Every company has a story. Learn the playbooks that built the world’s greatest companies — and how you can apply them as a founder, operator, or investor.
Sat, 30 Mar 2019 23:32
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!
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I don't know about you but I've literally like I've been like I had trouble sleeping the last couple nights Like I'm so pumped. I know. Yeah, I woke up at 6.30 and like Went for I ran down here to the office said like I spent all last night and all today just like getting hype Welcome to season four episode four of acquired the podcast about technology acquisitions and IPOs. I'm Ben Gilbert 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 lift IPO I am so excited. I know well, obviously this is an important moment for lift 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 lift 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 this is huge We've never seen anything like this before this is a whole generation of of tech companies that are all gonna go public all in the next you know probably two months here and and seriously Pent up demand. I mean all these companies the the full a plus As David and I were joking you've heard of fang now the the a plus What is it Airbnb Pinterest lift Uber slack? You know all from different sort of eras of of tech over the last you know Decade decade and a half you're all raising so much in the private markets and and here all in the next six months I'll really really IPOing. Yeah here there 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 Corp dev at Airbnb and before that a drop box So on the heels of the Airbnb hotel tonight deal that Now funnily enough feel sort of like old news We got her inside take on Airbnb 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 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 dot FM slash acquired to join and David I'm not kidding 10 seconds and and you can you can join and listen right here, so it's awesome Man the people behind that kimberlite company are really talented Spoiler that's that's well us but mostly Ben Our presenting sponsor for this episode is not a sponsor, but another podcast that we love and want to recommend called the founders Podcast we have seen dozens of tweets that say something like my favorite podcast is acquired and founders So we knew there's a natural fit. We know the host of founders well David Senra. Hi David. Hey, Ben. Hey David. Thank you for joining us Thank you for having me. I like how they group us together and then they say it's like the best curriculum for founders and executives It really is we use your show for research a lot I listened to your episode of the story of akyo marita before we did our Sony episodes this incredible primer You know, he's actually a good example of why people listen to founders until acquired because all of his Use greatest entrepreneurs investors they had deep historical knowledge about the work that came before them So like the founder of Sony who did he influence Steve jobs talked about him over and over again if you do the research to him But I think this is one of the reasons why people love both of our shows and there's such good Complements is unacquired. We focus on company histories You tell the histories of the individual people you're the people version of acquired and where the company version of founders Listeners the other fun thing to note is David will hit a topic from a bunch of different angles So I just listened to an episode on Edwin land from a biography that David did David It was the third fourth time you've done Polaroid. I've read five Biographies of Edwin land and I think I've made eight episodes of them because in my opinion the greatest such Pineret ever do it my favorite entrepreneur personally is Steve jobs and if you go back and listen to like a 20 year old Steve jobs He's talking about Edwin lands my hero So the reason I did that is because I want to find out like I have my heroes who were their heroes and the beauty of this is The people may die, but the ideas never do and so Edwin land had passed away way before the apex of Apple But Steve was still able to use those ideas and now he's gone and we can use those ideas And so I think what acquired is doing what a founder trying to do as well is find the best ideas in history and push them down their generations Make sure they're not lost history. I love that Well listeners go check out the founders podcast after this episode you can search for it in any podcast player Lots of companies that David covers that we have yet to dive into here on acquired so for more indulgence on companies and founders go check it out So to set the stage for David here as he dives into the history in facts We sit here on Saturday March 30th the day after the lift 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 dollars and closed its first day of trading up above 26 billion dollars 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 lift and how lift the company that became lift Zimride that transformed into lift how it got here how peer-to-peer Ridesharing became an industry It's hard to believe now, but just just about seven short years ago It did not exist and is now one of the largest you know 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 and Uber started differently It was not peer-to-peer ride sharing to start and it wasn't until 2013 After lift 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 of transformation metamorphoses story of betrayal a story of good and evil Basically your typical acquired episode So here we go. It's a 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 a 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 veteran area and but they're pretty They're pretty activist and and previously they had helped organize farm labor unions and they really encourage their their children and and Logan to Take you know that kind of outlook on life and Logan really takes after them but Unlike them and their activists rates. He's he's pretty introverted and focused and 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 lift and we are doing acquired. Yeah, we do a package So in high school. This is amazing Logan ends up getting a part-time job You know he's learned how to code he gets a part-time job working for a company in Los Angeles called you Wink now what is you wink you 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 checky cheese? I had no idea that that one I have no idea that You wink was a no one Bushnell company, but two I remember when I was an intern at Cisco and moved out California And went to Mountain View for the first time and was walking down these Castro street or Castor 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 physical signs on each side of the sidewalk and I remember the you wink building I even think I have a picture in front of the you wink 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 checky cheese and moved down to LA and It's you know incredible Nolan hires, you know first Steve jobs and and then Logan green And so Logan this was in high school. He had his drivers license at this point He his high school was in Santa Monica and you wink headquarters was in play Adele Ray Which if you know LA play Adele Ray 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 lift and Uber It was a nightmare to get over there a beast and 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 imply Adele Ray 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 That's 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 gonna 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 zip car zip car had just been been started a few years before and he tries to get them to come to UC SP they Refuse and he reaches out to them and so he says okay great. Well, I'll start my own car sharing program at UC SP So he he convinces this is gonna become a theme here He convinces the university to buy a small fleet of Toyota Priuses and And then Logan basically reverse engineers the entire way that the zip car system works So if you remember at the time you had a card that was like a product. Oh, yeah, you hold it up to the windshield You hold it up to the windshield and then that unlocks the door So so Logan like reverse engineers this and he installs these on The University of Santa Barbara's Priuses that they had 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 so 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's just 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 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 times But he's like a serious Introvert and is really uncomfortable doing that so he realizes this kind of isn't isn't the best way 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 is the he becomes the youngest board member ever Anything so 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 if you know people talk about lift losing money on every ride today Most municipalities public bus systems and train systems lose money on every ride Yeah, and it's super hard to get stuff done trying new things or even incremental innovations on 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 gonna 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 US citizen Matt's mom basically bribes them to go to Africa instead So they go they spend I don't know if it was a month or two months in Africa and 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 US 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 minivan's and they just like have the minivan and The 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's kind of like a line, you know, it's like a line 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 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 No, no, I was gonna bring it up with them because Matt actually but not often talked about Becomes the third co-founder of Zimride of the company that would become lift But he does not go full-time instead Matt was at the University of Arizona instead after graduation He joins dig and he becomes a relatively early employee a dig and then an executive at path and Remember path path was so good stupid. It didn't work Still could still good. I think it shut down now, right? Another one could another one could yeah 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 the story everyone should take a trip to Zimbabwe in college Well, I think that and Tech theme we often talk about here on acquired that is gonna become super obvious through this episode and the Uber episode It's a small world out there. Yeah, it's all the same people are very incestuous in all of these industries and sub industries so Matt and Logan they come back from their adventures in Zimbabwe and Logan starts his senior year at UCSB and this idea is is percolating in his head So much so he decides he's gonna 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 all that on all this Meanwhile on the other side of the country In a in a very very different environment from you know left over hippie parents in on the west side of LA and then certainly Santa Barbara in Greenwich, Connecticut another young man is growing up man named John Zimmer No relation to Zim Ratt No really really soon to be relation to Zim ride, 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 Lifts previous name was Zim ride and that has zero to do with the fact that one of the Zimmers 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 its lifts big rival uber lift does not operate internationally Or it doesn't can it Does not operate intercontinental Despite having started in Zimbabwe spiritually Yes, so John Zimmer is growing up in Greenwich, Connecticut, which for 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 a moths to a flame of like hedge fund managers to to credit living in Greenwich, Connecticut It's a suburb of New York in New York City and So John's growing up there surrounded by all this incredible incredible wealth like ridiculous wealth But for whatever reason like 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 that 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 in terms of wealth as all these fun Cups have been flying off the shelves. I mean things were times were good. Yeah, he's a marketing executive at Dixie cups Maybe a lot of that ends up influencing 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 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 it's a different type of you know, you can see the parallel to the hospitality and and 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 facts Who's like oh, yeah like I wanted to do hotels in high school? He goes to the high at Regency in 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 yeah, this is the equivalent of putting the TV in the garage exactly. This is this is his equivalent So he goes there and he he ends up he answers the phone So like this is guests calling from rooms with like hey, I've got a problem in my room like come fix it This is people calling to make reservations, etc Like 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 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 like 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 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 late 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 Rads 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 moved that over to transportation? Could I make a big impact here? Yeah, 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 right thing is to do right angle of attack so senior year olds around and he ends up doing what you know all Ivy League students at the time Myself included did is you go work on Wall Street and become an investment banking analyst And so glorious glorious noble cause of applying the most brilliant minds to well, you know a training ground It is it is a training ground and I you know I don't regret for a minute that I did it and 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 and Great reputation. I mean fantastic firm and really at the moment Lehman was really on the rise. Yep setting itself up for a big fall To come 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 you know 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 ride share 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 like percentage wise it is remarkable how it Basically goes off without a hitch It it's incredible and that was not the case on Craigslist ride sharing so that fall in 2006 Logan sees an announcement that changes everything and that announcement It changes everything for lots of people is that Facebook which was the hottest company You know how to start up in the world at that time and certainly especially hot with college students and recent college graduates announces that they are gonna open up their platform and invite developers onto it and 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 gonna 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 Before hand and that might be exactly the wedge that he needs to 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 here a little bit But like the easy creating account because I think the only way to create an account was locking in with Facebook at that point and How crazy it was that like it sort of made sense on other apps from 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 Humanizing thing to see like oh you have two mutual friends with this person that's picking you up It is it instantly takes you to a place where you're gonna treat the experience completely differently than you would a random stranger Completely differently Not just in terms of trusting that nothing bad is gonna happen like that's the worst case scenario But there's also you know, how is this person gonna behave in my car? There's well, yeah, there's upside opportunities, you know people end up meeting Why so how you know friendships, you know relationships getting married like all this stuff in cars Via via Zimrads, but yeah, there's also like is this person gonna trash my car, you know are they all this stuff 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 Zimrads because he's like yeah, the inspiration came from Zimbabwe like this is what I'm doing Zimrads great And this was 2008 this was end of 2006 and it's okay the company isn't officially started yet He's just calling the platform Zimrads. He teams back up with Matt van Horn the buddy from 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 I was a must have in the first F8 when they do this and and Logan had he gotten early access to the APIs and built the app and Carpool slash Zimrads is featured as one of the first apps when Facebook launches the Facebook platform This is 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 Soca 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 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 the most recent Russia at least most recent wave and we got featured on a bunch of podcast players and You know that that growth rate compounds it turns out So Zimrads featured is 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 Name John Segal. 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 Segal is mutual friends with John Zimmer That's how they came together the East Coast. This is incredible. So they had this they had met Zimrads talks about this he does a lot of interviews So Zimmer and Segal had met while studying abroad I believe in Spain in college they gone to different colleges Segal hadn't gone to go into Cornell and Zimmer comes home one night. He's just started at Lehman and 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 at home one night And he sees this post on Segal's wall and he's like this has got to be fate Like I've been thinking about this. I know how to like operationally attack this problem. It's all about occupancy rates I've been thinking about carpooling. My name is John Zimmer. This company is full Zimrads It has to be fate. So Zimmer Pings Segal that night and he asked to introduce him to to Logan and Segal does They start talking. I believe over Facebook to start a couple 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 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 like the side project like great Like we're both thinking about this like let's do it So they 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 Back in the day and it was right around this 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 s1 They reveal that even before it was Zimrads In 2007 the company was incorporated as Bounder Web yes, I saw that Bounder Web I could reflect you out what that came from so you know Yeah Logan and John you know if you're listening hit us up. Love uh. Yeah Hit us up acquired a famed email.com or in the slug also congratulations Yeah, also congratulations All right, so they're working on it part-time and Matt Van Horne like he's still involved too He's the third co-founder, but Matt decides that he he's gonna stay part-time He's gonna 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 gonna 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 gonna focus on focus on college campuses They 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 they choose Cornell as the first school that they're gonna launch at I don't know why they didn't do Santa Barbara Maybe like Logan was worried about people finding out when he was working there Uh, unclear, but they choose Cornell and Within six months they've signed up 20% of the student body that is actively using this and and the real use cases around Brakes so like school goes on break and like 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 Mm-hmm randomly they then get a bunch of other schools that start using it apparently the University of Wisconsin La Crosse Uh, they didn't do any marketing there just like you know popped up and started huh network effects man. It's a thing so the 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 Parade around with signs advertising Zimride while dressed up in these animals seem like the type of people that would put a pink moustaches on cars for sure Yeah, you can see where the DNA comes from and One one one time they do this Zimr does this back at Cornell He's he's on a recruiting trip for Lehman and he goes a couple days early He dresses up in a beaver suit does this And then when they do with the info session 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 John's like Yeah, let's talk about that 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 gonna 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 zip car or don't do what you see us be did where you buy a bunch of Prizes yourself You know have it be the sharing economy even though wasn't caught 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 It gets into 2008 and Zimr is coming to the end of his analyst program at Lehman Brothers and he's trying to decide, you know Am I gonna go work in private equity like all my other analyst classmates who are staying in Wall Street You know, am I gonna go full-time on this Zimrides thing? It seems like it's really working. What should I do? Two things happen that help him make his decision One Zimrides gets its first institutional investment Ben, do you know who the first Institutional investor in Zimrides was there was an angel investor beforehand the VP of finance at eBay shan agar wall Who is still the chairman of lifts board today? Interesting, but who was the first institutional investor? Uh, is it before floodgate? This is years before floodgate. Huh. Yeah, cuz that was like 2012 or something. I don't know It was Facebook So no way yeah, so not only did 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 And they invested $250,000 in Zimrides to help support it because it was this, you know 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 at that? So unclear It appears it actually was a grant and not an investment so I don't know that they got wow 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 Zimrides 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 a at another finance firm in the building and she hears about she must have heard about what he was thinking about and said like I got to sit this kid down and set him straight She sits from 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 stream, but you know, I really want to do this. I'm gonna do that and This this this stormy brother 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 home such a sure thing like this august You know Wall Street institution Lehman Brothers been around forever like Literally three months later Lehman goes on their 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 gonna relocate to Palo Alto. They're gonna make this a real startup They're gonna 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 we'll 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 they decide they're gonna get an apartment in Palo Alto that they're gonna both live and work out of And it turns out that it is next door to Marissa Myers house And so their windows look out over Marissa Myers 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 become Neighbor friends like what's the what happens here? Well, so they talk about you know, they'd see and hear you know All these Silicon Valley parties that would happen in in her backyard 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 they could you know reach those same heights 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 250k from Facebook and the little bit of angel money from Sean Agarwell But that's it and they're not making that much money from these universities. So Two of them don't take a salary for in total for 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 from and Miraculous there in 2010 But that's two years later and and then they would raise a series a in 2011 I think and and and talks about this. I think part of the reason that they were able to raise that seed round was just that And and the other investors kind of looked at them were like well these guys are like, you know 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 may feel okay Into the zimride concept of into zimride yep Recording revenue from universities. Yep, they were they were. This is before lift So not long after the series a that may feel does in in 2011 Logan and John You know, they're they're excited. They just raised an A and things are going well But if they're like really honest with themselves They're not setting the world on fire here growth is Slowing they've they've saturated universities at this point They've opened up the product for corporate customers, but that's not that compelling like yeah 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 it's a you know low frequency event exactly Exactly, so then they were like okay, well, we'll as part of the series a we'll 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 is like I don't know these people Am I gonna get in a car with them? Yeah, 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 lift begins I was like official lore. Yeah, then 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 there, you know, they must be inspired by odio and how how Twitter started here Yeah, and open your mind. Well, we'll discuss 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 So that friends could track you as you were traveling on your smartphone at this time. Feel like a feature Yeah, yeah feels feels like a feature feel like a feature that might be part of lift a newbie or something Haha to the second idea they have is called journey and what journey the vision is people using zimr i'd go on these road trips together having these social experiences Journey would be an app that you could document a trip With like photos and videos and music that you listen to and share a memory of a trip, you know Yeah, almost like 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 Yeah, not an obviously terrible idea But the clear winner when the company votes is the third option Zimride instant And Zimride in Lift is a little catchier, but Zimride instant, you know, 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 pure 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 Oh, 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 Bowden who still works at lift 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 lift and we'll lift L-A-F-T dot com and the app like that's gonna be hard to get the domain name But let's just change the I do a Y and like it looks cool anyway. Let's call it lift and brilliant And the rest is history sidecar. So Harrison Sidecar Hordyn's lip there side bar Harrison also designs the first logo. Do you know what color lifts first logo was? Yes, see foam green Yeah, it's funny. I dug up in preparing for this episode I dug up my first lift receipt No way that's awesome when they were expanding to Seattle. Yeah, it was they hadn't yet gone with the pink What was pink was the pink balloon but the LYFT? Yeah, which that logo mark has not changed was was green not pink was receive foam green I should say yeah, I would love to hear why they chose see foam green but anyway and and this This is the legend. This is the lore and even in the lift s1 There's a founders letter from Logan and John in there and in it I quote here in 2012 we launched lift 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 lift pioneered Wow, it's like it's a humble brag a little bit of shade a little bit of You know sub tweeting or whatever you want to call it And certainly certainly referring to you by there and you know That appropriately so paragraph that paragraph is not incorrect and lift and The former's MRI deserve all the credit in the world for doing that and 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 Bend you only hear a frozen thaw Has the real truth 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 course and By the way, this 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. Maybe even be the best story of all time and acquired. I'm so excited here Yeah, baby. So okay sidecar, you know, some people who who remember sidecar was a Peer-to-peer ride sharing competitor from about this time and they may remember yes sidecar was first Weren't they didn't 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 Still around here in San Francisco in September of 2011 Now remember it's summer 2012 when the lift 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 DC where a well is based and And then after aol he started a company called free loader with a guy named mark pinkus Which might raise perk up the years of some of our listeners Mark of course was later the founder and CEO of zingua and Sunil did not co-found zingua with mark But was an initial investor and was actually a board member of zingua for a long time After that whole ride in in between he started a company called breakmail That got acquired for about four hundred million dollars. 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 get-around Which is still a you know large and very successful car sharing company today And and we were actually small seed investors back at Moderna and I remember working with salmon Jessica 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 And 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 Still works really well And senile was so excited about this because he's been 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 senile's like so excited that same 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 salmon Jessica 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 a CEO which he probably did I want to do and so they say thanks, but no thanks and they reject his offer to invest And senile gets really angry about this and so he writes about all this later And 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, you know, upset about it So he's like, I'm going to spite them. I'm going to go start my own company doing this Wow and it's he's like super honest in these blog posts So he does that he works on it himself for a while 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 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 CEO of the company from Michigan, Jahan Kahnah Become 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 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 people other people Who request rides from them To get to where they're going out to bars or home from bars And like of course they're super out there But this is just like ordinary people doing it And it's working like super super well And Sunil is 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 homeobiles Yes you heard that right It's called homeobiles And the motto of homeobiles is Moes getting hose where they need to go And this is the most incredibly amazing San Francisco-y thing That probably has ever been created It just I love this This is so great Land on us So okay so you know San Francisco today you come here in 2019 And like it's all techified and yuppies and you know there's there's lift And there's uber and there's Airbnb And everything that's taken over the city But like San Francisco was the birthplace of you know Counterculture like in the 60s This was you know sex drugs and rock and roll And uh we've talked about this on this great book about The old San Francisco called season of the witch So homeobiles was born out of that Not out of the tech world It was started in 2010 By Lini Breedlove who was a punk rocker And LGBTQ icon here in San Francisco And as he tells it He was going to Femcon in Oakland In the uh 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 this is his words This is a quote he says all of a sudden The butchers 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 you know Forward thinking cities uh in the country If you were a drag queen or or even not And you just you know uh just gay And you any any member of a net risk population Any member of a net risk population And you were out at night You were at a gay bar or you were somewhere else And you were trying to get home Or you were 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 Assaulted people get attacked People get raped It's so cool And um you know if you're part of a net 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 home mobiles And the concept was if you were you know Felt you needed a safe chariot From getting one place to another You could text home mobiles and they would dispatch You could budd drive for home mobiles And they and then they would dispatch Uh somebody to come pick you up and take you You know in a safe way to 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 home mobiles And turns out that worked great And uh home mobiles at this point By 2011 had become a big thing In the LGBTQ community in San Francisco And it turns out they had invented Pewter-peer ride sharing So uh that's so interesting Because they get none of the credit for it Nobody nobody knows The only way I found out about this Was Cineal writes about it in his medium posts And if you google home mobiles You'll find some articles here in San Francisco about it But even in uh we use a lot of uh uh Friend of the show Brad stones The upstarts a lot of the research reporting he did He mentions home mobiles in a footnote But nobody talks about they were the first ones To actually pioneer Peer-to-peer ride sharing And doing it for just an extreme need I mean this is a-stream 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 Cineal is here to value says okay great Well I gotta try this So he writes this is this is a quote from his medium posts I took home mobiles to the airport for a trip to New York It cost me $20 for a trip that normally cost $50 in a taxi Wow This system was cheaper than taxis never mind doober 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 home mobiles That could allow us to create our shared ride vision Oh I love that So that's it that's what they do They take the home mobiles operating model Which is Individual regular people un not commercially licensed drivers Driving for the platform And then individual regular people via a dispatch service That they build an app version of Summating them to pick them up And then the payment is a donation And for listeners if you remember back to the early days of lift And yeah And sidecar when it started It was not a payment because the regulation All donations It was all donations So sidecar takes the entire operating model From home mobiles 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 money Along with with lift and and Uber They would launch intensities 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 And 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 Red Ride 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, all quit our jobs venture We were talking with sidecar and Sunil about an aquahire 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 lift And acquired sidecar I believe they wanted the team and the patent So remember Jahan, 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 Jahan, you know what he's doing at Uber now He is head of product for new modalities Which is bikes and scooters Wow And always on the couch And a cutting edge And Fred and Andrew Chapin Who was an executive at Uber at the time And is now co-founder and CEO of Wave's portfolio company basis Was a big part of hiring Jahan And bringing him back and bringing him in Uber So okay, back to home mobiles 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 lift and Uber 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 they do a lot 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 non-profit 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 a 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 as resulted in You know one and soon to be two massive IPOs So we're going to make a A $2,000 donation from acquired two home mobiles 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, it's building an app I'm sure I wonder if there's There's probably some in-kind donations That they could use too But yeah super super prone 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 Definitely encourage other parts of the acquired family to help too Okay, so back to the story So lift You know we had just told the canonical version Of how lift came out as Zimride You know and that maybe too there was a hack day And you know they did decide to work on Zimride instant And they did launch it and has lift But 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 in fact Cineal and sidecar they saw You know because they they had you know God mode for these for these 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 lift 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 knew it came from homeobiles or not They now know exactly how the operational model works And so when they launched lift you know they copy it all But they do to their credit They do it a lot better And they're there two reasons why they 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 on to lift 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 like a huge portion of A huge network of that tipping point 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 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 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 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 The fist bump on the way in the back I thought this was so weird back in the day You got yeah And you know you could maybe argue whether one and two helped them win or not But certainly the differentiation there at least Yep certainly the third thing they did Help them win big time So they already had this supply hack This distribution hack on the supply side They needed something though to get demand Within San Francisco and and future cities that they launched And so they came up with kind of a crazy idea And here's where the frog in the beaver seat costume DNA comes back A few years earlier John Zimmer Had found out about this crazy this 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 like it's super tight parking People hit your bumper all the time And this you know 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 It owe back at Zimrad But then when they're launching lifts And they realize they got to like Get people aware of the service and on board demand They're like oh great Every driver who signs up for the service We're gonna make them put a big fuzzy pink mustache On their cars And so like summer 2012 Totally for you 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 you know it's kind of like when scooters launched Well scooters look back in a minute But the scooters are sitting on the sidewalk Here you've got cars driving around the city With this fuzzy pink mustache And I remember this like I remember coming down To San Francisco at the time And be like what is with all these cars driving around With pink mustachees And the word of mouth like it was real And it 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 UberX yet So it was competing against them Yep it was competing against sidecar But it was really competing against non-consumption Right right yeah it's 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 the same time Uh but speaking of competition Uber is out there you know Uber's been around since 2009 at this point They're doing limo licensed driver pickups 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 gotta do something So now this is like people don't remember this But Uber 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 Pride 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 lift and sidecar 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 that it doesn't work Probably partially because the regulators hated Uber Because they were so aggressive kind of On pushing the rules within the existing license driver industry And so this is great The next year April it wasn't until April 12th 2013 When Uber Uber had already launched UberX But it was still license drivers driving Priusos instead of black cars They pivot Uber UberX into being a direct competitor With lift and sidecar doing peer to peer ride sharing And they announce it Travis releases a white paper Entitled principle innovation Regulatory ambiguity around ride sharing 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 you know Unlicensed peer to peer ride sharing 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 Well it is a very different Q the imperial death march Then the entire tone of the lift s1 That's about sustainability And good for the world And great for riders and great for drivers And really like everyone kumbayan hug We choose to compete We choose to compete And compete They did And you know that that white paper was mostly for employees Like that was a rallying crowd It was a rallying cry 100% So they repurpose UberX 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 at 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 At what episode is that? Am this It was when we It was Uber in DDD Uber in DDD 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 And the last two vacations You took you're going to use it on the next one So wherever Airbnb You know there's going to be ultimately Sort of one one platform there However with Uber The or ride sharing or lift 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 by different players Particularly Internationally where I mean it kind of makes sense for You know Zadol and San Francisco To have the same provider But No But Not that Yeah But like what Toe like there's Very little that Lift Here Versus the ride sharing Company in China Could could even share To be 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 and people also didn't realize this for a long time But You know 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 Uh 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 You know Internationally That you can still compete Locally And that's why you know you haven't seen Uber crowd outlift fully or or vice versa And another way to put that is To your point about the tipping point As long as Okay What taking one step back We're really in tech themes 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 At like Airbnb doesn't I get to pick which option I want from the supply side Um In this marketplace assign Which ride sharing falls into Because supply is undifferentiated These services are relatively undifferentiated As long as there's something within Three four minutes of Where I'm trying to leave from And it can sufficiently get me where I'm trying to go to For approximately the same price And so you do 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 Just yet People are thinking like Oh this is going to be a winner take all market And like who are we going to back 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 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 threshold They start doing this thing called slugging Which is an acronym for like Supply, long term operations growth Or something like that But really what it means is that 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 supplies Is kind of the most important factor here Yeah and not only that They they and I think Uber was more famous for doing this But ordering rides and then canceling them On competitors platforms Just to Yeah to be clear Lift and sidecar we're doing Yeah but Uber builds a brand around doing it Yes Uber builds a brand around doing it And they're they're much more successful And particularly in the capitol raising So a year later Very quickly an eternity in this market But very quickly in absolute time Lift is on the ropes Like lift is about to die And what year is this? This is 2014 Yeah Everybody's spending huge and huge amounts of money Like there's the slugging 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 capitol As lift 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 lift is You know 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's such a clear winner Anyone trying to compete to fool Zaren It's amazing that they lost the You know the enormous amount of money they've already raised Yeah Totally and you know Honestly lift feels this same way too So they actually initiate merger talks With Uber lift goes to Uber And waves the white flag And so Zimmer and at this point in time Andrews and Horowitz has invested in lift And uh Andrews and partner John O'Farell They go out to dinner with Travis Kalanick And a meal Michael who says number two At Uber at the time And uh they say we want to merge And they ask for 18% of the combined company And Uh That is exactly how uh Travis and Emil react They're like we're gonna win You're not getting anywhere near that amount Like maybe we would consider something a lot smaller They counter with 8% Um Which is still actually It's still actually a lot It's a it's almost surprising With those two personalities that they came back with 8% instead of one Yeah and equally surprising And this is like such a defining moment for lift Equally surprising that lift doesn't take that Uh yeah But they don't So the two sides can't reach And agreement Uh and lift 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 From the hedge fund co-tube management Uh which co-tube is now a big player And investing in Especially late stage uh startups But this was one of the first Uh private company investments they make Um You got to wonder here like is there philosophy And we're gonna talk about IPO narratives here in a little bit But are they thinking that this isn't winner take all Or are they thinking Oh we're gonna take a flyer that these guys are gonna be the one I don't know I wish I knew we'll have to uh uh Focus it co-tube get in touch with us And uh 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 lift 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 US 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 any like how being 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 guys they keep hanging around uh Things get like things were already ugly Things get super ugly like like Probably the ugliest like certainly I've ever Not that I was part of this but that I've ever seen uh in business So in 2013 back a couple back a year earlier Lift had acquired this company called Cherry Do you remember Cherry Ben? I don't Cherry was an on-demand car washing uh Company so you could order uh a car wash While your car was parked in the parking lot Uh uh Crew would show up and wash your car Uh and then you would come out of you know Work or the grocery store or 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 oper the operations front And uh lift 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 lift And at this point become the COO of lift So like the number three executive behind Logan and John And uh that guy's name was Travis Vandersandon Uh which this is good uh 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 lift And he brings a ton of innovations that he did at Cherry into 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 Uh he's a little more uh a little more uber A little more uber uh uh and uh and he sees in 2014 as all this is going on He sees the pendulum swinging uber's way He believes just like everyone else in the valley that there's no way lift can compete Um so he does two things he goes to the lift 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 is CEO is I would go re-initiate 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 lift And he um he he kind of rog 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 again like this this is really bad of course, but Like you can sort of see how this could you could get crazy times of like crazy crazy measures Like 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 uh You know they are utterly insane in their conviction and and mission driven zeal for the company And so they fire Travis immediately um and Guess what a couple of weeks later Travis ends up joining uber So how does this work in like is this because non-compete are illegal in california? So like you just can that's that's how this works however Of course lawsuits abound So lift immediately sues uh both Travis vanderson and and uber uber turns around encounters who's lift for supposedly hacking into their systems and stealing their information Uh eventually everything settles um 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 in But yeah, this is not the battlefront that we're gonna throw on um and uh So now then do you know what Travis vanderson is doing now? I believe he's the CEO of bird Yes, he is he left uh left uber I believe in 2017 um and Started and is the CEO of bird the scooter company It is incredible how incestuous all of this is incredible uh, but yeah and and Travis vanderson and i mean again like uh two sides every story He is incredibly talented and you know Um a visionary for Transportation and operations like when he started bird nobody was doing scooters and now they're everywhere um so Anyway, that's the back to off to 2014 and uh Coming into 2015 lift is basically out of money Um, so they're at the end this is like the story of lift 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 um Well, so the 2015 version of this is they end up getting hooked up uh 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 co2 they're talking to any other alternative source of capital They end up convincing racquetin the japanese e-commerce company to invest In march of 2015 racquetin invests $530 million Uh and racquetin is at IPO the largest shareholder in lift larger than any vcs much much larger than Logan and john um and It uh, you know that saves the company Totally that time and then they add some more money and this is 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 ike No way He's in this too Carl ike he's back He is like we gotta have Carl on the show at some point We for sure do um Yeah, and that one will do in person Carl will come to you we we will for sure come to you so listeners might remember Carl from from Netflix uh and uh what was the other episode he was in um uh marvel and marvel yes and blizzard He also an activation activate another one too anyway Activist investor Carl ike Activist investor and and what's great is so mark and reason and Carl ike and had had this huge beef like twitter beef uh and um And reason was the largest vc in lift at the time and here's Carl ike and come again And i think i think mark was quoted in in the new york times uh saying like Yeah, I mean we disagree but like i never said he wasn't smart Um, this is great uh So Carl ike and 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 five hundred million dollars That keeps uh that keeps the company going um gm made like a quick uh I don't like 750 million or something because that was in what 20 2016 we're in 26 today. Yeah, they turned 500 million into like one and a quarter or something over a few years Yeah, 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 lift at this point right Yeah, which is incredible But still like you know still a uber just keeps growing and growing and growing and you know This is the point where ubers 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 lifto's managed to hang on They hide the new york times reports that lift hires catalyst uh frank quattrone 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 Spill early 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 apples working on self-driving cars They talked to google they talked to amazon. They talked to they go talk to dd and 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 I think that 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 lift 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 The problem was the valuation so as part of the 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 lift Uh Dd which it keeps going there. It's just like the body blows the uh Dddd the the Chinese red sharing giant had been a lift partner uh international partner and Uh had been fighting uber to the nail as we talked about on the Bradstone episode in china um and um it was at the end of end of 2016 that they merged with uber and so here's like lifts like big international partner now is getting into bed with uber and uh feels very uh amazon Whole Foods Instacart Indeed indeed and so um so it was just really bad lifts market shares down to 20% in the us and falling uh and heading into 2017 it's like All right, this might be it And for a reference check on folks i don't 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 uh, so what is it what happens? Yes, so what happened David? Why how did it did lift double their market share and turn the ship around? Well as we say so often as as i say so often here on acquired what external forces could have come into play uh history turns on a knife point uh it was it lift 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 it. 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've got it a little bit what's going on back there? Yeah, yeah and um ultimately culminates in Travis Kalanick getting fired by the uber board as CEO in June of 2017 um and throughout all of this this is the this is the life line for lift and um They start regaining market share in october of 2017 Google via capital G invest a billion dollars in lift and google had been an early early ish investor in uber and their big partner and the self-driving you know future was going to be waymo and uber and so this about face uh of google turning their back on uber and investing in lift was um a huge huge turning point and it says a lot to hear where um um i believe alphabet or you know via capital G uh owns i think that a little over 5% of the company at IPO and GM owns close to 8% at IPO and you can just see the sort of sentiment reflected there where GM earlier put in half a billion dollars and uh uh alphabet later puts in a billion dollars and yet GM has the greater percentage because the valuations were dramatically different at these times the the sentiment around the company had totally totally changed um throughout all of this uh uber insanity which we will cover on their episode yeah totally and um uh so much so that i don't think it was the alphabet round but the last round of funding that lift raises privately before before the IPO yesterday uh was at a 15 billion dollar valuation yeah what a turnaround from nobody will buy the company we are dead to uh 15 billion dollars to IPO to darling of Wall Street so real quick yeah market share as Ben said just rises starting in january 2017 uh goes from 20% in the us to just under 40% now uh people are switching um and uh although i feel like it's mostly stabilized now um but uh they hit a lift hits a billion rides in september 2018 um in november 2018 they acquire motivate which operates the city bike share in uh New York city and they launch scooters uh side note scooters are mentioned 159 times in the lift s1 yeah i think the only the only category of things that are mentioned more are autonomous vehicles yeah um and uh they do 8.1 billion dollars in bookings in the full year of 2018 2.2 billion in net revenue friday march first 2019 they filed their s1 this Thursday march 27th they priced their IPO at 72 dollars a share or a 24 billion dollar market cap and as we said at the top of the show yesterday friday march the 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 yeah 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 you know these stories are too good not to share yeah yeah it's also worth some other 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 4700 employees um several hundred of of which are working on autonomous vehicles they don't sort of disclose specifically but mentions that in the IPO um or in the s1 their take rate is rising pretty dramatically so if you look at uh their um you know revenue pariet is up but if you look at the the the take rate the sort of main driver of why revenue pariet is up it's risen from the beginning of 2017 to around 20% um up closer to 30% it's something like 28% now so what this is really proving is you know there are because they now have loyal customers they're able to leverage that into the supply side um and gain basically power over their drivers and uh and and up their take rate there and i think you know it it they talk a lot about you know rides proactive riders going up and revenue pariet is going it with a rise practice riders going up and thus revenue pariet is growing up a lot of the revenue pariet 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 fourteen dollars that per quarter they were generating fourteen dollars 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 thirty six dollars per quarter so you know they're they're 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 um but it's incredible how they they really write at the ship and started turning everything in this direction of you know people are staying loyal they're using it more often we're able to go acquire more customers although i'd say that that's sort of the smaller the smallest of the drivers um but you know fourteen to thirty six over the course of two and a half three years um on on a 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 bowl and the barren 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's 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 it on and what are the stories that people are talking about that make you go yeah yeah and i think uh you know as as uh normally the case here why don't we dive in on on bulls first so David yeah yeah yeah yeah yeah what are what are people saying that makes this uh something that you should be super interested in right now well i mean um number one the scale and the growth so eight billion dollars of bookings you know of of commerce transacted of of um transactions created is incredible uh in since mid 2012 so less than seven years um and increasing leverage on the take rate side and net revenue of over two billion dollars uh growing incredibly fast uh that is very very exciting especially to public market investors that are not seeing that kind of growth anywhere else um so i think that's one uh two you know if you read the lift 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 a 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 lift and so this is what the motivate acquisition was about this is what why scooters you mentioned 159 times in the s1 uh the opportunity here isn't just as big as as ride sharing is it is all of transportation uh that they think they can take on and and that's incredibly exciting too and then i think finally the the the third piece of the um of the bull case is you know lift does include a cohort analysis in its s1 as most come 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 lift in 2015 um they are doing more the cohorts are expanding they are doing more uh volume of transactions and dollars worth of transactions in 2018 then 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's turned uh expansion is is rare and extremely powerful yep so a couple other things that i want to touch on here uh this is the pure play bet if you want to sort of have some exposure to ride sharing and and really domestic ride sharing you know ubers in uber eats they have a 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 um in the u s this is a uh you know this is the the way to do that without mixing in that sort of basket of other things um the other thing and it's you can't be a bull here without knowing the bear case first as has been much much uh covered all over the place the company is losing a lot of money and um you know they i think david check me on my math here but they they lost almost a billion dollars last year i think that's right yep and you know so so you got to look at that and go uh and and we'll we'll talk more uh i think about that in the bear case but um they talk a lot about autonomous vehicles and you and you know 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 um i don't have it right in front of me but they uh uh you know it lift 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 um i think if if uh if you believe that too uh then there is reason to believe that uh that they could get profitable they do list it as a key risk that they're not profitable and may never be so that's of course is uh uh love to see that a little bit of a dangerous uh proposition you know the the other thing uh we don't value companies on the discounted sum of future cash flows anymore that's so you know old school it is it is 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 a multiple of of earnings um or perhaps just buying in on a on a story or perhaps value and growth of her 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 do think one other thing for me on the bull case is uh uh you know ubers bleeding seems to have stopped but i think for a lot of people um ubers brand is is solidified as at the very best highly transactional at the very least a lot worse than that and lift over and over and over and over again and there s1 beats the drum um and and did all throughout the 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 i'm just pulling up an email that they sent to uh um two riders uh uh shortly before there 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 and they sent this to all of their riders i mean that they are doubling down hard on and they did they have a um blog post in twitter uh campaign yesterday about uh being a responsible corporate citizen as uh sure now a public company yeah i'm sure the anti uber yes or anti how uber is perceived by some people yeah and you know the other reason why there there's sort of a pure financial analysis here too that's um 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 um you know continue the uh the the valuation rise on around by around basis but that at least from pricing and trading yesterday appears to uh uh not be a big concern and and i would say one last piece on the on the bull piece which we really should have put in the history in facts um but has been a big change really really since the the delete uber you know campaign uh lift 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 that the nation wide and Wall Street type narratives around the IPO but like we feel it and we see it here like lots of great people who rather in Sarah worked with at Airbnb and elsewhere and you know our friend predate lift like are really really talented people yeah we're not working at the company during you know the earliest days of lift and and during the you know the down days um they know are coming there and doing incredible things so like there's a there's a strong talent story around the company too yep yep and i think there's uh you know there there is much more uh analytical and and sort of uh financially fundamentally oriented analysis and um uh we've been putting those in the slack and can continue to put those in the slack over time but i think the key takeaway out for us here is that um the way that the company has positioned itself with its riders and drivers the leverage that they're starting to see um where they they actually do have a little bit of pricing power in the marketplace the differentiation that they have and the talent that they have um as well as the sort of wind that they're back from growth over the last few years uh makes it a super interesting company and and uh you know not in a winner take all industry yep and you know it to put a fine point on the bull case um you know we can debate the merits of valuing public companies on a revenue multiple versus a profit multiple but it it it is you know it does happen and certainly it happens in the sass world um you know lift valuation is not crazy uh 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 could 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 we'll do that in the next few weeks and let's do uh um maybe have a public equities investor on to yeah that'd be fun um okay so we shift to the 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 oh and and so there's that and then there's there's a you know that's the headline i think there's a has a marketplace investor too you know this was one of the things that stood out to me reading the s1 um i don't care as much about net income losses uh because that's how tech companies work like you invest a lot in fixed costs as you're going and then as engineers and you know product and and you know 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 and 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 i'll log google and facebook and whatnot over time uh Airbnb what have you um the scary thing about lift is that there 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 variable basis too so not only are they not paying down their fixed costs um they are each each uh dollar of revenue that comes in is is even ignoring fixed fixed costs you know a net negative for them um and so the way you with the way you look at this is you add up their cost of goods sold the 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 writers it's a variable cost as his operations and support uh obviously as his 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 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 actually john and logon 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 with that you spending aggressively and subsidizing every ride exactly exactly so this is 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 left so that's a really good sign so in the fourth quarter of 2018 um it was 32.7% of net revenue they spend on sales and marketing they spend over 40% in in the third quarter so like they're they are growing while spending less proportionally so that's a good sign um but it's still concerning. Yep and i think uh David i appreciate your thoughtfulness as a marketplace investor there there there are many articles that uh uh are quoting people who have expertise in in various things uh that well i'll just give you one that is much less kind than then you are here um hubert horin a transportation expert uh who has long been a critic of uber and lift uh suggest that they have nothing in the document that suggests how this could be fixed i mean nothing and so i think uh 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 geek wire a 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 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 zip car or car to go for a 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 in 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 sixteen dollars uh uh you know in a ride sharing situation like 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 overpaying for it and insurance and all this other stuff but like it is crazy the degree to which 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 sixteen dollars yeah um okay uh what would have happened otherwise i feel like we explored some of the paths as a long way i mean lift to a die yeah i mean all these companies would die they they need it how is two two point three billion gonna be enough like are we gonna have to see additional public offerings from from all these companies or i'd say i should say uber and lift or just on this episode um do you think in the next eighteen months we'll see additional public offerings to get more cash and a lift uh which is when they feel that the wind is at their backs for um uh a good time to do another issue well i think this is 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 the rare tech unicorn that is profitable so um yeah is this the new neural like i good question yeah uh there's actually a really good i'm gonna this is in tech themes but since we're heading there anyway um there was a finance professor cited by uh 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 uh to note that the previous record for the statistic was that when 81% of stock market debutants were unprofitable so uh we're a 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 the 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 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 you know what it shouldn't the 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 creating offerings for the the United States public be doing so unprofitably or have we reached a point where we're now using the public markets for something that uh is so 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 of finance so you know if you want high return you need to take high risk yeah 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 you know they they list out all these risk factors that are just like it's great to read how how honest everyone has to be in upfront everyone has to be but then they also list like hey what are the what are the key trends and themes that haven't able to do to do what you're doing um 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 the work that they're doing um and and need that to to motivate them intrinsically what certainly has made a huge difference in attracting talent for them and and writers in the wake of you know the delete Uber fiasco absolutely and multimodal transportation and uh 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 yes by third party applications and do things like summon a card you wherever you are and and in total create like a close to half a trillion dollars in value or more i'm i 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 card to me right now when i push this button like crazy that that that adding that sensor and api uh two 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 override that would enable zim right was social um but the real wave that enabled lift was mobile and um you know uh not to discount you know that social wave is big and do what none they're very interrelated but um yeah like you can't underscore how big the mobile computing and smartphone wave was and you know right sharing being uh 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 locked by sensors gps and if you think about instagram cameras features on smartphone hardware yeah um okay all right i've got a few here uh uh two points time on it want to make in one point of discussion so uh this one we said craigslist like five to six times earlier this episode there's 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 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 know you couldn't see who is picking you up it didn't have all these you know vertical specific features and sort of real timeness necessary uh to to enable that application and so i think we'll continue to see even more companies that are are something that used to exist on on craigslist but are a vertical slice that it has has unique functionality totally um we've talked about this one before uh both on the main show especially in this era of uh of uh seed POs but um um i guess it's more like an iCEDO like an initial seed i guess it's i don't know what the right terminology there is but seed stage style storytelling uh in in your IPO you're always storytelling and and with you know it had a great great uh um you know the art of pitching uh limited partner show two 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 lives 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 i it's it's it's really the 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 um i mean yeah it's a it's a marketing document and s1's always have been but like in recent years people have really embraced the fact that they're a marketing document there's a quoted 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 it and so great like so great yeah all right so one discussion i wanted to have with you before we sort of go into uh value creation value capture and then grading is was it a good idea or not for lift to go first and is it on top of that is it even better that lift has IPO'd before we've even seen ubers 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 their monstery 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 lift is still like is gonna do terribly because obviously you're just so uh definitely from lift's perspective better to go first from uber's perspective actually better for lift to go to go first right because uber gets to see the reaction to lift which has been very positive and now they can tailor their pitch accordingly and i think you know i was joking with with the with a friend yesterday i think the happiest people yesterday in san francisco were not lift employees but uber employees because they're like oh man if lift is worth 26 billion dollars like how much is uber with worth you know a lot more than that we will find out yep i completely agree with all that all right so this was a section that uh we have that i think we'll keep fairly brief here um that uh was brought up by listeners several times over the last year that is hey you guys often talk about uh was a transaction good for the acquirer was a transaction good for the company that IPO'd and raised that money but like less about was it good for the world and not enough about the ratio between value creation and value capture and so i think uh we thought it was important um particularly in this one where there's so much discussion uh around minimum wage and around the contractor versus employee relationship to talk about this because i think uh less so much on the value creation versus value capture side i think lift has figured out a phenomenal way to capture the value they're creating um but it is interesting to try and think about sort of like net value for the world uh is it a good thing and uh you know are the masses sort of uh receiving enough value uh versus the company receiving a lot of value um and and David like i'll turn it over to you how do you feel about um where lift sits in this relative to a lot of other companies that are are also sharing economy companies and then sharing economy companies broadly um 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 deserves a way more airtime than we have for it now has 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 right sharing is that case too you know um now drivers are very upset and have uh uh 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 right sharing platforms do uh i suspect it is marginally more positive on right sharing platforms now that said um obviously there are problems and there are unintended intended consequences of all these platforms you know from Airbnb to Rover to lift and uber a super interesting thing though again back to the best thing for uber happening was that they didn't buy lift because otherwise they would be regulated as a monopoly um lift being a viable second player in the marketplace keeps either lift or uber from uh exploiting drivers uh and so like you could say like you know we were talking about subsidizing your red to belview 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 in the marketplace um so like on uh oh 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 are problems right and uh 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 the yeah well before before ride sharing there were 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 middleman 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 left and new bear um more of the economic value should be flowing directly to the drivers in this more streamlined system mm-hmm 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 mm-hmm I would assume they must well yeah I don't know it'll be we should I'm sure they'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 were so high so you had to be paying back those fixed cost as a taxi company operator right right right um the only point that that I want to make here 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 lifts or ubers office mm-hmm 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 someone 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 I compare that to the taxi system where yeah it's not the case yep yep 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 in a um what do you have to believe five years from now or 10 years from now whatever for for this to be an a plus and and what uh what happens that makes it less than that and I think um just to be quick about this uh I think if they can figure out first of all if so there's a chance autonomy hurts them more than it helps them uh if the advent of autonomous vehicles just introduces uh uh relationships with car manufacturers that disintermediate uber lift you know a lot of these providers um but let's say that they play nice with this ecosystem and the uber lift actually comes out with their own self-driving vehicles and um oh my gosh they they they they they currently are giving uh what's eight uh 72% of the um of the of the ride to the drivers um the business looks a lot different if they have if they have autonomous vehicles obviously uh the question is 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 um they need they need to do a lot more than just get a little profitable in order for the 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 widely profitable company um yep yeah I think I would reduce it even further like forget autonomy maybe it happens maybe it doesn't 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 yeah 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 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 they'll leave this this competition with you buries to intense and um everybody keeps losing money very fair I will say operationally a plus IPO like the way that they actually uh um you know they needed to access the public public markets for for capital and they did so uh in a highly non-delutive 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 far about well yeah yeah listen to you that was our we'll move to care about this but that was uh that was a lot thanks for bearing with us we uh we know that was a lot but um you know just on the score 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 I I had two choices and I'm gonna go with this one because I mentioned Bill Gurley earlier Bill Gurley is a tremendous venture capitalist one of the best of all time at at benchmark he has a talk up on youtube that he recently gave um called running down a dream how to succeed and thrive in a career you love it is one of the best if if you are a college student if you're getting your MBA you know if you're um even if you're just thinking about a career transition it is one of the most thoughtful and amazing talks about uh the world that we live in today and how you can work collaboratively with your peers to build knowledge um and uh and and leverage that knowledge and I and he gives these three amazing stories and they're I'm not gonna say who they're about because that'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 um people who were artists and visionaries and um sort of pursued their dream and and became the best in their field that 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 all 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 run not walk to go to go watch that um uh so great uh my carve out also in video format very different late-hearted 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 something you're getting it recommended something on YouTube and I'm gonna 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 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 pace than traditional cricket matches last two to three hours and it's incredible they have like two leaders and fireworks and like um it is the xfl of uh it's the xfl of cricket but uh 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 the Netflix did follows the Mumbai Indians uh which are um owned by the uh family of the founder of reliance the the I believe the wealthiest man in in India um and uh throughout the season it's just so fun wow all right and I gotta we obviously you'll put it in the show notes I'll uh after check it out cool well listeners if you aren't subscribed and you like what you hear you should we'll be gloriously covering all of the big upcoming IPOs and if you want to go deeper on what it's like to build a startup get interviews with expert operators and vcs and explore some of David my personal investment theses you should consider becoming a prestigious acquired limited partner you can click the link in the show notes or go to kimberlight.fm slash acquired and seriously as I mentioned at the top of the show I promise you will be overjoyed with how buttery smooth it is to get more acquired right there in your favorite podcast player then is multi-talented and a great product manager in addition to everything else thanks David all right listeners with that we