “This is a product that will be a disruptive force in self-driving technology,” Selwood said. “Valuation is an important consideration with any deal, but we have the benefit of a long-term investment horizon.” 

Magna gets in on the deal: Canadian auto manufacturer Magna International also invested an undisclosed sum in the round (Andreessen Horowitz, AutoNation and Mubadala Investment Company, which co-led the investment, were the other outside investors that participated). The investment builds on Magna’s existing partnership with Waymo: in January 2019, the Google sister company announced plans to work with Magna to integrate its self-driving technology into a number of car models built at the manufacturer’s Michigan plant. Magna has been ramping up its focus on autonomous-vehicle technology in recent years. It’s partnered with BMW Group, Intel and Mobileye to share technology with the aim of getting self-driving cars on roads by 2021. It’s also shown some prudence with its investments in the space. The firm recently ended its partnership with Lyft, in which it invested US$200 million to build self-driving cars with the ride-hailing company. Following the Waymo deal, Magna CEO Don Walker told BNN Bloomberg that he anticipates self-driving technology will be slow to reach the consumer market, but that it will be a boon to the ride-hailing and trucking industries. “We’ve always said it’s going to be further than some people believe,” said Walker. “It will come at some point in time, so we’re watching that area—we want to be involved in new mobility.”