Acquired - The Lyft IPO

Episode Date: March 30, 2019

Call it the playoffs. Call it the Olympics. Call it March Madness. No matter which sports analogy you borrow, it falls short of capturing what Lyft's IPO yesterday kicked off in the tech world. A generational changing of the guard from the FAANG to the APLUSS (Airbnb, Pinterest, Lyft, Uber, Slack, Stripe). A breaking of the liquidity dam that's kept capital, technology and talent locked up in a small number of Silicon Valley winners for longer than ever in history. And most importantly, a public market avenue for investing in the largest single market created since the advent of the internet. Acquired is live on the scene recounting and analyzing the history of Lyft (and ridesharing broadly) in every exquisite detail!Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!Links:Lyft’s S-1:  https://www.sec.gov/Archives/edgar/data/1759509/000119312519059849/d633517ds1.htmDonate to Homobiles: http://bit.ly/2TM40nAÂCarve Outs:Ben: Bill Gurley on "Runnin' Down a Dream" https://www.youtube.com/watch?v=xmYekD6-PZ8David: "Cricket Fever" on Netflix: https://www.netflix.com/title/80222770

I don't know about you, but I've literally like, I've been like, I've had trouble sleeping the last couple of nights. Dude, I woke up early this morning. I woke up at 630 and like, I ran down here to the office the podcast about technology, acquisitions, and IPOs. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Well, David, as Vince Vaughn once said to Owen Wilson in Wedding Crashers, it's wedding season, kid.

The IPO floodgates are open, and we are here with the very first one of 2019, the Lyft IPO. I am so excited. I know. Well, obviously, this is an important moment for Lyft and ride-sharing broadly, but what it represents for the entire technology industry is possibly even greater, that the good times can continue. We've had a serious drought in big tech IPOs over the last few years, with most of these companies opting to famously stay private longer. There was significant risk that the public markets do not value these unicorns as highly as the late-stage private investment market has been.

If Lyft had not overcome its last private valuation, we'd be seeing a lot of articles right now about how valuations for startups across the board would drop and times could get tough. Now, we've still got a lot more IPOs ahead, and we've just seen one day of trading. But from what we know, where we sit today, people in the technology ecosystem everywhere can breathe easy. Yeah, the signs are good. I mean, this is huge. We've never seen anything like this before. This is a whole generation of tech companies that are all going to go public all in the

next probably two months here. And seriously pent up demand. I mean, all these companies, the full A plus, as David and I were joking. You've heard of Fang, now the A plus. What is it? Airbnb, Pinterest, Lyft, Uber, Slack, all from different sort of eras of tech over the last decade, decade and a half, all raising so much in the private markets and here all in the next six months, all really IPOing. Yeah, here they are. Playoff atmosphere. Indeed.

Let's get to it. Well, I do have to say the limited partner bonus show that we've been doing, the one that we did with David's partner, Sarah, was so timely and so awesome because Sarah used to run CorpDev at Airbnb and before that at Dropbox. So on the heels of the Airbnb Hotel Tonight deal that now, funnily enough, feels sort of like old news, we got her inside take on Airbnb's strategy with mergers and acquisitions, how to build corporate development functions within companies, and we speculated just a bit on where they might be going with Hotel Tonight.

So if you want to listen to that and many other great LP episodes and become a limited partner, you can do that in literally 10 seconds, and I promise you literally 10 seconds, with just two taps, and you can listen to the show right here in whatever podcast player you use for all of your podcast listening. So you can click the link in the show notes or you can go to kimberlite.fm slash acquired to join. And David, I'm not kidding. 10 seconds and you can you can join and listen right here. So it's awesome. Man, the people behind that Kimberly company are really talented.

Spoiler alert, that's that's well, us, but mostly Ben. Okay, listeners, now is a great time to tell you about longtime friend of the show ServiceNow. Yes, as you know, ServiceNow is the AI platform for business transformation. And they have some new news to share. ServiceNow is introducing AI agents. So only the ServiceNow platform puts AI agents to work across every corner of your business. Yep. And as you know from listening to us all year, ServiceNow is pretty remarkable about embracing the latest AI developments and building them into products for their customers. AI agents are the next phase of this. So what are AI agents? AI agents can think, learn,

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for your people by clicking the link in the show notes or going to servicenow.com slash AI dash agents. So to set the stage for David here, as he dives into the history and facts, we sit here on Saturday, March 30th, the day after the Lyft IPO. The company raised $2.3 billion in its IPO, priced with a market cap or basically a valuation at the top of their expected range, which they had already increased once on their roadshow of $24 billion and closed its first day of trading up above $26 billion. So David, how on earth did we get here? I am so excited to tell the story and all the stories behind this. So we're going to tell the history of Lyft and how Lyft, the company that became Lyft, Zimride, that transformed into Lyft, exist and is now one of the largest technology-enabled markets in the entire world. What we are not going to talk about on this show is the history of Uber, which is quite different.

We will save that for the Uber IPO show, which is coming later this season, hopefully. And Uber started differently. It was not peer-to-peer ride-sharing to start, and it wasn't until 2013 after Lyft was around when they pivoted into that, but we'll get into it. We have a long story to tell. It is a story of transformation, metamorphoses, story of betrayal, a story of good and evil, basically your typical acquired episode. So here we go. It's a nonfiction thriller. Indeed. Oh man, this is a thriller. Okay. So we begin our tale in the 1990s with two young men who are growing up at complete opposite ends of the country, but would one day be drawn together by fate. And on the one side of the country on the West Coast, we have Logan

Green, who's growing up in Culver City in Los Angeles. And his parents are sort of leftover hippies. His parents are a doctor and a veterinarian, but they're pretty activists. And previously, they had helped organize farm labor unions, and they really encouraged their children and Logan to take, you know, that kind of outlook on life. And Logan really takes after them. But unlike them and their activist roots, he's pretty introverted and focused. And so Logan, growing up, he teaches himself how to code. He's really interested in computers and coding. And in eighth grade, this is typical of him. He asks his parents to move the family television out of the living room and into the garage because it is too distracting from what he is trying to learn to code and accomplish in life.

Amazing. I can't say that was me. Yeah, definitely not me either. I was like, can we move the TV into my room? And that's why he is the CEO of Lyft and we are doing Acquired. Yeah, we do a podcast. So in high school, this is amazing. Logan ends up getting a part-time job. He's learned how to code. He gets a part-time job working for a company in Los Angeles called U-Wink. Now, what is U-Wink? U-Wink is the third or fourth, maybe even farther along, company from Nolan Bushnell, the founder and CEO of Atari, who hired Steve Jobs, who then went on and started Chuck E. Cheese. I had no idea that, one, I have no idea that U-Wink was a Nolan Bushnell company. But two, I remember when I was an intern at Cisco and moved out to California and went to Mountain View for the first time and was walking down, I think it's Castro Street or Castro Avenue.

And you see like, basically see like all the Web 2.0 logos that you're used to seeing on your browser, just sort of like jump back from physical signs on each side of the sidewalk. And I remember the U-Wink building. I even think I have a picture in front of the EWINK building because it's just so, it just felt so like emblematic of the whole Web 2.0 time period. That's amazing. That's amazing. Well, it started down in LA because Nolan after Atari, I believe when he started Chuck E. Cheese and moved down to LA. And, um, uh, it's, you know, incredible. Nolan hires, you know, first Steve jobs and, and, and then Logan green. And so Logan, this was in high school. He had his driver's license at this point. He, his high school was in Santa Monica and you winks, uh, headquarters

was in Playa del Rey, which if you know, LA Playa del Rey is not far from Santa Monica. I think it's about five or six miles it's also on the west side of la but if you know la traffic or la traffic before lyft and uber it was a nightmare to get over there a beast and uh so so logan has his high school car an old 1989 740 volvo that his parents gave him when he got his license. Classic, classic old hippie car. And so he's spending all of this time after school commuting over to his job in Playa del Rey. And he's like, he's just sitting there and he's like, this is insane. All of this traffic, all of this time wasted, all of this gas wasted, all this environmental impact. This is crazy. And he

starts thinking that maybe he can make a difference. And maybe he should dedicate himself once he grows up to eliminating traffic. And as we will see, that is what he does and makes a big dent in it. So he goes off to college at UC Santa Barbara, about two hours north of LA. And initially, he majors in computer science, but eventually he switches to economics. And he's really all in on this mission to solve traffic. He decides he is going to leave his car at home and commit to only commuting back and forth from LA to Santa Barbara with public transit. And this is like insane. I mean, it makes total sense to drive from LA to Santa Barbara. People do it all the time.

So it's actually like kind of a huge pain that he does this. And his sophomore year in college, he learns about Zipcar. Zipcar had just been started a few years before. And he tries to get them to come to UCSB. They refuse. And he reaches out to them. And so he says, OK, great. Well, I'll start my own car sharing program at UCSB.

So he convinces, this is going to become a theme here. He convinces the university to buy a small fleet of Toyota Priuses. And then Logan basically reverse engineers the entire way that the Zipcar system works. So if you remember at the time, you had a card that was like a props card. You hold it up to the windshield. You hold it up to the windshield. You hold it up to the windshield and then that unlocks the door. So Logan like reverse engineers this

and he installs these on the use of the University of Santa Barbara's Priuses that they had bought. And he gets like a couple thousand students at the university to start using it. Pretty awesome. Yeah. But there's one thing though

that that's not helpful for us. This is great for getting around Santa Barbara for students, but when they go home for breaks and when Logan's going home to LA, you can't just like take one of these Priuses down to LA. And so he just has to find, find other ways to get around his lack of a car. So he tries, he goes on Craigslist and Craigslist has a portion, has a board called a ride sharing, which is meant for this purpose. And it's, you know, people saying like, Hey, I'm going from Santa Barbara to LA or wherever. And like, you know, if you want to come in and join me and like pitch in for gas, like we can do it. So Logan tries this a couple of times, but he's like a serious introvert and is really uncomfortable doing

this. So he realizes this kind of isn't, isn't realizes this kind of isn't the best way to do it. So ever the missionary here, he takes the next step. He's still a student at UCSB. He joins the Santa Barbara Public Transit Board, like the municipal authority that governs public transit in the city of Santa Barbara. I'm assuming he's like the youngest ever or something. He becomes the youngest board member ever. And he thinks, okay, maybe this is the way that I can accomplish my mission and solve these problems.

And it turns out it's not. All he learns is basically a bunch of depressing stuff. One, he learns that 70% of the cost of every public transit ride in the city is subsidized by the city. So people talk about Lyft losing money on every ride today. Most municipalities, public bus systems, and train systems lose money on every ride. And it's super hard to get stuff done, try new things, or even incremental innovations on the existing system. So the next year, this is the summer before his senior year he and his best friend from high school guy

named matt van horn they decide no way yes that matt van horn that matt van horn best friends from high school in santa monica they decide they're going to do a big international trip on their junior year summer before coming back for senior year. And initially they want to go to Cuba, but Matt's mom, at this point in time, it was illegal to go to Cuba. If you were a U S citizen, Matt's mom basically bribes them to go to Africa instead. So they go, they spend, uh, I don't know if it was a month or two months in Africa. And while they're in Africa, they go to Zimbabwe and they see this thing that just like to Logan for his mission, just like blows his, you know, 21 year old mind. He's used to all this traffic in the U S and in Zimbabwe, which is this incredibly poor country at the time, almost nobody actually owns a car, but people get around the country and the cities super easily by there are unlicensed drivers unlicensed taxi

drivers who own or at least operate minivans and they just like have the minivan and they people come up to them like hey i'm going here they get in the car they wait until they fill up the minivan and then they drive and they drop people off along the way it It's kind of like a line, you know, it's like a line and, uh, and everybody pays a little bit and like the system works. There's no organization, like there's no app, there's no booking. It just sort of organically works. And so Logan's like, man, like Matt, like this is super cool. Maybe there's a way. I know, I know I'm like throwing you off here, but like we both just for listeners sake, for people who don't know who Matt Van Horn is, can you, can you tell us that? So we don't just leave it on hang. No, no, no. I'm throwing you off here, but we both just, for listeners' sake, for people who don't know who Matt Van Horn is, can you tell us that so we don't just leave everyone hanging? No, no, no.

Well, I was going to bring it up with them because Matt actually, not oft talked about, becomes the third co-founder of Zimride, of the company that would become Lyft. But he does not go full time. Instead, Matt was at the University of Arizona. Instead, after graduation graduation he joins dig and he becomes a relatively early employee at dig and then uh an executive at path and remember path path was so good it's too bad it didn't work still could still could i think it's shut down now right well another one could another one could yeah concept could yeah private social network and matt now runs june oven right june oven yep he is the ceo and co-founder of june oven so moral of the story everyone should take a trip to zimbabwe and uh in college

well i think uh that and tech theme we often talk about here on acquired that is going to become super obvious through this episode and the uber episode it's a small world out there like yeah it's all the same people are very incestuous in all of these industries and sub-industries so matt and and logan they come back from their adventures in zimbabwe and logan starts his his senior year at uSB. And this idea is percolating in his head so much so he decides he's going to, he hasn't figured out how to, how exactly to do this by the time graduation rolls around in summer 2006, but he takes a job at the university working as a sustainability coordinator just so he can stay there and kind of keep percolating on all this. Meanwhile, on the other side of the country, in a very, very different environment from leftover hippie parents on the west side of LA and then certainly Santa Barbara,

in Greenwich, Connecticut, another young man is growing up, a man named John Zimmer, no relation to Zimride. Zimbabwe. Soon to be a relation to Zimride, butimride. Zimbabwe. Soon to be a relation to Zimride, but no relation to Zimbabwe. Yeah. Can we just like for a quick moment, pause here and recognize, so this only came out when I was doing the research. How crazy is it that Lyft's previous name was Zimride and that has zero to do with the fact that one of the co-founders is John Zimmer and it has everything to do with the fact that one of the co-founders is john zimmer and it has everything to do with the fact that the other co-founder went to zimbabwe and also totally ironic that you know compared to uh it's lyft's big rival uber lyft does not operate internationally

or it does in canada um does not operate intercontinentally despite having started in in zimbabwe spiritually yes so john zimmer is growing up in greenwich connecticut which for uh i think most of our audience probably knows but for those who don't greenwich connecticut is basically ground zero for hedge fund managers and is one of if not the wealthiest zip code in the United States. And for some reason, it's like moths to a flame of hedge fund managers living in Greenwich, Connecticut. It's a suburb of New York City. And so John's growing up there, surrounded by all this incredible, incredible wealth, like ridiculous wealth. But for whatever reason, that doesn't like have a

huge attraction to him at least at that at that moment his dad is an executive at dixie cups the which is incredible it took me a little bit of digging to find that i was trying to figure out like what did his family do so like you know they're they're super comfortable they're well off but they're not you know in the same league as uh in terms of wealth as all these hedge fund cups had been flying off the shelves i mean things were times were good yeah he's a marketing executive at at dixie cups maybe a lot of that ends up influencing uh influencing lift later we'll see so john though just like logan is equally as focused on what he wants his life mission to be and and and learns it uh just as early in life but instead of traffic and transportation he wants to work in hotels

like seriously that's his dream when he's in like middle school and high school is hotels ironically he did not start airbnb but that's a different type of, you know, you can see the parallel to hospitality and sort of experience crafting. Yeah. And this isn't just, I'm not just like making this up. This isn't just, you know, after the fact. It was like, oh, yeah, like I wanted to do hotels. In high school, he goes to the Hyatt Regency in Greenwich, the hotel there. And he basically talks the man, it forces the manager there into

giving him a job, even though he's underage. So they have to like call up their lawyers and find a way for like, allow him to work because he so desperately wants to work there, even though he's not yet 18. This is like the, this is the equivalent of putting the TV in the garage. Exactly. This is, this is his equivalent. So he goes there and he ends up, he answers the phone. So this is guests calling from rooms with like, hey, I've got a problem in my room, come fix it. This is people calling to make reservations, et cetera. Most people would hate this job. John loves this job. And he loves it so much that when it comes time to go to college, he applies to go to Cornell, which is a great school, of course, and close by. But most importantly, Cornell has the best hotel management program

in probably the entire world. As an undergrad, you can major in hotel management at Cornell. And not only does John do that, he ends up graduating number one in his class. This dude is really, really good at hotels which is incredible but while he's there though he he takes this class at cornell called creating green cities and sustainable futures and i don't know if this was in the hotel management school or or broadly look up the curriculum or something i did yeah i actually did yeah and he realizes as part of this class that transportation within cities is this like you know really inefficient and big problem that is contributing to all this pollution

and all these problems within cities and yet at the same time there is this emerging mega mega mega trend in the whole world of urbanization and people around the world continuing to move to cities and that this is going to get even more problematic. And this kind of light bulb goes off in John's head and he says, oh, wow, this is a huge problem. Everything I've learned about hotel management and literally, you know, he knows a lot. He's number one in his class at hotel management at the best school in the world for it is that the key to success in hotels is occupancy rates. And he's like, and I'm looking at like transportation in cities and I'm thinking about these cars. And the thing about cars is 90 some odd percent of rides are one person in one seat in a car that's typically seats, you know, five or seven people.

Yeah. Huge waste. How do I bring everything I've learned about occupancy rates in hotels? What if I move that over to transportation? Could I make a big impact here? Yeah. There's, there's just stale inventory everywhere. Yeah, indeed. Indeed. It's kind of amazing that he didn't start Airbnb. That's another episode to come. So this is all percolating in John's head, but he's also not quite ready to, he doesn't know what the right thing is to do, right angle of attack. So senior year rolls around and he ends up doing what all Ivy League students at the time, myself included,

did, is you go work on Wall Street and become an investment banking analyst. The glorious, glorious, noble cause of applying the most brilliant minds to, well, you know, a training ground. It is a training ground. And I don't regret for a minute that I did it. And I think John probably doesn't either because it's the summer of 2006 when he graduates and he goes to work as an investment banking analyst at Lehman Brothers. Great reputation. I mean, fantastic firm. And really at that moment, Lehman was really on the rise, setting itself up for a big fall to come shortly, which we'll get into. So John goes off, he's working on Wall Street at Lehman Brothers in New York City. Logan is back from Zimbabwe, he's graduated, he's working as a sustainability coordinator at UC Santa Barbara. How on earth did these two guys get together? So Logan,

he's realizing as he's thinking about this, and he's thinking about craigslist rideshare section and he realizes the big problem is trust like how do i trust when i get in a car with somebody that they're not gonna you know do something bad and likewise if i'm driving how do i trust that the person who gets in my car is not gonna do something bad which frankly looking at how big ride sharing is today and there have been some horrific incidents but but like percentage wise, it changes everything for lots of people, is that Facebook, which was the hottest company, you know, hottest startup in the world at that time, and certainly especially hot with college students and recent college graduates, announces that they are going to open up their platform and invite developers onto it and have their first API and allow people to make apps that include the social graph. And so inspiration strikes, hits Logan, and he immediately realizes this is it.

This is what is going to crack this problem and solve trust with ride sharing is that if you build the app, if you build the application on top of Facebook, you can see who you're riding with and see people's real identities and see who your mutual friends are. And you can message back and forth beforehand. And that might be exactly the wedge that he needs to, uh, to crack the problem. I remember how crazy it was. So first of all, it was like very easy in 2012 to create a i know we're i'm pulling forward it here a little bit but like the ease to create an account because i think the only way to create an account was logging in with facebook at that point and how crazy it was that like it sort of made sense on other apps where i'm like okay i can see who else is using this app that's my friend

it was for whatever reason it felt like the next step further that i could see what mutual friends i had in common with the driver like when someone was picking me up i was like it was it was the most wonderfully sort of uh humanizing thing to see like oh you have two mutual friends with this person that's picking you up it is uh it instantly takes you to a place where you're going to treat the experience completely differently than you would a random stranger completely differently uh not just in terms of trusting that nothing bad is going to happen like that's the worst case scenario but there's also you know how is this person going to behave in my car there's well yeah there's upside

opportunities you know people end up meeting developing friendships you know relationships getting married like all this stuff in cars uh via via zim rides but yeah there's also like is this person gonna trash my car you know are they uh all this stuff um logan sees this he says this is the opportunity he quickly builds and launches an app on the facebook platform called carpool it's a facebook app called carpool and he decides to call the platform behind the app ZimRides because he's like, yeah, the inspiration came from Zimbabwe. Like, this is what I'm doing.

ZimRides, great. And this was 2008? This was end of 2006. End of 2006, okay. The company isn't officially started yet. He's just calling the platform ZimRides. He teams back up with Matt Van Horn, the buddy from the trip to Zimbabwe. Matt's at

Arizona, and they start working on this remotely together. And then in the next spring, in May of 2007, is when Facebook publicly launches the... They had announced that they were opening up the API in the fall of 2006. They publicly launched the platform. I think this was the first F8. It must have been the first F8 when they do launched the platform. I think this was the first F8. It must have been the first F8 when they do this. Yeah, I think so. And Logan had, he'd gotten early access to the APIs and built the app and Carpool slash Zimride is featured as one of the first apps when Facebook launches the Facebook platform. It's incredible. Man, it just goes to show the power of being there on launch day at one of these platforms or on one of these platforms. I mean, you look at the people that were initially

featured as who to follow on Twitter before they built any algorithms around that. And it's like Chris Saka and Ashton Kutcher. And like some of these people still have these just unbelievable followings from, from getting juiced in that early era. Yeah. I mean, shoot shoot in a lot of ways acquired benefited from this like we weren't at the beginning of podcasting but we started acquired before the you know we beat the most recent rush at least most recent wave and we got featured on a bunch of podcast players and you know that uh that growth rate compounds it turns out so zim rides featured as one of the first launch apps for the facebook platform when this

happens a good friend of logan's from middle school back in la named john siegel he sees that his buddy logan has done this he's like this is so cool he posts it on his facebook wall turns out that john siegel no is mutual friends with John Zimmer. That's how they came together? Back on the East Coast. This is incredible. Where did you find this? They had met.

Zimmer talks about this. He does a lot of interviews. So Zimmer and Siegel had met while studying abroad, I believe in Spain, in college. They'd gone to different colleges. Siegel hadn't gone to Cornell. And Zimmer comes home one night. He's just started at Lehman. Or I guess he's a couple months into Lehman. He's probably just started in his group, finished training at Lehman. And he comes home one night and he sees this post on

Siegel's wall. And he's like, this has got to be fate. I've been thinking about this. I know how to operationally attack this problem. It's all about occupancy rates. I've been thinking about carpooling. My name is John Zimmer. This company is called Zimride. It has to be fate. So Zimmer pings Siegel that night and he asked him to introduce him to Logan. And Siegel does.

They start talking, I believe over Facebook to start. A couple of weeks later logan flies out to new york city they meet in person and they jam and they just they hit it off and they decide all right we're gonna work together now logan's still working as a as a sustainability coordinator at ucsb and obviously zimmer's still in his analyst program at lehman brothers they're not thinking about starting this as like a real company it's's like a side project. Like, great. Like we're both thinking about this, like let's do it. So they, uh, they stay working on it part-time. This is a total aside, but like, this sounds crazy today in 2019, but this stuff happens. Like Jenny and I have good friends who got married

because they met on Jenny's Facebook wall. So like, it's incredible. The kind of stuff that happened totally, uh, back in the day. And it was right around the same time too. One tidbit. I found that I'm curious if you know the origin of it, since you dug into this so much in the S one,

uh, they reveal that even before it was Zim ride, uh, in 2007, the company was incorporated as bounder web. Yes. I saw that bounder web. I couldn't figure out what that came from.

So, you know, Logan and John, you know, if you're listening, hit us up. I'd love, yeah. Hit us up, acquiredfm at gmail.com or in the Slack. Also, congratulations. Yeah, also congratulations. All right, so they're working on it part-time and Matt Van Horn, like he's still involved too.

He's the third co-founder, but Matt decides that he's going to stay part-time uh he's going to be essentially an advisor and he goes as we said to work on work at dig and and then path and and now june uh but he's been involved with the company you know the whole time so the three of them they decide you know they have to decide go-to-market strategy they have the tech they have the kind of product concept but where are they going to start well the natural place is college campuses right like that's where a that's where facebook started and that's where facebook's you know user base primarily is college campuses

and recent grads two logan works at a college and three they both you know recently graduated so like okay we're going to focus on focus on college campuses and that's where some people have cars other people don't have cars it would be nice to be able to to put those together to do ride sharing and a lot of cost sensitivity totally totally so they launch uh they choose cornell as the first school that they're going to launch at i don't know why they didn't do Santa Barbara. Maybe Logan was worried about people finding out when he was working there. Unclear. But they choose Cornell.

And within six months, they've signed up 20% of the student body that is actively using this. And the real use case is around breaks. So school goes on break and you you're driving back from ethica where cornell is to boston or new york or philadelphia or wherever yeah load up your car and you know share the gas money randomly they then get a bunch of other schools that start using it apparently the university of wisconsin lacrosse uh they didn't do any marketing there just like you know popped up bounded and started network effects man it's a thing so they uh they're doing this they start doing at schools

that they really want to get adoption at they start doing these crazy marketing stunts they go out and they buy a frog suit and a beaver suit like i don't i think they were just suits i don't think they were specific college mascots but then like they would go to campuses on the weekends and uh parade around with signs advertising zimride while dressed up in these animals you seem like the type of people that would uh put pink mustaches on cars for sure yeah you can see where the dna comes from and uh one one uh one time they do this uh zimmer does this back at cornell he's he's on a recruiting trip for lehman and uh he goes a couple days early he dresses up in a beaver suit does this and then when they do the info session uh he's there with like a managing

director in his group and this girl comes up to him and is like didn't i see you running around campus in a beaver suit the other day and uh john's like uh yeah let's talk about that outside which is uh which is hilarious but it works and so they're trying to land on the business model for this and what they decide is they're gonna go once they get adoption at college campuses they decide they're to go to these colleges directly and ask the colleges to basically buy a license from them to set up ZimRides as the official car share on campus. So like don't work with Zipcar or don't do what UCSB did where you buy a bunch of Priuses yourself, you know, have it be the sharing economy, even though it wasn't called that yet. And just buy a license from us to operate your own version of ZimRides, which they do in schools, pay them like $10,000 each. And at the time they're like, woohoo, $10,000. Great business. Yeah. Turns out that was not the right business model, but we'll get to that in a minute. So they do this for basically a year from 2007 to 2008,

gets into 2008 and Zimmer is coming to the end of his analyst program at Lehman Brothers. And he's trying to decide, you know, am I going to go work in private equity? Like all my other analyst classmates who are staying in wall street, you know, am I going to go full time on this zim rides thing it seems like it's really working what should i do two things happen that help him make his decision one zim rides gets its first institutional investment ben do you know who the first institutional investor in zim rides was there was an angel investor uh beforehand the vp of finance at ebay sean agarwal uh who is still

the chairman of lyft's board today um interesting but who was the first institutional investor uh is it before floodgate this is years before floodgate huh oh yeah because that was like 2012 or something i don't know it was facebook Facebook. No way. Yeah. So not only did it get to the power of launching on these platforms, not only did ZimRides launch on the Facebook platform, Facebook, about a year later, had started the Facebook fund. That's right. And they invested $250,000 in ZimRides to help support it because it was this growing app on the platform. And they announced the investment on stage at F8 2008. Whoa.

Did they hold that for a while? Whatever happened to that? So unclear. It appears it actually was a grant and not an investment. So I don't know that they got equity for it. Yeah. I want that kind of funding. Yeah.

Bad move by Facebook. So unclear. I don't know whether they got equity or warrants or just what, but pretty funny. So once they get the money and Zimmer's like, okay, we got $250,000. Like that's a lot of money. Maybe I can do this. Before he makes his final decision though, he meets up with a good friend's mother who works in the Lehman Brothers building in Manhattan at another finance firm in the building. And she hears about, she must have heard about what he was thinking about it and said, like, I got to sit this kid down and set him straight. She sits him down and she's like, John, like, are you thinking about what you're doing? You're about to leave a sure thing like Lehman Brothers for this crazy carpooling startup out in Los Angeles. Now this is July, 2008. And he's like, yeah, I mean, that is like extreme, but you know, I really want to do this.

I'm going to, I'm going to do that. And I mean, three months later, this story goes bankrupt. Whoa, that's right. I was gonna say even before that, I mean, months later this story goes bankrupt whoa that's right i was gonna say even before that i mean this this exchange of sure thing for stupid risk like this is on 10 acquired episodes we see this over and over and over and over again but literally this timing oh such a sure thing like this august you know wall street institution lehman brothers been around forever like literally three months later lehman goes under financial crisis happens far too big to fail far too big to fail indeed so but zimmer's mind is made up before then he naturally uses zimride to carpool across the country from new york out to palo alto he and logan decide they're both going to relocate to

palo alto they're going to make this a Logan decide they're both going to relocate to Palo Alto. They're going to make this a real startup. They're going to follow in Facebook's footsteps. You know, they have all this, you know, now money and mentorship and help from Facebook. Funny story about that, which I will come back to perhaps later in the episode. So they move into, I think they get a temporary office for a while, but they settle into, they decide they're going to get an apartment in Palo Alto that they're going to both live and work out of. And it turns out that it is next door to Marissa Meyer's house. And so their windows look out over Marissa Meyer's backyard. And Marissa, of course, at the time was one of the senior executives at Google who had been there since basically the very beginning um and was not yet but would they like to become yahoo neighbor friends like

what's the what happens here well so uh they talk about you know they'd see and hear you know all these silicon valley parties that would happen in in her backyard uh uh next door they'd be like they'd look out the windows and try and figure out like who's out there and dream about someday they could, uh, they could, you know, reach those same heights. Uh, they do. It just takes a while. So they, they basically operate this way for the next two years, which is crazy. So like they have the 250 K from Facebook and the little bit of angel money from Sean Agarwal, but that's it. And they're not making that angel money from sean agarwal but that's it and they're not making that much money from these universities so the two of them don't take a salary for in total for those whole first two years that they go full-time on this they eventually raise a seed round as you

alluded to ben from floodgate uh from and uh miracle there in, but that's two years later. And then they would raise a Series A in 2011. I think, and Anne talks about this, I think part of the reason that they were able to raise that seed round was just that Anne and the other investors kind of looked at them and were like, well, these guys are like cockroaches. They just don't die. We'll invest in that. It is incredible how small the beginnings were here so both the floodgate round and then i can't remember who led the series a both those were mayfield okay into the zimride concept of into zimride yep recurring revenue from universities yep they were they were this is before lift so not long after the Series A that Mayfield does in 2011, Logan and John,

they're excited. They just raised an A and things are going well. But if they're really honest with themselves, they're not setting the world on fire here. Growth is slowing. They've saturated universities at this point. They've opened up the product for corporate customers, but that's not that compelling. Like ride sharing back and forth to campuses for breaks is a great use case. But like ride sharing to work every day. It's also not daily. Like, I mean, they're not building habit here. It's a low frequency event.

Exactly. Exactly. So then they were like, OK, well, we'll as part of the series, they will open this up to everyone. So you don't have to be part of a campus or a corporate network anymore. But then they run back into the Craigslist problem all over again. It's like, I don't know these people, am I going to get in a car with them? So by mid 2012, six months ish after their six, eight months after their series, a they realize the problem here is with the market not the product and they need to do something different to solve it okay so what

happens next here is the official lore of how lyft begins i always like official lore yeah we'll start with the official lore great so it's summer 2012 john and logan have come to this realization they talk to the company they say here's what we're gonna do we're gonna hold an internal hack day to come up with new ideas uh and like open your mind like they're you know they must be inspired by audio and how how twitter started here yeah and open your mind we'll ideas. We'll vote on what we want to do. Three ideas come out. The first one is called on my way, which would be an app. If you're traveling to alert friends that you were going to see like where you are kind of like a safety thing, like, uh, so that friends could track you as you were traveling on your smartphone at this time.

Feels like a feature. Yeah. Yeah. Feels, feels like a feature. I feel like a feature yeah yeah feels feels like a feature feel like a feature that might be part of lyft and uber someday two the the second idea they have is called journey and what journey the vision is people using zimride to go on these road trips together having these social experiences journey would be an app that you could document a trip uh with like photos and videos and music that you listen to and like share a memory of a trip you know um almost there's still room for that well i guess people use the instagram for this now uh well first snapchat stories but like i mean i guess like you could argue maybe this could have been stories you know not an obviously terrible idea but the clear winner when the company votes is the third option, Zimride Instant. And Zimride Instant. Lyft is a little catchier. Lyft is a little catchier. But Zimride

Instant, of course, Uber, as we referred to, and not just Uber, but a company called Taxi Magic and a company called Cabulous, all of which we will cover on the Uber IPO episode. You know, they're of course around, they're doing trips within cities, but it's more like taxis. They're using licensed limo drivers to do this. It's not peer-to-peer, it's not car sharing, but it's an experience that people love. It's just very expensive. And so they're like, yeah, Zimride Instant.

What if we did this in a peer-to-peer car sharing way and we use our network of drivers on Zimride, but we just do it instant. Brilliant idea. Inspiration has struck. Incredible, you know, entrepreneurial moment. And so of course they decide to do this. They build and launch an MVP app in three weeks. They're going to call it Zimride Instant, but they have an intern, a design intern, that's spending the summer with them named harrison boden who still works at lyft today as a designer he's like zimride instant like

that's not too good we need a new name how about we call it lyft and we'll lyft l-i-f-t dot com and yeah like that's gonna be hard to get the domain name but let's just change the i to a y and like it looks cool anyway let's call it lift and brilliant and the rest is history sidecar so harrison uh sidecar or didn't slip there sidebar harrison also designs the first logo do you know what color lifts first logo was yes seafoam green yeah it's funny i i dug up uh preparing for this episode, I dug up my first Lyft receipt when they were expanding to Seattle. Yeah. And it was, they hadn't yet gone with the pink. What was pink was the pink balloon, but the LYFT, which that logo mark has not changed was,

was green, not pink or sea foam green, I should say. Yeah. I would love to hear why they chose sea foam green, but anyway, and,. But anyway, and this is the legend. This is the lore. And even in the Lyft S1, there's a founder's letter from Logan and John in there. And in it, I quote here, In 2012, we launched Lyft and pioneered the idea of on-demand peer-to-peer ride sharing. In those early days, we were told we were crazy to think people would ride in each other's personal vehicles one billion rides later we're able to look back on an industry that has

been defined by the products lyft pioneered wow it's like it's a humble brag a little bit of shade a little bit of uh uh you know subeting or whatever you want to call it. Yes. And certainly referring to Uber there. And, you know, that paragraph is not incorrect. And Lyft and the former Zimride deserve all the credit in the world for doing that and creating one billion rides over the last seven years. However, that's not quite the whole story. And that's what we're here at Acquired to talk about. So Ben, do you want to hear the real story of how peer-to-peer ride sharing started? Come on. Love it. Okay. So you may have heard of a company called Sidecar. You may even remember

a company called Sidecar. Of course. And by the way, this story that we're about to tell is, I think, certainly the best story in this episode. Probably going to be the best story this season, may even be the best story of all time at Acquired. I'm so excited here. Yeah, baby. So, okay, Sidecar. Some people who remember Sidecar was a peer-to-peer ride-sharing competitor from about this time. And they may remember, yeah, Sidecar was first, weren't they? Didn't Sidecar invent this concept of ride-sharing? Well, yes and no. Let's talk about Sidecar.

Okay, so Sidecar was started by a guy named Sunil Paul, who's still around here in San Francisco, in September of 2011. Now, remember, it's summer 2012 when the Lyft hack day happens. And Sunil is a super interesting dude. He had been an original AOL guy, like way back in the day, and working out of Washington, D.C., where AOL was based. And then after AOL, he started a company called Freeloader with a guy named Mark Pincus, which might perk up the ears of some of our listeners. Mark, of course, was later the founder and CEO of Zynga. And Sunil did not co-found Zynga with Mark, but was an initial investor and was actually a board member of Zynga for a long time. After that whole ride and in between, he started a company called Brightmail that got acquired for about $400 million. So yeah, he's done a lot of stuff

in the Valley. He finds himself by 2009. He is teaching at Singularity University here in, here in Silicon Valley. And he has two students in his class, Sam and Jessica have an idea that they're all kind of working on in the class together to start a peer-to-peer car sharing company. And that ends up becoming Getaround, which is still a large and very successful car sharing company today. And we were actually small seed investors back at Madrona. And I remember working with Sam and Jessica in the very early days. This was super fun. The distinction being that you drive that car rather than riding in that car yes you own a car you put it on the platform and then somebody can rent that car from you that they then drive so it's basically it's zip car with cars that people own instead of cars that zip car owns and it's a great idea uh still

works really well and sunil was so excited about this because he had actually been thinking about this for a long time, going back to his freeloader days. And it was also percolating around in his head. He had actually filed for a patent back in 2002 and was granted a patent for the system and method for determining an efficient transportation route that he was thinking about for car sharing and ride sharing within cities so so neil's like so excited that sam and jessica are working on this he says i want to be your first investor i want to invest and i want to be executive chairman of the company and and sam and jessica are like yeah like that's like a lot of a lot of equity and a lot of control that you want. And they were worried about him parachuting in and wanting to take over as CEO, which he probably did want to do.

And so they say, thanks, but no thanks. And they reject his offer to invest. And Sunil gets really angry about this. And so he writes about all this later. We'll link to his bunch of Medium posts about all this history. And he's like, it was totally the wrong thing to do. And I was just so upset about this. And so he writes about all this later. We'll link to his, his bunch of medium posts about all this history. And he's like, you know, it's totally the wrong thing to do. And like, I was just so upset about it. Uh, so he's like, I'm going to spite them. I'm going to go start my own company doing this. Wow. And, uh, it's, he's like super honest in these blog

posts. So he does that. He works on it himself for a while, uh, competing with get around. He eventually decides, you know, their challenges to the market he's not doing as well at it as he could he decides he needs to he needs to do something else and so what he wants to do instead is to build you know he sees the rise of smartphones he wants to build a city transit smartphone app so essentially what like google maps on your phone has become today and what he had his part of what he had that initial patent for so he reaches out he finds a team of computer science students in michigan at the university of michigan who are also working on this he goes out he flies out there he convinces them to come out to san francisco and start this company with him including the the ceo of the company from michigan

jahan khan who becomes cto of Sidecar. And so they start this company. And right around the same time, a friend tells Sunil about this crazy thing that's happening in San Francisco that he might want to pay attention to because it's pretty related to what he's working on. And he says, there's this group here in the city that has started recruiting ordinary people to take their cars and drive around at night and pick up other people who request rides from them to get to where they're going out to bars or home from bars. And of course, there's Uber out there, but this is just like ordinary people doing it.

And it's working like super, super well. And Sunil's like, oh yeah, like I'm really interested in that. Like, tell me more. You should take a look. Yeah. Maybe we should take a look. He's like, oh yeah. Like, so what's the service called?

It's called Homobiles. Yes, you heard that right. It's called Homobiles. And the motto of Homobiles is Mo's getting hoes where they need to goes. And this is the most incredibly amazing San Francisco-y thing that probably has ever been created. I love this. This is so great. Lay it on us. So, okay. So, you know, San Francisco today, you come here in 2019, and it's all techified and yuppies, and there's Lyft, and there's Uber, and there's Airbnb, and everything that's taken over the city.

But San Francisco was the birthplace of counterculture. In the 60s, this was sex, drugs, and rock and roll. And we've talked about this. There's a great book about the old san francisco called season of the witch so homobiles was born out of that not out of the tech world it was started in 2010 by lenny breedlove who is a punk rocker and lgbtq icon here in san francisco and as he tells it he was going to fememCon in Oakland in the summer of 2010. And he was driving some babes to the conference. And he says, he got there. And all of a sudden,

this is his words, this is a quote. He says, all of a sudden, the butches and trans guys who saw me wanted to drive. And all the babes and drag Queens who wanted rides, wanted rides. And then I realized this was a serious need that had to be filled. And this is awesome. But like, this actually was, this is such a serious need because even in San Francisco, which is, you know, one of the most tolerant and liberal and forward thinking cities in the country. If you were a drag queen or even not just, you know, just gay and you any member of an at risk population, any member of an at risk population, and you were out at night, you were at a gay bar, you were somewhere else, and you were trying to get home or you're trying to get to another place.

Taxis wouldn't pick you up. And even Uber, like you could get in an uber but you might still have issues i mean this happens all the time still like you know people get uh assaulted people get attacked people get raped uh and um you know if you're part of an at-risk population this is like a serious worry in your life and so breed love started thought i can do something about this he started this organization called Homemobiles. And the concept was if you were, you know, felt you needed a safe chariot from getting one place to another, you could text Homemobiles and they would dispatch. You could drive for Homemobiles and then they would dispatch somebody to come pick you up and take you, you know, in a safe way to where you need to go. And of course, legally, you couldn't pay because they weren't a taxi company. But you could donate to your driver and to homobiles. And

turns out, that worked great. And homobiles at this point, by 2011, had become a big thing in the LGBTQ community in San Francisco. And it turns out they had invented peer-to-peer ride sharing so oh that's so interesting because i get none of the credit for it nobody nobody knows i the only way i found out about this was sunil writes about it in his medium posts and if you google homobiles you'll find some articles here in san francisco about it but even in uh we used a lot of uh friend of the show brad stone's uh the upstarts a lot of the research reporting he did he mentions homemobiles in a footnote but nobody talks about they were the first ones to actually pioneer peer-to-peer ride sharing and and doing it for

just an extreme need i mean this is you know i gotta get to work in the rain this is an extreme need yeah this is like i might die on my way home if I don't have this service. So Sunil is here. He says, okay, great. Well, I got to try this. So he writes this. This is a quote from his meeting post. I took home mobiles to the airport for a trip to New York.

It cost me $20 for a trip that normally costs $50 in a taxi. Wow. This system was cheaper than taxis. Nevermind Uber. Home mobiles had been in the press yet hadn't been shut down. It seemed to be operating in a gray area of regulation by taking donations. We wondered, can we create a scalable technology enabled version of homemobiles that could allow us to create our shared ride vision? So that's it. That's what they do. They take the homemobiles operating model, which is individual regular people, not commercially licensed drivers driving for the platform, and then individual regular people via a dispatch

service that they build an app version of summoning them to pick them up. And then the payment is a donation and for listeners if you remember back to the early days of lyft and uh and sidecar when it started it was not a payment because the regulation donation it was all donations so sidecar takes the entire operating model from homobiles marries it up with the app interface the smartphone app interface of uber and then they start they launch in february 2012 in san francisco and literally the biggest market opportunity since facebook is born like what an incredible story so of course sidecar would go on to raise a bunch of money along with with ly and Uber. They would launch in 10 cities, but ultimately they couldn't keep up in the war of capital that we're about to get into.

David, do you know my personal history with Sidecar? I know you have one. Let's hear it. Yeah. So I know Sidecar well and love the service and was a big user in kind of the early days. And when I worked at Microsoft, I worked on a couple of companies on the side, one of which was called RedRide that I started with a few friends actually at a startup weekend here in Seattle. And it was still a side project because we had day jobs, but fairly advanced. It was basically the kayak for ride sharing, which some other great companies are trying to do now. But as we sort of got toward the end of realizing that we weren't going to start it as a, you know, I'll quit our jobs venture. We were talking with Sidecar and

Sunil about an acqui-hire and ultimately I decided not to, but you know, what could have been. What could have been? You could have been, well, you could have been part of what happened when Sidecar ultimately did shut down. They got acquired by GM for the assets, not the operating company, because GM simultaneously invested $500 million in Lyft and acquired Sidecar. I believe they wanted the team and the patent. So remember Jahan Khanna, who's from Michigan,

he goes back to Michigan to GM as part of the acquisition. He stays there about a week, and then he leaves and joins Uber where he's still to this day. And so, John, do you know what he's doing at Uber now? He is head of product for new modalities, which is bikes and scooters. Wow. Always on the cutting edge. Fred and Andrew Chapin, who was an executive at Uber at the time and is now co-founder and CEO of Waves Portfolio Company Basis, was a big part of hiring John and bringing him back and bringing him into Uber. So, okay, back to homemobiles quickly, though. This is amazing. They are still around today, and they are still super important in the LGBTQ community. So, you know,

even with Lyft and Uber, you you know as advanced as they are today like this is still an issue for at-risk populations you know you don't know even though you can see the profile of your driver when they come to pick you up you don't know what they're what they think how they behave especially towards non-normative people like this and so they're still giving rides at night they're also though they do a of, they drive people to and from major life events like surgeries and they provide emotional support during that time, right before you're about to go into something, you know, life changing. So it's actually now a nonprofit.

It's a 501c3 and this is crazy. It still is done by dispatch. They don't have a smartphone app and they've been trying to raise money to have enough resources to build an app. They've been trying to do it for years. And so we felt like Ben and I talked about this before the show, we felt it was important to kind of pay homage to, to this organization that started this incredible industry that now has resulted in, you know, one and soon to be two massive IPOs. So we're going to make a $2,000 donation from acquired to homobiles, and we're going to put a link in the show notes in case anybody else wants to, too.

And we think it would be super cool if the acquired nation could help them get enough resources to finally build an app. Yeah. Let's build an app. I'm sure. I wonder if there's, there's a, there's probably some in-kind donations that they could use too, but yeah, super, super pumped to be doing this, David. And I think glad that you broke our normal structure of not discussing anything before the show to keep it

all a surprise so we could talk about and do this one. Yeah, we really, really wanted to do this. So definitely encourage other parts of the acquired family to help too. Okay, so back to the story. So Lyft, we had just told the canonical version of how lyft came out of zimride uh you know and that may be true there was a hack day and you know they did decide to work on zimride instant and they did launch it in as lyft but um before the hack day after sidecar had launched in february of 2012 zimride definitely sees what's going on with them and sees them start to get a bunch of traction. So, and, and in fact, Sunil and Sidecar, they saw, you know, cause they, they had a, you know, a God mode, uh, for these, uh, for these, uh, platforms was not yet illegal. They could see

everyone who was signing up for the service and how they were using it and where they were going. They saw that actually Logan and John and Zimride board members were all like super actively using the sidecar app in the couple months before they started Lyft. So by the time the hack day rolls around that summer, you know, everyone at Zimride definitely knows everything about how sidecar works. Definitely knows, you know, the donation model, whether they know, knew it came from homemobiles or not. They now know exactly how the operational model works. And so when they launch Lyft, they copy it all. But they do, to their credit, they do it a lot better.

And there are two reasons why they do it better. One, which we alluded to earlier, they have the existing network of drivers and supply from the Zimride product that they can onboard onto to Lyft pretty quickly and easily. It's like rule number one in creating a marketplace product. It's like, how do you cheat and bootstrap one side of the market? Yep. Yep. Totally. So they've got the hack to bootstrap one side of the market and people hadn't realized yet, but would come to be known that there's a kind of magic density in ride sharing networks that are related to time that you have to wait as a rider for a pickup. If that time is more than a couple

minutes, people will abandon the service. And so by being able to bring a, like a huge portion of a huge network, you get over that tipping point a lot faster. And so that was a major help to lift. The other thing that they realized and listeners will probably remember this they realize that like this is still kind of a crazy idea and so they have to do a couple things to a make people comfortable uh doing this you know getting in cars with strangers but also be raise awareness that you can't even do this so they do three things here we go here we go here we go first in the app as a rider when you sign up they tell you to sit up front don't sit in the back like a taxi you're getting

you know this is lift is your friend with a car this is ride sharing you're not sharing yeah yeah sit up front be friendly and number two as part of being friendly give your driver a fist bump on the way in and out i thought this was so weird back in the day god yeah and you know you could maybe argue whether one and two helped them win or not but certainly differentiation there at least yeah certainly the third thing they did help them win big time so they already had this supply hack uh this distribution hack on the supply side they needed something though to get demand within san francisco and future cities that they launched and um so they came up with kind of a crazy idea and here's where the frog in the beaver suit costume dna comes back a few years earlier john zimmer had found out about

this crazy this company in san francisco that made these funny you know bumper protectors if you're parking on the street in san Francisco, just like in New York, it's super tight parking. People hit your bumper all the time. And this ironic hipster company in San Francisco had made a bumper protector that looked like a fuzzy mustache. And so you could put a mustache on your car.

It was called a car stash. And so as a joke, Zimmer had started buying a bunch of these and giving them to employees and investors back at Zimmerimride. But then when they're launching Lyft and they realized they got to like get people aware of the service and onboard demand, they're like,

Oh great. Every driver who signs up for the service, we're going to make them put a big fuzzy pink mustache on their cars. And so like summer 2012, totally billboards. You're not allowed to really put a billboard on i mean i guess you could wrap the cars but like you know this is this stands out way more than that way way way more and um you know it's kind of like when scooters launched well scooters will come

back in a minute but the scooters are sitting on the sidewalk here you've got cars driving around the city with this fuzzy pic mustache and i remember this like i remember coming down to san francisco at the time i'd be like what is with all these cars driving around with pink mustaches and uh the word of mouth like it was real and it uh lift started to really really really take off and so in this at this time it was differentiation from sidecar right because uber hadn't launched uber x yet so it was it was competing against them yep it was competing against sidecar but it was really competing against non-consumption right right yeah it's it's uh uh it makes you go what's the deal with the mustache and then you yeah it's basically uh it's actually it's funny it's not really competitive differentiation it's more just category awareness yep totally totally it was

probably the last thing on their minds was competing with sidecar at this time. Uh, but speaking of competition, Uber is out there, you know, Uber has been around since 2009 at this point, they're doing limo, uh, licensed driver pickups via an app, basically dispatch for, for limo drivers and black car drivers via an app basically dispatch for for limo drivers and black car drivers via an app they start seeing this happening and they're like oh crap like uber is expensive and they're making lots of money and there's tons of demand for it but all of a sudden here's this substitute product out there on the streets that is massively undercutting us on price like we got to do something so now this is like people don't remember this but uber, they, they're like, they're really mad because you know, they're Uber.

They have all the reputation. They're so aggressive, but like they have been operating within the law and you know, technically this peer to peer ride sharing thing, it's in a gray area, but it's not explicitly legal. And so Uber gets super pissed and they start lobbying and they try and shut down. I remember this from Brad's book. Yep. Yep.

So they work really hard for about a year to try and get Lyft and sidecars shut down as being illegal. And they're being super principled. They're like, you know, we operate legally and like they're not operating legally and regulators should shut them down. Turns out, though, it doesn't work probably partially because the regulators hated uber because they were so aggressive kind of on pushing the rules uh within the existing um licensed driver industry and so this is great the next year april it wasn't until april 12th 2013 when uber uber had already launched uber x but it was still licensed drivers driving priuses instead of black cars they pivot uber uber x into being a direct competitor with lyft and sidecar doing peer-to-peer ride sharing

and they announce it travis releases a white paper entitled Principled Innovation, Regulatory Ambiguity Around Ridesharing Apps. And there's the money quote in there. This is so perfect. He says a couple paragraphs in. In the face of this challenge, the challenge being from these unlicensed peer-to-peer ridesharing apps, Uber could have chosen to do nothing. We could have chosen to use regulation to thwart our competitors instead we chose the path that reflects our company's core we choose to compete boy that is uh cue the imperial death march yeah then the entire tone of of the lyft s1 that's

about sustainability and good for the world and great for riders and great for drivers and really like everyone kumbaya and hug we choose to compete we choose to compete and compete they did so they repurpose and you know that that white paper was mostly for employees like that was that was a rallying cry it was a rallying cry a hundred percent so they repurpose uber x which again already existed but was not true peer-to-peer car sharing. They repurpose it that April into peer-to-peer car sharing and the fight is like on. And so it becomes, it was already clear at this point, but then once Uber enters the market, like everybody realizes very quickly that this is it. Like this is the biggest market that anyone has seen in Silicon Valley in a long, long time. It's big. You know, Airbnb was around at this point and was quite big. But Airbnb is quite big because it's a winner take all winner in a market for, you know, home sharing, which is quite

large. Ride sharing dwarfs the market for Airbnb. It's just not a winner take all market. So the competition that this unleashes and the behavior that this unleashes in Silicon Valley is just incredible. And let's talk about this. I was going to talk about it in tech themes, but it's worth just touching on it briefly. And we talked at length with Brad Stone about this in the episode that we did with him. What episode was that? Is it Amos? No, it was when we was Uber and Didi. Uber and Didi, yeah. And he makes this really great point that the network effect with Airbnb is super strong across markets. So it becomes winner take all, where when you're traveling and you're used to using

Airbnb in the last two vacations you took, you're going to use it on the next one. So wherever Airbnb, there's going to be ultimately sort of one platform there. However, with Uber or ride sharing or Lyft or whatever, when you are using it, 98% of it is going to be in one city because it's something you use generally where you live. And so it's not really that big a deal for market by market to be owned by different players, uh internationally where i mean it kind of makes sense for you know seattle and san francisco to have the same provider but what but not that yeah yeah but like what totally like there's there's very little that lift uh here versus the ride sharing uh company in china uh China could even share to be valuable as a cross-market

network effect. And so this quickly becomes, to your point, David, even within a country, even within a city, something that there's going to be multiple players in. Yeah. And people also didn't realize this for a long time, but I think we'll talk about this in tech themes, but where we've gotten to now, because that's the case, it also means it's not a winner take all market locally, because you can as a company as a corporate entity, get enough resources from winning in various markets that you can still compete. It's like, whereas if you're trying to compete with Airbnb, there's no oxygen in the room, whereas there's enough oxygen in the room internationally that you can still compete locally.

And that's why you haven't seen Uber crowd outlift fully or vice versa. And another way to put that is to your point about the tipping point, as long as, okay, taking one step back, we're really in tech memes now, but taking one step back, thinking about marketplace assign business models where the supply side is undifferentiated. I don't care who picks me up. I just need to get there versus marketplace assist, which is the platform provides a bunch of different options like Airbnb does. And I get to pick which option to for approximately the same price. end up in this place where as long as there's enough supply for a given a given geo then you know there can be multiple players because both drivers and riders can multi-home yep totally

but nobody knew this uh just yet people are thinking like oh this is going to be a winner take all market and like who are we gonna? So the fundraising race is on all three companies, sidecar lift and Uber start raising massive amounts of money sidecar, not as much. And that's mostly why they end up shutting down, but Uber starts raising the most amount of money. And, and not only that they with part of what they do with the money, they've also realized the magical kind of three minute pickup time, uh, threshold threshold they start doing this thing called slogging which um uh is an acronym for like uh supply long-term operations growth or something like that uh but really what it means is that uh and all the companies are doing this they send out employees and contractors to order

rides on their competitors' platforms. They get in the car, and then they try and convince the driver to switch to their platform. Because the density of supply is kind of the most important factor here. Yeah, and not only that, they, and I think Uber was more famous for doing this, but ordering rides and then canceling them on competitors' platforms just to, yeah. And to be clear lyft inside car we're doing this yes but uber built a brand around doing it yes uber built a brand around doing it and and they're they're much more successful and particularly in the capital raising so a year later very quickly an eternity in this market but very quickly in

absolute time lyft is on the ropes like lift is about to die uh and what year what year is this this is 2014 yeah everybody's spending huge and huge amounts of money like there's the slogging going on but like also everybody's subsidizing rides and incentivizing drivers just to get density and compete with one another and at this point in time in 2014, Uber had raised 30 times the capital as Lyft, which was the next best capitalized competitor. And so, I mean, I remember this so clearly, like I'm sure listeners do too, like orthodoxy and the prevailing point of view in Silicon Valley was this is winner take all Uber has one sidecar is, is about to die and Lyft is going to go the same way. And there's no point in investing in anybody except Uber right now. I definitely felt this way. I mean,

I can remember thinking like Uber is such a clear winner. Anyone trying to compete to fool's air, and it's amazing that they lost the enormous amount of money they've already raised. Yeah, totally. And honestly, Lyft feels the same way too. Uh, so they actually initiate merger talks with Uber. Lyft goes to Uber and, uh, waves the white flag. And so Zimmer, and at this point in time, Andreessen Horowitz has invested in Lyft and, uh, Andreessen partner, John O'Farrell, they go out to dinner with Travis Kalanick and Emil Michael, who's his number two at Uber at the time. And they say, we want to merge. And they ask for 18% of the combined company. And that is exactly how Travis and Emil react. They're like, we're going to win. You're not getting anywhere near that amount like maybe we would consider something a lot smaller they counter with eight percent um which is still actually it's still actually a lot it's it's almost surprising uh with those two personalities

that they came back with eight percent instead of one yeah and equally surprising and this is like such a defining moment for lyft equally surprising that lyft doesn't take that um but they don't so the two sides can't rich reach an agreement uh and lyft decides to keep going um but they can't raise from vcs because all the vcs are like i'm investing in uber or nobody um so they go out and they raise 250 million million from the hedge fund KOTU management, which KOTU is now a big player and investing in especially late stage startups. But this was one of the first private company investments they make. You got to wonder here, like is their philosophy and we're going to talk about IPO narratives here in a

little bit, but are they thinking that this isn't winner take all or are they thinking, ah, we're gonna take a flyer that these guys are gonna be the one i i don't know i wish i knew we'll have to uh uh folks at koto get in touch with us and we'll have you on the lp show and we'll talk about this um the uh i don't know what their thesis was at the time because it was really contrarian at this point in time um side note though like for uber and we'll

talk about this on the on the uber show to come this was the best one of the best things that ever happened to uber because had they acquired lyft at this point in time they for sure would have been regulated as a monopoly by this point like the fact that another a viable second player in the market was allowed to continue in the u.s like um especially given everything that happened at uber later there's no way that regulators wouldn't have totally cracked down on them um it's a great point so anyway it's like how bing is the best thing that's ever happened at google totally totally um it absolutely is true uh so after this when um you know uber's like super annoyed at this point like these, these guys, they keep hanging around.

Things were already ugly. Things get super ugly. Like, probably the ugliest, like, certainly I've ever, not that I was part of this, but that I've ever seen in business. So in 2013, back a year earlier, Lyft had acquired this company called Cherry. Do you remember Cherry, Ben? I don't. Cherry was an on-demand car washing company. So you could order a car wash while your car was parked in the parking lot uh a crew would show up and wash your car uh and then you would come out of you know work or the grocery store wherever you were to a clean car cool right cool idea um turns out there's not like that much demand for car washing but like really innovative

stuff that these guys pioneered on the operations front and uh lyft had acquired cherry in 2013 because it wasn't viable as a business but they're like yeah like these guys are like really talented and uh the ceo of cherry had risen up through lyft and at this point become the coo of lyft so like the number three executive behind logan and john and uh that guy's name was travis vanderzanden uh which i forgot this is gonna this is gonna ring some bells also for listeners um so travis uh travis vz uh not travis kalanick um he's the coo of lyft and he brings a ton of innovations that he did at cherry into ly lift so like driver onboarding city launching like he massively improves the efficiency of lifts operations um but he's kind

of cut from a different cloth as logan and john he's not he's not uh he's not the mission driven founder here he's a little more a little more uber a little more uber uh and uh and he sees in 2014 as all this is going on he sees the pendulum is swinging uber's way he believes just like everyone else in the valley that there's no way lyft can compete um so he does two things he goes to the lyft board and tries to stage a coup uh he goes to board members and he says i don't think john and logan can run this company effectively you should fire them and make me the ceo and the first thing i would do as ceo is i would go reinitiate merger

talks with uber and land this plan and um simultaneously though while he's doing that he actually goes to uber uh while he's working at lyft and he um he he kind of rogue totally goes rogue and uh says hey i know we just shut down merger talks, but like, uh, we might want to reopen those. And, um,

we, the, the Royal, we, the Royal, we, yeah. And now,

now again, like this, this is really bad, of course, but like, you can sort of see how this could, you could get crazy times can call for crazy, crazy measures,

right? Like this is, you would have to believe you were, you would have to be utterly insane to think that any other course of action was, um, you know, was viable here.

Um, Logan and John though, of course, find out about all this and, you know, they are utterly insane and their conviction and mission driven zeal for the company. Uh, and so they fire

travis immediately um and guess what a couple weeks later travis ends up joining uber so how does this work in like is this because non-competes are illegal in california so like you just can that's that's how this works however of course lawsuits course, lawsuits abound. So Lyft immediately sues both Travis Van Der Zanden and Uber. Uber turns around and counter sues Lyft for supposedly hacking into their systems and stealing their information. Eventually, everything settles out of court because everybody realizes like we got bigger fish to fry then right we got all these guns pointed at each other and there's like a you know an alien invasion happening above us exactly exactly well alien invasion that we are invading each other but this is not the battlefront that we're gonna right on um and uh so now, do you know what Travis Van Der Zanden is doing now? I believe he's the CEO of Bird.

Yes, he is. He left Uber, I believe in 2017, and started and is the CEO of Bird, the scooter company. It is incredible how incestuous all of this is. Incredible. But yeah, and Travis Van Der Zanden, I mean, again, like two sides to every story, he is incredibly talented and a visionary for transportation and operations. Like when he started Bird,

nobody was doing scooters and now they're everywhere. So anyway, that's the backdrop to 2014 and uh uh coming into 2015 lyft is basically out of money um so they're at the end this is like the story of lyft is like they're out of money and at the end and and then oh something happens and then they're out of money and they're at the end and then and then oh something happens. And then they're out of money and they're at the end. And then, oh, something happens. Well, so the 2015 version of this is they end up getting hooked up. So Logan and John are out there trying to raise money from anybody. They know they can't raise from VCs.

They've raised from KOTU. They're talking to any other alternative source of capital. They end up convincing Rakuten, the Japanese e-commerce company, to invest. In March of 2015, Rakuten invests $530 million. And Rakuten is, at IPO, the largest shareholder in Lyft, larger than any VCs, much, much, uh, you know, that saves the company totally that time. And then they add some more money in. This is, you really can't make this stuff up. I remember when this happens, they add more money into the round, uh, from acquired super villain, Carl Eichen. No way.

He's in this too? Carl Eichen. He's back. He is like, we got to have Carl on the show at some point yeah we for sure do um yeah and that that one we'll do in person carl we'll come to you we we will for sure come to you so um listeners might remember carl from from netflix uh and uh what was the other episode he was in um marvel and marvel yes uh and blizzard was he also an activation activation blizzard too anyway uh incredible activist investor carl icon activist

investor and and what's great is so mark andreessen and carl lincoln had had this huge beef like twitter beef uh and um and andreessen was the largest vc in lyft at the time and here's carl eichen coming in and i think i think mark was quoted in in the new york times uh saying like yeah i mean we disagreed but like i never said he wasn't smart um this is great uh so carl eichen comes in they invest a hundred million dollars uh in as part of this round. And that keeps the company going for another year. And then the, the next year in 2016, they're running low on,

on cash again. And, uh, they get GM general motors to invest $500 million. That keeps, uh, that keeps the company going. Um,

GM made like a quick, uh, I don't know, like 750 million or something because that was in what 2016 we're in 26 so they they turned 500 million into like one and a quarter or something over a few years yeah or maybe even more than that i'm not i'm not totally sure they are i believe the third largest shareholder second or third largest shareholder in lyft at this point right um yeah which is incredible but still like you know still uber just keeps growing and growing and growing and

you know this is the point where uber is valued at 70 billion dollars um you know is taking over the world they're taking over china um and so the summer of 2016 even though lyft has managed to hang on they had the new york times reports that lyft hires catalyst uh frank quattrone um uh frank quattrone's firm the investment banker to sell the company uh again to try and sell the company and they go and they talk to everybody they talk to gm who just frank quattrone of uh of the amazon episode fame who uh with bill girley uh took took amazon public yes indeed and um so they go talk to general motors who just invested and said hey you should you know she buy the company they talk to apple apple's working on

self-driving cars they talk to google they talk to amazon they talk to they go talk to dd in china they go back to uber nobody bites nobody wants to buy the company this is the era where like the rumors are really starting to swirl around apple and project titan that had rumored to be over a thousand people working on a on a some sort of car yeah uh it was you know this is how much the sentiment was against lyft at this point in time even though all these people knew how important this market was viewed transportation as integral to the future i mean literally in the case of gm like is the company nobody wanted to buy them um the problem was the valuation so as part of the gm round the company was valued at five and a half billion dollars uh and so that was just too high nobody was willing to pay that

uh to buy it um later in the summer this is this is truly the low point for ly, uh, DD, which has keeps going. It's just like the body blows the, uh, DD, DD, the, the Chinese ride sharing giant had been a lift partner, uh, international partner and,

uh, had been fighting Uber tooth and nail as we talked about on the Brad stone episode in China. And, um, it was at the end of, end of 2016 that they merged with Uber. And so here's like Lyft's like big international partner now is getting into bed with Uber

and, uh, uh, it was very, uh, Amazon whole foods, Instacart. Indeed. Indeed. And so, um, so it was just really bad Lyft's market shows is down to 20% in the US and falling. And heading into 2017, it's like, all right, this might be it. And for a reference check on folks, I know I'm flashing forward, but it's now 39%, or at least in December of 2018, was 39% in the US. Yep. So doubled since then. And so what happens? So what happened, David? how did did lyft double their market share and turn the ship around well as we say so often as i say so often here on

acquired what external forces could have come into play history turns on a knife point uh it was it lyft was dead they were they were you know uber had the boot on their throat um and then you know one of the greatest unforced errors in business history series of unforced errors um happens starting in january 2017 with the delete uber controversy which of course we'll get into oh it was just the start it was just the start ultimately culminates like what is this little water coming through the dam? If I poke on it a little bit, what's going on back there? Yeah, yeah. And ultimately culminates in Travis Kalanick getting fired by the Uber board as CEO in June of 2017. And throughout all of this, this is the lifeline for Lyft.

And they start regaining market share. In October of 2017, Google via capital G invests a billion dollars in Lyft. And Google had been an early, early-ish investor in Uber and their big partner and the self-driving future was going to be Waymo and Uber. And so this about face of Google turning their back on uber and investing in lyft was um a huge huge turning point and it says a lot to here where um um i believe alphabet or you know via capital g uh owns i think a little over five% of the company at IPO and GM owns close to of this Uber insanity, which we will cover on their episode. Yeah, totally. And so much so that I don't think it was the alphabet round, but the last round of funding that Lyft raises privately before the IPO yesterday was at a $15 billion valuation. What a turnaround from nobody will buy the company,

we are dead to $15 billion to IPO to darling of Wall Street. So real quick. Yeah, market share, as Ben said, just rises starting in January 2017. It goes from 20% in the U S to just under 40% now people are switching. And although I feel like it's mostly stabilized now, but they hit a lift hits a billion rides in September, 2018 in November, 2018, they acquire motivate, which operates the city bike share in New uh, New York city and they launch

scooters. Uh, side note, scooters are mentioned 159 times in the lift S one. Yeah. I think the only, the only category of things that are mentioned more are, uh, uh, autonomous vehicles. Yeah. Um, and, uh, they do $8.1 billion in bookings in the full year of 2018, 2.2 billion in net revenue. Friday, March 1st, 2019, they filed their S1 this Thursday, March 27th, they priced their IPO at $72 a share or a $24 billion market cap. And as we said at the top of the show yesterday, Friday, March, March 29th, they become the first unicorn. Well, not the first unicorn, but the first of the show yesterday friday march that march 29th they become the first unicorn well not the first unicorn but the first of the big big you know a plus companies of the current generation to come out and be public and uh are finished the day trading at a 26.6 billion dollar market cap

what a story oh and here we are at the end of the story but at the beginning of the analysis we're like do you think we can keep this episode like around like maybe an hour hour 10 and no way we're sort of like uh what do we not talk about yeah thanks for bearing with us listeners but um you know these stories are too good not to share yeah Yeah. All right, listeners. Our next sponsor is a new friend of the show, Huntress. Huntress is one of the fastest growing and most loved cybersecurity companies today. It's purpose built for small to midsize businesses and provides enterprise grade security with the technology, services and expertise needed to protect you. They offer a revolutionary approach to manage cybersecurity that isn't only about tech, it's about real people providing real defense around the clock.

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again this summer. Yep. So if you want cutting-edge cybersecurity solutions backed by a 24-7 team of experts who monitor, investigate, and respond to threats with unmatched precision, head on over to huntress.com slash acquired or click the link in the show notes. Our huge thanks to Huntress. So before we sort of dive into some other stuff here, like I want to highlight a few other key facts. One is at time of IPO, they're now 4,700 employees, several hundred of which are working on autonomous vehicles. They don't sort of disclose specifically, but mentions that in the IPO or in the S1. Their take rate is rising pretty dramatically. So if you look at their revenue per ride is up, but if you look at the take rate, the sort of main driver of why revenue per ride is up, it's risen from the beginning of 2017 to around 20%, up closer to 30%. It's something like 28% now. because they now have loyal customers, they're able to leverage that into the supply side and gain basically power over their drivers and up their take rate there.

And I think they talk a lot about rides per active rider is going up and revenue per ride is going up, or rides per active rider is going up and thus revenue per ride is going up. A lot of the revenue per ride going up is really attributable to uh um to this this increased take rate over time and and so much so that they're they're per quarter like if you look at how down and out they were in in 2016 um 14 dollars that per quarter they were generating 14 of revenue which is after the take rate this is sort of you know the amount that they get after paying out to drivers. If you look at last quarter, it was $36 per quarter. So they have a lot of levers at their disposal. And I don't want to index too hard on, hey, it's just the

take rate because it's definitely not. But it's incredible how they really righted the ship and started turning everything in this direction of people are staying loyal. They're using it more often. We're able to go acquire more customers. Although I'd say that's sort of the smaller, the smallest of the drivers. But, you know, 14 to 36 over the course of two and a half, three years on a per quarter basis for revenue is huge. Yeah, totally. So, so David, where I want to go from here is why don't we talk about the narratives? So we added this section after history and facts, um, that is sort of the bull and the bear narratives.

So we used to talk about, uh, you know, what, um, um, these ones are hard to grade because you don't necessarily know, like we're too close to it, but it was something that we had to talk about now.

But in, in lieu of that, like it is interesting to talk about what are the stories that, that people are talking about that, that make this something you, you know, you want to get in on and what are the stories that people are talking about that make you go, Ooh. Yeah. And I think, uh, um, you know,. And I think, as is normally the case here, why don't we dive in on bulls first? So David, what are people saying that makes this something

that you should be super interested in right now? Well, I mean, number one, the scale and the growth. So $8 billion of bookings, of commerce transacted, of transactions created is incredible since mid-2012, so less than seven years. And increasing leverage on the take rate side and net revenue of over $2 billion, growing incredibly fast. That is very, very exciting, especially to public market investors that are not seeing that kind of growth anywhere else. So I think that's one. Two, if you read the Lyft S1, they talk about how they're not just a ride-sharing company. They're a transportation as a service company and they're building a a

multi-modal platform as they say now that's a lot of buzzwords but like one i think this started to crystallize for the industry when dara did come in and take over as ceo of uber um and dara of course the current uber ceo came from expedia and expedia uh bringing that mindset of like this isn't about one product this is about where you start your search for uh travel at expedia and for transportation for uber and lyft and so this is what the motivate acquisition was about this is what why scooters are mentioned 159 times in the s1 the opportunity here isn't just as big as ride sharing is. It is all of transportation that they think they can take on. And that's incredibly exciting too.

And then I think finally, the third piece of the bull case is, you know, Lyft does include a cohort analysis in its S1 as most companies. Which is not required, but is becoming more and more popular and is sort of truly the way to analyze these things. Yeah. And if companies don't in their S1s, you should be very suspicious these days. And the cohorts are expanding. So if you look at the cohort of 2015 customers, customer rider customers that came into Lyft in 2015, they are doing more. the cohorts are expanding, they are doing more volume of transactions and dollars worth of transactions in 2018

than they were in 2015. Like that's, that's, you know, usually you see cohorts deteriorate over time of people use it less as they turn. Expansion is, is rare and extremely powerful. Yep. So a couple other things that I want to touch on here. This is the pure play bet. If you want to sort of have some exposure to ride sharing and really domestic ride sharing, you know, Uber's in Uber Eats. They're effectively a holding company for all these other international operations.

They themselves operate internationally. You know, if you want to bet as a, it's not quite pure play because it's multimodal, but if you want to bet transportation in the US, this is the way to do that without mixing in that sort of basket of other things. The other thing, and you can't be a bull here without knowing the bear case first, as has been much, much covered all over the place,

the company is losing a lot of money. And, you know, they, I think, David, check me on my math here, but they lost almost a billion dollars last year. I think that's right. Yep. And, you know, so you got to look at that and go, and we'll talk more, I think, about that in the bear case, but they talk a lot about autonomous vehicles, and they've got hundreds of people working on it. They're spending a lot, a lot of money on it right now. I think it's something like, I don't have it right in front of me,

but Lyft believes that they can materially flip their economics to become a profitable company when self-driving comes into play, and they intend to be a leader in that space. And so I think if you believe that too, then there is reason to believe that they could get profitable. They do list it as a key risk that they're not profitable and may never be. So that, of course, is a little bit of a dangerous proposition. You know, the other thing... Oh, come on. We don't value companies on the discounted sum of future cash flows anymore. That's so, you know, old school. It is scary that the public markets are looking more and more like seed investors, where people are valuing on a multiple of revenue instead of a multiple of uh of earnings um or perhaps just buying in on a on a story or perhaps valuing growth over profitability like these are things that you typically see in the earlier stages of

a company uh in the acquired slack there was talk of a seed po um that uh that is becoming more and more common um you know no comment there but i I do think one other thing for me on the bull case is Uber's bleeding seems to have stopped. But I think for a lot of people, Uber's brand is solidified as, at the very best, highly transactional, at the very least, a lot worse than that. And Lyft, over and over and over and over again and their s1 beats the drum um and and did all throughout their road show on being a sustainable company on being a company that sort of does right by by its people be it riders or drivers um that uh i'm just pulling up a an email that they sent to uh um to riders uh uh shortly before their i think actually yesterday during their uh um during their ipo and it's titled for once the good thing the right thing the business thing can all be the same thing

and they sent this to all of their riders i mean they are doubling down hard on and they didn't they have a um blog post and twitter uh campaign campaign yesterday about being a responsible corporate citizen as a public company. I'm sure. The anti-Uber. Yes. Or anti how Uber is perceived by some people. Yeah. Um, I think there was a lot of fear that late stage private investors were not being rigorous and that, that, uh, the public markets when, when you apply more sort of rigorous, uh,

discounted cash flows, or I don't know exactly how people are modeling this one out, but, um, would not be able to, uh, uh, um, you know, continue the, uh, the, the valuation rise on a round by round basis. But that at least from pricing and trading yesterday, appears to not be a big concern. And I would say one last piece on the bull piece, which we really should have put in the history and facts, but has been a big change really since the delete Uber campaign.

Lyft has been hiring incredible people here in silicon valley and like this isn't talked about as much of uh you know i think on the the nationwide and wall street type narratives around the ipo but like we feel it and we see it here like lots of great people who riley and sarah worked with at airbnb and elsewhere and you know our friend preet at lyft like are really really talented people who were not working at the company during, you know, the earliest days of Lyft and during the, you know, the down days, they know are coming there and doing incredible things. So like, there's a, there's a strong talent story around the company too. I think there is much more analytical and sort of financially fundamentally oriented analysis. And we've been putting those in the slack and can continue to put those in the slack over time. way that the company has positioned itself with its riders and drivers, the leverage that they're starting to see where they actually do have a little bit of pricing power in the marketplace, the differentiation that they have and the talent that they have, as well as the sort of wind at

their back from growth over the last few years, makes it a super interesting company and not in a winner-take-all industry. Yep. And to put a fine point on the bull case, we can debate the merits of valuing public companies on a revenue multiple versus a profit multiple. But it does happen, and certainly it happens in the SaaS world. Lyft's valuation is not crazy at IPO. So where they finished trading yesterday, they are trading at a 12x revenue multiple of last year, 2018's net revenue. Now, typically you would trade on a forward revenue multiple. I don't know what they're projecting for 2019 net revenue. So that's what they should trade off of. But presuming there's continued growth, they will be trading at a less than 10x forward net revenue multiple. That's not crazy.

No. David, let's do a whole LP show on this. This is a good- Yeah, we totally should. We'll do that in the next few weeks and maybe have a public equities investor on too. Yeah, that'd be fun. Okay. Should we shift to the bear case? Yes. This is the largest ever net loss for a company entering the public markets for the first time, full stop. Boom. And so there's that. And then there's, there's a, you know, that's the headline. I think there's a, as a marketplace investor too, you know, this was one of the things that stood out to me reading the S1. I don't care as much about net income losses because that's how tech

companies work. Like you invest a lot in fixed costs as you're growing and then as engineers and you know product and and you know uh operations and infrastructure to do stuff yep all the you know read any ben thompson article he talks about this all the time and i think he's totally he is totally right which is this is how software in the tech industry works incredible investments in fixed costs but then as you scale revenues those costs are fixed your variable costs are much lower and so you will become wildly profitable a la google and facebook and whatnot over time uh airbnb what have you um the scary thing about lyft is that they're when you do the math and add up all their variable costs

relative to their net revenue they are they are losing money on a variable basis too. So not only are they not paying down their fixed costs, each dollar of revenue that comes in is even ignoring fixed costs, a net negative for them. And so the way you look at this is you add up their cost of goods sold, their COGS, their line item, their cost item for operations and support, and their cost, their line item for sales and marketing. Because sales and marketing, you're having to spend to acquire and retain drivers and riders. It's a variable cost as is operations and support, and obviously as is COGS. When you add all those three line items up for 2018 on their income statement, it is larger than net revenue. And that's a scary place to be.

Now, certainly the rebuttal to that is that we are in such a large market and growing so fast that we're spending so much on sales and marketing that yes, that is true, but like we need to spend to realize the full totality of the opportunity. Right. That the, the spend is, uh, in sales and marketing is primarily, uh, for speed purposes for expansion. And when we back down sales and marketing just to a rate where the market is at steady state, all of our unit economics look good. Yep. Yep. And, and actually John and Logan, in some of the interviews they did yesterday around the IPO, and they were asked this question, they said this, they were like, you know, we're doing the thing that we think, you know, we should responsibly be doing as managers of this company, which is investing for future growth.

And that the future is so bright that, uh, we need to do this now. Of course, the other piece of the bear case here is like, you need to spend this much on sales and marketing because you're locked in a knife fight in a bazooka fight with Uber. And so you're still- Does the market ever actually hit steady state without you spending aggressively and subsidizing every ride? Exactly. Exactly. So I think this is the biggest bear narrative on, on the company. And we'll probably weigh on Uber as well. Um, now one thing though, if you look at sales and marketing expense as a percentage of net revenue, it is declining for Lyft. So that's a really good sign. So in the fourth quarter of 2018,

um, it was 32.7% of net revenue they spent on sales and marketing. They spent over 40% in the third quarter. So they are growing while spending less proportionally. So that's a good sign, but it's still concerning. Yep. And I think, David, I appreciate your thoughtfulness as a marketplace investor. There are many articles that are quoting people who have expertise in various things that – well, I'll just give you one that is much less kind than you are here. Hubert Horan, a transportation expert who has long been a critic of Uber and Lyft, suggests that they have nothing in the document that suggests how this could be fixed. I mean nothing and so i think uh uh just to fully represent what the bears are saying it's that when you read the s1 people do believe that this will never turn right side up yep well it's not now and they are

public so yeah it is interesting i mean i thought a lot about so this sort of subsidizing every ride concept um i wrote a piece on geekwire years ago i think i'm four years into it at this point uh of how i sold my car and went full uber and uh i basically did all the cost modeling and i can't remember what it was but i saved somewhere between five and eight thousand dollars a year even if i'm aggressively taking ubers and lifts everywhere and just not having a car living in the city um and you know uh zip car or car to go for longer weekend trips whatever it is and i can't help but wonder like that cost difference feels too big. Like it does feel like if you don't have a car and are ride sharing everywhere, it shouldn't be that dramatically different than owning a car.

Other like that, these pricing inefficiencies sort of work themselves out and the market becomes more efficient over time. And so it does feel like, you know, how is it that I can get from Seattle to Bellevue for, you know, $16, uh, uh, you know, and at a i can get from seattle to bellevue for you know sixteen dollars uh uh

you know in a ride-sharing situation like i i understand the economic argument for like well your car is just sitting there for most of the time so it makes sense that you're way over paying for it and insurance and all this other stuff but like it is crazy the degree to which it it saves money for me personally and and you gotta just wonder like are are we in a are we being overly subsidized here yeah um and how long will that go on and you know are we now subsidized from the public markets yeah right almost assuredly yes you know the true cost of your ride to bellevue is more than 16 dollars yeah um okay uh what would have happened otherwise i feel like we explored so many paths along the way i mean lift to a day yeah i mean all these companies would die they they needed how is 2 2.3 billion going to be

enough like are we going to have to see additional public offerings from, from all these companies? Or I'd say, I should say Uber and Lyft or just on this episode. Do you think in the next 18 months, we'll see additional public offerings to get more cash into Lyft when they feel that the wind is at their backs for a good time to do another issue? And I think this was,

you know, zoom filed to go public uh last week um as well and we can't wait to cover that one everybody's so excited they're profitable it's the rare uh yeah rare tech unicorn that is profitable so um yeah is this the normal like i good question yeah uh there's actually a really good i I'm going to, this is in tech themes, but we're since we're heading there anyway. There was a finance professor cited by the Wall Street Journal that said that 83% of US listed IPOs that took place during the first three quarters of 2018 lost money in the 12 months leading up to their debut.

The journal goes on to note that the previous record for the statistic was that when 81 of stock market debutantes were unprofitable so wow uh previous record 81 this was 83 of the first quarters of three quarters of 2018 that's a lot of companies going profitable sorry going public that are unprofitable yeah um we're in a new world it's also hard to square that with the these companies are staying private longer you would think if you're staying private longer you would also get to profitability by the time you go out to go public um i mean i understand all the arguments especially as a venture investor why growth is uh better but um yeah it's a uh it's a brave new world we live in. Yeah. For how long? That's the question. This is a good philosophical question,

but should the public markets exist in a fairly risk mitigated way so that individual investors don't lose their shorts? I mean, this is why we have accreditation for private investors, um, you know, should, should 83% of companies that are, uh, creating offerings for the United States public be doing so unprofitably or, or, or have we reached a point where, uh, we're now using the public markets for something that, uh, is, is suboptimal. Well, a philosophical debate for another day, but I would just say that risk and return are inversely correlated and that is a law of finance. So if you want high return, you need to take high risk. All right, tech themes. All right, so I'm just going to roll through five here real quick that were listed in the S1. There's something kind of cool about the

fact that the S1s, they list out all these risk factors that are just like, it's great to read how honest everyone has to be and upfront everyone has to be. But then they also list like, hey, what are the key trends and themes that have enabled you to do what you're doing? So they talk about sharing versus ownership, on-demand services, flexible work, their mission-driven brand appeal, which I do think is actually on the rise. I feel strongly that people care more than ever about the work that they're doing and need that to motivate them intrinsically. What certainly has made a huge difference in attracting talent for them and riders in the wake of the delete Uber fiasco.

Absolutely. And multimodal transportation and uh um and i think one that they they don't list in there that is is super interesting to me is these companies became possible because the iphone 3g or 3gs yes launched with an embedded gps that could be used by third-party applications and do things like summon a car to you wherever you are and in total create like close to half a trillion dollars in value or

am I over? No, it's like half a trillion to a trillion if you add up all these companies internationally that all basically do this thing of bring a car to me right now when I push this button like crazy that that that adding that sensor and api uh to smartphones just enabled all this to happen totally totally um i mean i guess that's one thing that's the only thing i'll highlight because we talked about so many along the way and history and facts but um you know logan and john and logan in particular thought that the wave they were going to arrive that would enable zimride was social um but the

real wave that enabled Lyft was mobile. And not to discount, the social wave is big and do what not, and they're very interrelated. But yeah, you just can't underscore how big the mobile computing and smartphone wave was. And ride sharing being only one industry of half a trillion plus dollars worth of value unlocked by it yep yep it's a great point um and it's locked by sensors gps and if you think about instagram cameras features on smartphone hardware yeah um okay Smartphone hardware. Yeah. Okay. All right. I've got a few here. Two points I want to make in one point of discussion.

So this one, we said Craigslist like five to six times earlier this episode. There are so many companies founded by slicing off a piece of Craigslist. And I think it's really interesting that there's large businesses on their own on Craigslist. And I think it's really interesting that there's large businesses on their own on Craigslist, but when you add more trust, safety, and efficiency to the marketplace by making it a vertically specific application rather than whatever is happening on Craigslist, they can become a massive business. And so ride sharing, while big on Craigslist, wasn't as big as it could have been because you couldn't see who was picking you up. It didn't have all these vertical specific features and sort of real-timeness necessary to enable that application.

And so I think we'll continue to see even more companies that are something that used to exist on Craigslist but are a vertical slice that has unique functionality. Totally. We've talked about this one before, both on the main show, especially in this era of seed POs, but I guess it's more like an I seed O, like an initial seed. I don't know what the right terminology there is, but seed stage style storytelling in your IPO, you're always storytelling. and you know had a great great uh

um you know the art of pitching uh limited partner show too where you know you're just always always storytelling so much of this s1 is about the problem with the world as it is today and a little bit less about lyft's particular solution like you read through all the pros um in like the first i don't know 25 of it and you're like okay like i get all the stuff that's wrong like can you please talk about your product and your solution like i understand the trends i understand you know why things need to get better it's it's it's really this huge narrative of beating the drum of there's all these problems in the world we're going to be the ones to fix them all

eventually sure yeah let's talk about this stuff that we're doing right now and how it's going i mean yeah it's a it's a marketing document and s1s always have been but like in recent years people have really embraced the fact that they're a marketing document. There's a quote in there that like, come on guys, there's a quote that says the land devoted to parking in the United States could fill an area larger than the state of Connecticut. It's like, okay. And like, so great. Yeah. All right. So one discussion i wanted to have with you before uh we sort of go into value creation value capture and then grading is was it a good idea or not for lyft to go first and is it on top of that is it even better that lyft has ipo'd before we've even seen uber's s1 i mean it's my answer to this i've been thinking about this is yes from every angle uh certainly yes for lift because do the game theory otherwise uber comes out first they're

bigger they're monster you know it does great uber comes out first does great then lift comes out second and nobody pays attention uber comes out first and does terribly then lyft is still like is going to do terribly because everything you know so uh definitely from lyft's perspective better to go first from uber's perspective actually better for lyft to go to go first right because uber gets to see the reaction to lyft which has been very positive. And now they can tailor their pitch accordingly. And I think, you know, I was joking with a friend yesterday. I think the happiest people yesterday in San Francisco were not Lyft employees, but Uber employees, because they're like, oh, man, if Lyft is worth $26 billion, how much is Uber worth?

A lot more than that. We will find out. Yep. I completely agree with all of that. All right. So this was a section that we have that I think we'll keep fairly brief here that was brought up by listeners several times over the last year. That is, hey, you guys often talk about, was a transaction good for the acquirer? Or was a transaction good for the company that IPO'd and

raised that money? But less about, was it good for the world? And not enough about the ratio between value creation and value capture. And so I think we thought it was important, particularly in this one where there's so much discussion around minimum wage and around the contractor versus employee relationship to talk about this. Because I think less so much on the value creation versus value capture side. I think Lyft has figured out a phenomenal way to capture the value they're creating. But it is interesting to try and think about sort of like net value for the world. Is it a good thing? And are the masses sort of receiving enough value versus the company receiving a lot of

value? And David, I'll turn it over to you. How do you feel about where Lyft sits in this relative to a lot of other companies that are are also sharing economy companies and then sharing economy companies broadly totally this is such a complicated question um yeah and you know the cop out uh we we will talk about this now and give some answers but like like deserves a way more airtime than we have for it now as a marketplace investor and a true believer in marketplaces, which I am, you know, I believe in economics and I believe in the concept of expanding the efficient frontier

and that what these marketplaces are doing relative to the status quo is expanding the price at which supply meets demand, uh, for, um, or expanding the point on the curve where this demand and supply curves meet. And when you do that, it is better for all participants in the economy. So like, I truly believe that. And I think ride sharing is that case too, you know, um, now drivers are very upset and have, uh, uh, about a lot of things and have perspectives on that. But if you look at, you know, how, um, economically, how taxi drivers did in the previous system versus how drivers on ride sharing platforms do, uh, I suspect it is marginally more positive

on ride sharing platforms. Now that said, um, obviously there are problems their problems and their unintended intended consequences of all these platforms you know from airbnb to rover to lyft and uber a super interesting thing though again back to the best thing for uber happening was that they didn't buy lyft because otherwise they would be regulated as a monopoly um lyft being a viable second player in the marketplace keeps either lyft or uber from exploiting drivers uh and so like you could say like you know we were talking about subsidizing your ride to bellevue like that's a net economic gain to drivers um and uh that is happening because there is viable competition like this is how economics works this is the value of competition in in the marketplace um so like on uh while certainly i recognize all the problems

and unintended consequences i think net on the whole like if you believe in economics and adam smith like it's working as it you know should which does not mean there aren't problems. Right. And to, to, um, um, paraphrase a little bit, you're basically arguing that, look, if there's people that have a problem, but can't find anybody to satisfy that problem. And then you introduce an efficient marketplace where suddenly people who have that problem can pay for it being satisfied. and then somebody can make money by satisfying that need then you've created net new you know yeah well before before ride sharing creating efficient markets there were two problems with the uh city transportation marketplace one was it with the taxi system one was just uh it was hard to access for demand um so the ride

sharing innovations have made the market much bigger by expanding the uh ease with which demand can access it but also for supply there was a middleman like the taxi companies and the medallion companies were middlemen that were taking economic rents in the market uh and they don't exist anymore so um so net it is you know the versus a driver that was working for a taxi company uh or a driver who is driving on lyft and uber um more of the economic value should be flowing directly to the drivers in this more streamlined system that's kind of interesting we should do an analysis or some i'm sure somebody has like if you go aggregate all the taxi companies were they taking more than 28 of a vig and i would assume they must well yeah i don't know it would be we we should i'm sure there've been

studies doing the math yeah but even just if i think they would have had to have been because the cost of medallions like in new York City or any city was so high. So you had to be paying back those fixed costs as a taxi company operator. Right. Right. Right. uh is that what has been just striking and amazing to me is that if you are someone let's say you're immigrating to the united states and you're plopped down into a city where you don't know anyone it is unbelievable that you can go and make a wage by walking into a lyfts or uber's office

renting you know having the full service car lease rental whatever that apparatus is and then boom you're you're off sort of making a making a living wage and some would argue that of course but um you know having a job instantly even if you you know none of your skills translate from whatever you were previously doing um i do think that is and compare that to the taxi system where that was not the case yep yep it's totally amazing totally amazing okay cool um okay so the way that we grade let's bring this one on home yeah uh is is uh rather than just issuing hey it was an a um what do you have to believe five years from now or 10 years from now, whatever, for this to be an A plus and what happens that makes it less than that? So there's a chance autonomy hurts them more than it helps them. If the advent of autonomous vehicles just introduces relationships with car manufacturers that disintermediate Uber, Lyft, you know, a lot of these providers. But let's say that they play nice with this ecosystem and that Uber or that Lyft actually comes out with their own self-driving vehicles. And, oh my gosh, they currently are giving,

what's, 72% of the ride to the drivers. The business looks a lot different if they have autonomous vehicles, obviously. The question is, you know, in the next two, three years before autonomy comes, which could be, who knows, a decade or more, you know, in the next two, three years before autonomy comes, which could be, who knows a decade or more, um, you know, are they going to be able to get profitable? And I think, uh, um, they need, they need to do a lot more than just get a little profitable

in order for the, uh, uh, the enterprise value to be fulfilled. So I think it's, uh, can the big pivot for me is does autonomy actually help lift and get them to a place where at infinitum, you know, many, many years from now, uh, they're a wildly profitable company. Hmm. Yep. Yeah. I think I would reduce it even further, like forget autonomy.

Maybe it happens. Maybe it doesn't. Uh, I think actually I thought that the one of the interviews uh that john and logan did yesterday was quite thoughtful about autonomy and and also in relation to what we were just talking about with um value creation and value capture uh even as autonomy comes it's going to be useful for some use cases and we'll still need human intervention like the driver isn't going anywhere anytime soon for the majority of use cases, uh, whether that driver is in the car or driving, uh, monitoring it virtually from a command center or, you know, what have you.

Um, so autonomy is like a, who, who knows how it will impact the business. Um, and, uh uh but i think the simple the simple the the a plus case is they solve the concerns of the bear the bears which is like they they get unit economic profitable yep yep yep um and then i think the downside cases they don't and uh uh they're this this competition with uber is too intense intense and everybody keeps losing money. Very fair. I will say operationally, a plus IPO, like the way that they actually needed to access the public markets for capital. And they did so in a highly non-dilutive way and in a way that got cash into the company and a way that propels every bit of the company forward with a lot of momentum. So, um, you know, I don't think

they could have asked for it to go more smoothly than it went. Totally, totally agree. All right. Well, yeah, listeners, that was our, we'll move to Carbots. But that was, uh, that was a lot. Thanks for bearing with us. We, uh, we know that was a lot, for bearing with us we uh we know that was a lot but um you know just to underscore again like this is such a huge moment for silicon valley like um both lift itself this whole market of peer-to-peer ride sharing and as the first of the you know this generation of companies to to come out and operate in the public markets. So, um, very much a perfect storm here. We, we couldn't help ourselves from digging in deeply. So thanks for bearing with us. Yeah. Yeah. Yeah. All right. My carve out is, uh, I, I had two choices and I'm going to go with this one because I mentioned Bill Gurley earlier.

Uh, Bill Gurley isley is a tremendous venture capitalist, one of the best of all time at Benchmark. He has a talk up on YouTube that he recently gave called Running Down a Dream, How to Succeed and Thrive in a Career You Love. It is one of the best. If you are a college student, if you're getting your MBA,

if you're just thinking MBA, you know, if you're, even if you're just thinking about a career transition, it is one of the most thoughtful and amazing talks about the world that we live in today and how you can work collaboratively with your peers to build knowledge and and uh and and and leverage that knowledge and i and he gives these three amazing stories and they're um i'm not going to say who they're about because it's wonderful how he reveals them and and story tells the whole thing but these three very unrelated non-tech uh uh sort of use cases and stories about people who were artists and visionaries and sort of pursued their dream and and became the best in their field at the thing that they were doing and it is it is

just really well done so um i really enjoyed it and i think you will too and we'll put a link in the show notes cool i can't believe i hadn't heard of that yet i'm gonna going to run, not walk to go, to go watch that. Um, uh, so great. Uh, my carve out also in video format, very different, lighthearted. Uh, I got recommended on Netflix, uh, love the Netflix algorithms, cricket fever, which is a documentary they did on, uh, have you seen this in your feed? No, but I'm just worried that you're going to get it recommended something on YouTube and, uh, I'm going to lose you. I'll never emerge again. Um, uh, cricket fever about the sport of cricket and about the Mumbai Indians in the, uh, which is one of the premier teams in the, um, uh, India premier league cricket, which, uh uh is i've always been sort of fascinated by

cricket but um in 2008 the india premier league the ipl launched it is a new form of short form cricket called t20 um it is much more exciting and fast paced than traditional cricket uh matches last two to three hours and it's incredible they have like cheerleaders and fireworks and like um it is the xfl of it's the xfl of cricket but the ipl is now the sixth most valuable sports league in the world um and rising quickly and uh it's so exciting and fun to watch and so this this documentary uh that netflix that Netflix did follows the Mumbai Indians, which are owned by the family of the founder of Reliance, I believe the wealthiest man in India. And throughout the season, it's just so fun. Wow.

All right. Obviously, you'll put it in the show notes. I'll have to check it out. Cool. We want to thank our longtime friend of the show, Vanta, the leading trust management platform. Vanta, of course, automates your security reviews and compliance efforts. So frameworks like SOC 2, ISO 27001, GDPR,

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