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.

The Uber IPO

The Uber IPO

Sat, 11 May 2019 20:27

Welcome to the big one. On the day of its IPO, we tell the story of Uber. It’s a story whose roots stretch back 130 years, but whose impact reverberates perhaps more powerfully on our current world than any other. A story that, in all of its greatness and in all of its ugliness, may just be the story of our time.


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Oh my god, this is insane. I have literally 21 pages of notes in the Google Dax. Oh. Welcome to season four, episode six of Acquired, the podcast about technology, acquisitions, and IPOs. I'm Ben Gilbert. David Rosenthal. We are your hosts. We sit here today on the day of Uber's long awaited IPO and David let me tell you I am super pumped to be here today. Me as well, Ben. Me as well. Here was my alternate intro and frankly I have a few here. We covered Pinterest and Lyft recently both valued at about $15 billion. Today we are covering a company who has raised over $20 billion in Uber. Or perhaps this third Uber just raised $8 billion or approximately one half of Lyft's entire market cap in a type of IPO. Or maybe this fourth one. Today we are diving into a company whose epic history is matched only by its epic operating losses with over $3 billion last year. The largest of any company to ever go public. But what you really need to know about Uber, they are a broad multi-mobility transportation platform, a hyper growth food delivery service. That leverages Uber's existing customers and driver assets and an international ride sharing holding company with enormous chunks of DD, Yandex Taxi and Grab. And a trucking shipping marketplace called Uber for 8 to top it all off. So holy god David, there is a lot to cover here. I thought we were doing an Uber episode, not a soft bank episode. This point, what's the difference? What is the difference? Well, listeners, before we dive in, I want to say this past week's limited partner bonus show, we had an incredibly appropriate guest join us for a deep dive on Uber's history, Brian Tolkien. And Brian was one of Uber's first 100 employees, helped start the product operations group and eventually ran Uber Pool when it was first getting off the ground. And Brian had some really practical insights on how Uber developed their infamous playbooks and launched cities in the early years. So if you like acquired and you want to go deeper on company building topics, you should totally consider becoming an LP yourself. It's brain dead easy. It takes two taps in 10 seconds and you can listen right here in your favorite podcast player. And aside from great interviews like Brian, you can also get David and my walkthrough of a term sheet, how VC firms really work and some of our personal investment these these. You can click the link in the show notes join or go to slash acquired, that's right slash acquired or click the link right in the show notes from this episode. And everyone gets a one week trial so feel free to check it out. Man, so professional. It comes so far. It's great. It's funny. We're finding fit and how to actually describe that thing. I think when we first first got started, we were a little all over the place in describing the LP show. It's all about the ride. It is. Oh, David. There we go. All right. 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 founder. So we knew there's a natural fit. We know the host of founders. Well, David, sender. 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 Akio Maria before we did our Sony episodes. This incredible primer. You know, he's actually a good example of why people listen to founders into acquired because all of history's greatest entrepreneurs and 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. I think this is one of the reasons why people love both of our shows and there's such good compliments is on acquired. 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. 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 entrepreneur to 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 Land's 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 requires doing what a founder trying to do as well is find the best ideas in history and push them down the 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. Okay, David, that is all that I have. I promise before you take us back to like some time in the 1400s when we were like just discovering transportation or something. Oh, man. I wish I were. Have I ever said where you've overshot, but I'm trying to, I don't remember. I'm trying to think if this is the farthest back we've ever gone. I don't know. Let's just say if you remember going back further, let us know it is. If there's not enough to talk about in Uber, let's extend history. Oh, let's extend. All right, here we go. We're starting appropriately enough in San Francisco downtown San Francisco in the year 1889. Ben's reaction on video is great there. Okay, so a businessman named FS Chadborne gets off of a ferry at the newly constructed ferry building terminal at the end of Market Street in downtown San Francisco. An amazing place I love going to the ferry building is a beautiful treasure of downtown San Francisco was built the year prior in 1888. And he Chadborne gets off of his ferry and he hails what is very common back in the day, a horse drawn carriage that is driven by what is known as a hack to take him where he is going on his business. And this horse drawn carriage is driven by a man named James Nozy Brown. Why is he called Nozy who are about to find out? Nozy drives Chadborne not to where he is supposed to be going, but takes him to an out of the way location probably in what was then very sketchy. So much, uh, unconfirmed now also sketchy home to startups and he holds him up. He says, Hey, for me to take you where you're going, I'm going to unclear if you actually threatened his physical safety, but you're going to have to give me more money to take you where you want to go. Chadborne, he jumps out of the cab, he runs away, but he's really pissed and he's not just anybody. He is a wealthy, muckety muck and he has contacts in the city government. He lobbies them to enact this has been a totally unregulated industry. It was just happening people who had these hacks, who had had, yeah, horse drawn carriages, they would just line up to whatever they pleased. And he lobbies his friends in the government to enact very strict regulations and henceforth in what would come to be known as the Chadborne, I don't know if it's act or whatever regulations. All drivers in San Francisco had to be licensed with a badge and that badge number had to match the vehicle's number. And I think it was a city ordinance because named after himself. We jump a couple short years later to New York City, most people in America think of the center of the cab industry and indeed would become fully 50% of the entire taxi industry in the US. In 1907 where the first cars, the first motorized cabs arrive in New York City and a businessman named Henry Allen imports them from France. And he starts the first cab company, the first network of drivers, a transportation network company if you will. And he, he, he, he hires a bunch of drivers. He has huge success. There's tons of demand. And this is so much better, so much faster than horse-drawn carriages. It's cheaper. Everybody loves it. This might sound familiar of something that would happen a little over a century later. But one year in it becomes clear that not all is utopian in this, this new transportation model in cities. The drivers are unhappy and they go on strike and they argue in their strike that Allen had to kind of promise them that they were going to be employees. They were going to get a pension plan. These were going to be great jobs. He was going to do all sorts of benefits. It is crazy how what a mirror this is. History repeats itself over and over again. But the reality is they were not employees. They were essentially independent contractors. And they got charged by the day. They got charged 25 cents a day for a uniform rental fee. They got charged 10 cents a day for a quote-unquote brass polishing fee. And then they also had to buy their own gasoline. I think I've seen that brass polishing fee on my Uber receipts from time to time. Totally. It's amazing. This is 1907. And so they strike. And this is the beginning of the illustrious history of labor issues in the taxi industry. We fast forward a couple decades moving quickly here. Something else that is going to get mirrored again later on in the episode. 1929, the stock market crash happens and the Great Depression begins. Now what happens when this happened in the Great Depression? People all over the country lose their jobs. They're looking for work part-time work, anything to make some money to get by. And what is a relatively flexible, easy to start, low amount of training job that you can do, especially in New York City, you can become a cab driver. So this becomes the backup job for a lot of these people who lost their jobs on Wall Street or you know, in other industries in the stock market crash and the Depression. So much so that car dealers, you know, they can't sell cars to people who are buying them for their personal luxury transportation vehicles. They start marketing cars to these newly unemployed as job creators by a car. Get a job. You can start driving your own taxi cab. Wow, there's like a reminiscent thing of Airbnb here too, where it's totally the very same issue that cities are having with people taking houses out of the supply market to be rented. It's happening with cars at this point in time. It's happening with cars. And so what is this result in this result in a huge oversupply of taxi cabs on the streets in New York because a demand for taxi rides is down because everybody's losing their jobs. Supply is through the roof because now everybody who just lost their jobs is now trying to become a taxi cab driver and it becomes a total race to the bottom. Fairs plummet through the through the floor. Nobody can make any money and it becomes a huge problem. The streets are congested with caps. What does New York City respond with and other cities around the country? They respond with basically creating the medallion system and a bunch of other regulations around it, which limits the number of license. Taxis that can operate in cities, especially New York City, but also San Francisco and other big cities at any given point in time. And that continues to the state. That is the taxi industry. But what happened to all of these other people who had gone out and bought cars and now they were no longer able to operate. They don't just go away. This weird, interesting sort of shadow market develops in cities where these people are no longer regulated taxi cab drivers approved by the city. But the regulations for for taxis centered around meters. So you would hail the taxi and then you would pay a time and mileage fair that was measured and regulated by the city as you go. But there was nothing that stopped people on their own from offering flat rate services. So if you pre-negotiate a rate of where the ride is going and paid up front, then you can do that outside of the existing system. And this is the beginning of what was first called sedan service then becomes the limo industry. This is the four higher industry as you know sedan limo black car is eventually what it mostly becomes known as. And then as we'll see there's kind of some sketchiness that develops in this industry and it becomes a derogatory term sort of known as the gypsy cab industry. And so this becomes like these two markets the official regulated taxi market in cities in the US and in the black car market the four higher market kind of develop in tandem over the next hundred years. And the taxi cab industry is highly regulated. And the four higher market is relatively less regulated. There are some kind of sustaining innovations in clay Christchurch in terms, but nothing disruptive the sustaining innovations in the 40s 1940s radio dispatch is introduced so there's no there's no coordination system in the early days you just hail a cab on the street. Finally radio dispatch is invented in the 40s which for anybody who's ever tried to hail a cab through the radio dispatch system you know exactly how well that works. And then computerized dispatch in the 80s but the problem is the taxi drivers are still independent contractors so it's kind of like a suggestion. You know if they a dispatch goes out on the radio or on the computer system to somebody who needs a ride from a given location to a given destination. It's optional whether you go got them if you see a fair on the street along the way you can just pull over and pick them up instead. So this kind of a San Francisco taxi driver named John Han wrote a blog post in 2011 right after Uber and taxi magic and cabulous and all the other companies will get into it launched and he kind of describes the current situation he says you don't have to respond to a radio call if you don't want to remember dispatch service we are told is just a quote unquote information referral service this is due to complications that have arisen from independent contractor status I guess what that means is that dispatch service doesn't legally entitle any public passenger in any way to a taxi cab that they've just ordered by phone they can call but they're not guaranteed to get one it only guarantees that their information will be dispatched to us drivers so that their request will be made known to us you can you can service radio orders if you like I do I like them but I guess you could just as well take one and leave the passenger hanging on the phone for fun and phone for fun as a prank so long as you see another fair on the street that could be better anyway and he's like I don't actually do this but in theory I could I'm just make a point and anybody who is old enough to remember the world before Uber and left and sidecar and D.D. and everybody else that really was how it worked and it was awful. New York was probably the best American city the most efficient cab market but any other city in particular San Francisco it was impossible to get a ride as a passenger. And drivers they kind of do okay here I mean they're the ones the cab companies in the drivers are the ones who are always lobbying to sustain the regulation that keeps the industry dynamics like this but it's not like the drivers are doing great either their strikes all the time there's tons of labor and rest and. The industry kind of tick tocks between drivers doing sort of okay to drivers doing really poorly the industry is completely broken that goes on for a century and then we fast forward to 2008 and to super critical things happen in 2008 that completely change the course of this market. One as we have talked about many times the last couple months here on the show leaving brothers goes bankrupt and the great recession begins we're going to come back to that but this the dynamics of what happened here totally mirror what happened 70 years prior in the stock market crash and the great recession but unlike then there is another thing that happens and that is in that in 2008 apple introduces third party apps for the iPhone with iPhone OS 2.0 that definitely did not exist in 1929 yeah iPhone 3G and I iPhone OS it was not iOS yet it was no iPad iPhone OS 2.0 so right around this time a Virginia based entrepreneur named Tom Dupescalie decides that these I don't think he was necessarily thinking about the effects of the great recession and the Lehman brothers collapse but he definitely was thinking about iPhone OS 2.0 and says this is the wedge to finally bring some modern customer centric innovation to the city transportation and taxi industry and Tom had previously started a software company there was a travel booking tool and it was acquired by concur see adult company and great technology company so he had left concur and he starts this new company he calls it taxi magic and his co founder it just a glue is a guy named George Harrison I know George George is many years later has become the CEO of shift the use car marketplace here in San Francisco and it's amazing yeah it's amazing how much we talk about so much on the show how small all of these little sub worlds and technology are and in taxi magic they're doing a logical thing of saying gosh was all these taxis like there should be a better interface to hell them yep and the other thing that consumers hated remember this you could do it in New York but not anywhere else is pay for the rides with credit cards you needed to have cash to pay for your taxi rides in all of every city and in plenty of cabs in New York to so Tom and taxi magic they're like okay with this computer in your pocket you can have a better interface for ordering and dispatching the cabs and you can also take payment via car to take payment via credit cards that are built in to this you know computer in your pocket and pay for them and it worked great people loved it it was I remember using taxi magic around this time it was fantastic in in every city except New York in America it was a like huge revolution especially in LA we're a Jenny was doing a PhD at UCLA in the time we used it all the time there but there was just like so many companies that started the very beginning of a wave they got one big thing wrong and that was that they worked within the existing system so taxi magic of course worked with taxi works with or taxis worked with the cab companies and so that meant a couple things that were just sort of big problems so one what that blog post described about how dispatching worked still applied to taxi magic even though it was now done being a more friendly consumer facing way when a consumer would make a request it was just a suggestion that went out to all the drivers in that taxi company's network and the ride wouldn't get assigned to whoever had first dibs on it was not who was closest to the customer it was the driver that had been waiting the longest in the queue so if you think about like any city but even Los Angeles where taxi magic was most popular LA is a huge city you can take two hours to get across the city with traffic and you're getting rides assigned based on where you are in the queue this is how bad the world was before all of these transportation network companies that like that was progress you know and of course the problem still existed that if a taxi magic cab was on the way to pick up a customer and they saw somebody else on the street they could still just pick up the person on the street and cancel the ride boy it really shows how much power is on the supply side and how little powers on the demand side where even with a user interface innovation like that they're still meeting the needs of the supply side which is you've been waiting a long time you deserve a fair you deserve fair yep absolutely so nonetheless like I said though this was like a drop of water in the desert consumers loved it concur ended up investing in the company it's still based in Virginia it quickly expands to 25 cities around the country and the next year in 2009 a certain venture capitalist who is going to come to play a very large role in this story had been thinking for quite a while about the taxi and the transportation space and he had invested in some other companies that had taken a marketplace approach to disrupting things like restaurant reservations and reviews online and even thinking about there's time might be right for an online marketplace for taxis it was of course bill girly at benchmark and bill heard about taxi magic and Tom and Tom of course was a known entrepreneur bill flies out to Virginia from Silicon Valley and he says this is what I'm looking for I want to invest in your company I want benchmark to lead your series a concur had invested a little bit of money before I'm offering I'm going to invest $8 million at $32 million and the valuation for the company he says but I think we need to think about expanding out of the taxi market and into the black car market bring them on as well because all of the things I was describing about the taxi market are kind of limiting and you might be able to solve that in the black car market and we could just have a new version of the product we can keep taxi magic let's create a new version of the product also called limo magic you can see how if you're if you're the founder of a company and you have a pretty dead set vision of the pretty dead set vision of exactly how you think you're going to run your playbook how this could be a little jarring a little dark and we have to say huge thank you to friend of the show Brad stone and his book the upstarts where he chronicles all of this we're going to refer to Brad many times on this episode Tom exactly Ben as you say he says okay you know I appreciate the offer but like this is my company I'm a second time entrepreneur I know what I'm doing here thank you bill your great benchmark is great I'm not going to take your money he declines the investment and that obviously turns out to be the wrong decision on on both declining the investment and not doing limo magic taxi magic ultimately would go on to change its name to curb few came across curb in the last few years and it would get sold to bare phone which is the company that provides the credit card payment terminals to the back of cabs in a in a fire sale so not the trajectory of what would become over there's another company though they get started right around this time sees the same vision this one isn't even better story so back in 2008 this is not Uber well I'll start telling the story and I'll let you and listeners judge whether it is or isn't back in 2008 in Los Angeles if you know the history of the American corporations the best by company best by corporation has set up an in-house incubator in LA I think best by is based in Utah right no no believe that's where the headquarters is but they set up an innovation incubator in Los Angeles and the idea was that retail employees this was like this was pre recession when they set it up this is a marketing thing retail employees at best by stores could apply to the incubator with their startup ideas and if they got selected to join the incubator best by would pay for them to move to L.A. for two months and work on it work on their idea in LA for two months and then they go back to working on the real months I know it's completely this is completely nutty so a geek squad technician named Daniel Garcia had the idea that consumers should be able to see their geek squad cars on a map as it was coming to their house and that this new ability to build applications for iPhone third party applications for iPhone they could build a geek squad app that would allow consumers to know you know just the interact when the geek squad service was arriving so he goes he applies the incubator he gets in and the head of the incubator was a guy named John Wolpert and John and Daniel kind of realize part way through that this like this is okay like doesn't move the needle on geek squad or for best by but if they apply this to the taxi industry more broadly there might be something interesting here and so they're written on on what they could call it and it's super fabulous this idea they decide great we're going to call it fabulous fabulous and Wolpert the head of the incubator he is a former IBM guy and he starts to realize that they're digging into this like oh wow this is this is big and the time is now and of course is 2008 things are starting to go south in the economy and best by is hurt more than anybody well not more than any more than the banks but second to the banks are like the car companies and the you know retailers and so they say large consumer electronics retailers particularly large consumer electronics retailers exactly and so best by Wolpert goes to the corporate execs at best by any says hey you don't want to be supporting this incubator anymore you need to cut costs I want to work on this can I just take this idea to the cabulous out of the incubator moved to San Francisco and start building it and working on it and they're like yes sure take it spin it out they don't even take any equity they just get out of this meeting right now yeah exactly like my hair is on fire so they they let it go and Wolpert and I believe Daniel to curse yeah moved to San Francisco and they start they build the company they start working on they raise a small angel round and they get a call a Walpert gets a call one day just I've knowing Bill I know this is exactly how he operates he just gets a call Walpert's never talked to Bill Gurley before he picks up the phone and it's Bill Gurley and Walpert's and Gurley says hey I hear you're I heard about what you're doing I'm very interested I hear you are fundraising right now I would like to talk to you about it and Walpert says you know we're only raising a very small angel amount I know you know I don't know if earlier or Walpert says this you know Benchmark doesn't do see they like serious they invest yeah say from the invest larger checks and unlike most other serious a firms they basically really mean it when they don't do seed investing and so Walpert says yeah you know we'll talk later I really think I just want to raise a small amount right now and Gurley says okay I'll talk to you guys people turning down Bill Gurley like what are you doing well it was probably what debatable as we go on through the story but for several years it was probably the best thing and and still to the state the best thing for Bill and Benchmark that all these people did turn them down so they raise a small angel round will come back to all the history behind this meeting but eventually while they're up in San Francisco they get a they get a call another call from two guys that want to meet that are also working in the transportation industry two guys named Ryan Graves and Travis Kalanick that want to go take them out to lunch and meet with them and understand what their road map is and where they're planning to go with this fabulous thing and so the three of those guys three those three men sit down to lunch and Ryan kind of says hey so you're going to stay in the taxi industry or you think about the black car industry and Walpert says oh no no no we're going to stay in the taxi industry we're going to do this with the existing system we're going to work with the taxi companies this is highly regulated industry this is the only way to go and Ryan and Travis say thank you very much they pay for lunch and they walk out we'll put a pin in that and come back to it later but that is the cabulous would eventually be rebrand as flywheel so if you see many of the taxis in San Francisco owned by the DeSoto cab company they did a partnership with flywheel and they still exist and it is a ordering and dispatch system it's one of the best ways to order an actual taxi it is it is unfortunately for them that is not the big market anymore okay so who are Ryan and Travis people probably know who Travis is but what is going on here let's come back to the black car industry okay so it seems obvious we've just told you this whole history and so many people so many entrepreneurs so many venture capitalists have been wanting to disrupt and innovate in transportation everybody knew this was broken this was obvious why hadn't people looked at the black car industry before way less regulation in in many states including California it was regulated at the state level not at the city level so if you to the state you did have to deal with regulation it was a far easier path what were the barrier seems like way lower barrier century well here's why because every time somebody did try to go innovate in the black car industry this is what would happen so people might know about a company named seamless web so there was a young corporate lawyer in New York in the late 90s named Jason finger and he was eating this wall so come back he was a like many people in banks and law firms in New York in those days would eat dinner every night in the office while he was working and the ordering system for ordering food and having food delivery delivered was nuts and so he came up with this idea of how to organize and deliver food in cities started seamless web it became huge I used it every night when I was in banking in New York it eventually merged with grub hub is now part of grub hub one of the one of the largest food delivery services in the US but Jason thought like well he was a couple years into working on seamless he thought well the other thing that lawyers and bankers do in New York as they ordered black cars and there was this opportunity to use the internet to make meal delivery much better I could do the same thing with all the black cars that people use and so he actually started working on it and his idea was that there was going to be seamless the core product the meal delivery product was going to become seamless meals and then he was also going to build seamless wheels and so he talked to a couple black car companies get some supply on board he is talking to banks and law firms about using it and then one day he comes into work and there's a voice mail on his phone in the morning and he and David I'll stop you here for a moment and say gosh you know food delivery and ride coordinating on a platform that sounds like a really good idea to combine those two yeah man having why wouldn't you do both of those on the same platform so he he gets into the office and he's got the flashing light on his phone this is like the early 2000s and he plays the voice mail and it's from a it's from a blocked number so we can't tell what the numbers from and the voice mail says he tells us to Brad Stone in the Upsdarts Jason we understand you've been pitching a car service to large enterprises in the New York City area we don't think that would be a good idea you've got such a beautiful family why don't you spend more time with your beautiful baby daughter you've got such a good thing going with your food business why would you want to broaden into other areas click and as you can imagine and if you hadn't put two and two together lightly regulated industry growing up in New York City over the past century companies are fragmented and not super visible array of companies that operate in them it's run by them off you so every time somebody would try and encroached on their turf and I think this is probably mostly New York City but I bet in lots of other cities around the country some version of this would play out and did seamless bail on the idea after that they bailed a immediately bailed on the idea the meal delivery was working great and as the voice mail said you know Jason had a young family like I would do the exact same thing if I were in his position and so that was the end of seamless wheels and of course everything ended up great seamless meals you know like we said that we're doing with grab hub is doing great today but so sometimes when you have a situation like that the only way to break the log jam is just kind of with somebody who doesn't know any better so we come back we come doesn't know or doesn't care and we've got two people one who doesn't know and one who doesn't care so in the middle of 2008 a Canadian entrepreneur who was in Silicon Valley by this point that started a company back in Canada called stumble upon and this is of course Garrett camp and Mark time we are what like 22 minutes into this episode and now just now so involved in the fact that this is a apologies for all this back story but I think it's super important and like as we've seen this all of this history that's played out over a hundred years and then over 10 years is going to play out again so Garrett had still sold stumble upon he had started some stumble upon back in Canada he had sold it to eBay and double upon was a stumble upon was content discovery on the internet and he had sold it to eBay the past summer in 2007 for 75 million dollars by the way we covered this in our Skype episode but like eBay went through like this yeah drunken binge of buying all of these companies that did not make sense of course who was the largest venture capital backer of eBay it was benchmark benchmark and as chronicled in the great book eboys which I think we've recommended many times on this show so eBay drunken on on their market cap acquired Skype insane business model of never holding any inventory on anything and you can buy you know it's creates it's still you say marketplace business models are a good idea of it and kind of mind blowing the Amazon beat them well I would I mean you better open yes yes different the power of marketplace business models eBay acquires stumble upon for 75 million dollars Garrett is like nominally working at eBay sort of hands of just leaving eBay he's moved to San Francisco he's still he's young he's single he's doing what any you know any but you could imagine somebody a young single man who's just come to a big city like San Francisco and has millions of millions of dollars would do he hangs out all day watching James Bond movies during the day and going out and tonight party night why not why not he's like 2627 something like that yeah mid 20s and he'd you know he'd been working really hard on stumble upon for a little while and come into this money and he wanted to you know use enjoy the fruits of his labor as when blame I probably wouldn't make the same decision myself but that's what he did I don't know maybe when I was that age well no Jenny and I've been together since I was like 20 so no definitely would not have happened anyway I don't blame him for doing it but both of those things were really important he was going out at night going to night clubs in San Francisco having a terrible time getting there and coming back because there were 1500 taxi medallions for all of San Francisco which is you know a major city and so we couldn't get around and during the day he talks about this he was watching James Bond movies and he was watching Casino Royale and there's this scene in Casino Royale where Bond summons his car with his phone and this has happened in a bunch of bond movies but in the casino royale version of this on his phone he's watching on the screen on a map as the car is coming to him yeah and and Garrett's like whoa that's super cool and at this point he had already flipped the switch in his head to screw this taxi thing I have a good amount of money I'm just going to hire a black car whenever I want to go anywhere like I'm done with this taxi crap yes he was done with the taxi crap and so what he what he started to do you know and remember it is hard to remember now but I if you were in if you were living in cities in this time the the stigma of the black car industry the quote-unquote gypsy cab industry was super strong everybody knew don't talk to them these were guys who had but driving cars they rolled down their windows as you're on the street if you're trying to hit a cab they'd be like you need a ride where you're trying to go and everybody's like don't do that don't do that and so can't Garrett was like you know what how bad can these guys be so he starts using it a little bit and he finds they're actually not that bad like these these black car drivers what they're trying to do they have their scheduled rides that they're doing for the banks and the law firms and that they're getting through limo companies or you know prom nights for high schoolers or whatnot but in between those scheduled rides they're just trying to make some extra money by and large they're pretty you know good people there they're entrepreneurs and so he gets like 15 of these guys numbers on his phone and he stops using the taxi industry he's just call it goes through the list when he's when he's out at night calls one then the next says hey you free can you come get me and he starts building relationships with them and so he's like this is all going through his head he has the black cars he sees the gym he sees casino royale he says why don't I just put two into together and build what I saw on the James Bond movie marry it up with my friends who are the black car drivers and have a private driver service on my phone it is amazing that it was that both pieces of that puzzle both going to night clubs and watching James Bond movies all day were both requirements in in discovering the idea and be able to implement I know I know and so he's like this is he's very excited very very excited about this and at the time he's dating a woman named Melody McCloskey who would go on to become the founder and CEO of style seat and he tells he's talking to Melody's trying to figure out what to call it and Garrett would have this this turn of phrase I don't know if this is from being Canadian or just what but when things were like really great and he really thought it was awesome he would call it Uber so he would say like you know if if he had like a really great coffee at you know psychglass or whatever and that was an Uber coffee and and so he and Melody were we're talking and he said you know and this is a quote in in the upstarts in Brad's book he says Uber it means great things it means greatness and that's what he decides to call this service Uber he calls it Uber cab and he registers the domain name in August of 2008 so funny that in this A plus era that we're in and you know all these big IPOs that Uber or the most or the greatest or the top or the biggest you know is is exactly that like it's an very aptly named company very very aptly named so his initial idea though he's got this network of drivers and he uses this he has lots of other friends who are you know part of the the kind of new web 2.0 era entrepreneurs in San Francisco he thinks they would like to use this to this private driver network and his ideas he's going to go to sign up these stand drivers that he knows and then he's going to buy a fleet of cars he's going to have his own basically his own black car company he wants to buy a fleet of Mercedes S class cars and then Lisa garage in San Francisco and kind of keep them as his private network that he and his friends would use and so he asks this is great he asks his friends with Tim Ferris the angel investor and now a big podcaster and he asks Tim Ferris is assistant to help him research the industry and figure out you know can he do this and turns out he can so this is now at the end of 2008 and all of these ideas are spinning in his head and Garrett goes off with a bunch of his friends to Paris at the end of 2000 to the big Leweb conference and he's he's going there because he wants to go to the conference but also his good buddy fellow entrepreneur who has recently sold his company Travis Kalanick is hosting a bunch of San Francisco entrepreneurs in a really really cool Uber one might say apartment that he has rented out in Paris on the VRBO website which should surprise no one like this is it's like the very first thing we learn about Travis and this story is that he has like a swank apartment for a bunch of his like wealthy friends coming in from another city to like have this unique experience like you can already get a picture and the super amazing thing about this is why he was doing this because a that fits with this personality but B he was thinking about his next startup idea and unclear if he had heard about Airbnb but he thought that a network of luxury residences around the world that people might have access to kind of like you know the private homes versus the private driver might be a pretty good idea and so he was traveling around the world and looking for any excuse to go to conferences tech conferences around the world and rent out the fanciest places he could find on VRBO because he was trying to figure out if he wanted to start a company and of course very unlikely he had heard of Airbnb because these companies were started within three months of each other and of course we can be at this time you know was very far from anything luxury Brian Nate and Joe were not hanging out with the crowd that Garrett and Travis were running in that is for sure okay so let's say a little bit more about Travis Travis is a guy who right before he officially became the CEO of Uber he gave a talk on YouTube that will link to an actually a couple listeners sent to us which was really great yeah and he introduced himself in the talk as he says I like to think of myself as the wolf in pulp fiction he is an interesting interesting character and I would say after having now done many many hours of research on Travis I think that is a very accurate characterization he has all of the good and bad qualities of the wolf in pulp fiction and if you haven't seen pulp fiction it's an amazing movie I would assume most listeners have but go see it and you'll know what we're talking about so Travis he grew up in LA hence the LA connections for Uber he was born in 1976 in a suburb in the San Fernando Valley outside of LA his father Don had served in the army and was a civil engineer for the city of Los Angeles so some like maybe DNA in the family of thinking about city infrastructure his mother Bonnie sold ads for the newspaper the Los Angeles Daily News and Travis was super smart and this is something that comes through that I think has gotten lost in the story of Uber and Travis over the last two years he is incredibly smart and very much a human as we will see and very fallible but very smart and so the lore is when he was growing up in middle school he got extremely good grades he was top of his class and everything and in middle school he was bullied because of that and apparently he made a decision one day in middle school to stand up to the bullies that he wasn't going to take it anymore and the way he was going to deal with the bullies is he was going to become hyper aggressive and give it right back to them and you know that is kind of how things go he also was naturally quite athletic he played football in high school he ended up running track he was an excellent track runner in high school he essentially turned himself into a jack but he didn't stop studying either and turn off his brain and so while he was still in high school when he took the SATs he got a 1580 on the SATs he aced the math section got an 800 on math and a 780 on verbal and this is really telling you to like it is just it's also says something about the guy that we know these numbers like I would he's very he's very vocal about the numbers because he started on the back of this he started an SAT prep company to help other kids in the area make some and profit off of this and I believe the not the name of the company but the class he taught was something like above 1500 or something like that and this is great what he's giving it in an interview later he would talk about he talked about this and he said you know the math like it would be a 30 minute math section I would be done in eight minutes the fact that he timed himself to eight minutes to his incredible but then the verbal was super hard for him and he had to like he had to develop systems to make work and he said when I would do the verbal my shoulders would hurt and my neck would hurt it would be so hard on himself but but he persevered and he managed to do any taught systems to his his students to do the same so on the back of that score he goes to UCLA incredible school he becomes a CS major and this is in the late 90s and he drops out in 1998 to start a startup because this is the dot com go go go days he in a bunch of classmates start a startup called scour now this is super important this is like the in the Tesla episode the equivalent of where you start learning about what it is that made Elon Elon yeah this is what makes Travis Travis he much like Elon's first company so what was this company started it was called scour it was a rip off a rip off of Napster but there were a couple particulars about it also can we talk about how the roots of Facebook and Uber both have a ptp file music sharing I don't know how to fire hog and scour at their at their earliest days absolutely it's a I think it says a lot about entrepreneurs in a in a time where when you see a problem that is possible to exploit even in a gray if not very much crossing the line area like the most aggressive just can't help but go and exploit that thing and this was the era where you absolutely could exploit with peer-to-peer file transfer absolutely and and you know I think probably much like Uber and well not Uber specifically in the early days but then the peer-to-peer true red sharing industry that becomes the big industry that we talked about on the lift IPO episode it's not entirely clear that it's like wrong to do this right and ultimately probably better for the there would be no Spotify if there were no Napster 100% and you know could be sharing anything on there too it's not necessarily like explicitly designed to rip off the music yeah okay so you nailed one of the key things that is different about scour versus Napster there are two one is that scour whereas Napster was architected is peer-to-peer file sharing architected specifically from music scour was meant to scour your hard drive and be for anything any file and what would people want to share besides music well they might want to share videos and movies and so the other thing that was very different about scour was it was based in Los Angeles and what is the big industry in Los Angeles it's the movie industry so this is you know like I said the dot com days the go go go who hears about scour Michael Ovitz now this might ring some bells for for listeners I don't think we've talked about this too much on the show before Michael Ovitz was the famed super agent who started creative artist agency CAA he then went on and became the president of Disney for two years well the kind of co running Disney with Michael Eisner who was CEO they fought in Michael Eisner ended up alsting him after two years but Ovitz and CAA became the inspiration for Andreessen Horowitz and how how Ovitz architected CAA to have the artist at the center and then all of the suite of services that a talent agency could surround the artist that was the blueprint for how Mark and Ben envisioned Andreessen Horowitz when they started and really what that's become so Ovitz has just been ousted from Disney by Eisner and he's looking for you know looking around making some investments trying to decide what he's going to do next he hears about scour boy these hyper successful people looking around for the next thing sure dangerous for these stories sure are dangerous so he hears about scour and he along with his buddy fellow L.A. billionaire Ron Berkel they meet with the scour team of these dropouts from UCLA computer science department who fit you know the mold to a T and they say all right guys we want to invest in your company and we're going to give you four million dollars which was a lot back then even in the go-go days and we're going to give you four million dollars but we're going to do it we're going to buy 51% of the company for four million dollars this is like an ESPN style first investment totally totally and and Travis and his co-founders they're pretty night even they're like well this is cool Michael Ovitz and Ron Berkel want to invest in our company like yeah let's do this so they sign a term sheet but Ovitz was also known for playing hardball so what happens next this is like it is amazing how much this this foreshadows what is going to come with Uber they sign the term sheet after they sign the term sheet Ovitz delays funding the company and Travis and his co-founders are like what's up like like we sign the term sheet we're ready to go why are the money will give you 51% of the company Ovitz starts trying to retrade on the deal and he was you know famous for being a tough negotiator so he locked up scour with the term sheet signed and he wanted to get even more of the company so months go by they're dead locked in negotiations Travis in you know what will become a Travis signature here he's not going to budge ultimately after a bunch of months go by and the exclusivity period on the term sheet had expired Travis and his co-founders go on they start talking to other people about investing in the company also can we just that I just want to pause and say what that is exactly the wrong mindset for early stage companies are so fragile at that point that like zero people should be in value capture mode because there's nothing to capture like you have to be a value creation mode 100% I mean this would not fly today but I mean also like I completely agree this was absolutely wrong we're talking about Michael Ovitz here he just left Disney like he's used to he's accustomed to negotiations at a different stage this is this is like bringing up bazooka to a you know a sandbox a shovel fight a sandbox plastic shovel fight so Ovitz flips out and he does what you know his nuclear negotiations he soos the company so here we have Travis in his very first company he soos the company to consummate the deal and be able to invest in the company and Travis like talking ladies like what investor soos the company so that they can invest in the company who are traveling who indeed indeed so this is Travis's first not only CEO experience but experience with investors and quote-unquote venture capital so after this lawsuit you know again these are kids who just dropped out of UCLA they capitulate they sign the deal I don't know what terms it actually ended up getting done at but it is done and Ovitz and Virgo invests they control the company they control the board but Travis and his co-founders are actually building the thing and so as we said earlier the other thing different about scour versus Napster is you can share anything you can share movie files and they're in LA and Michael Ovitz just funded this company you can imagine that the motion picture association of America which also at this point the recording industry association of America the RAA is like I believe already sued Napster at this point they see scour right in their backyard with Michael Ovitz involved and they're like oh no this is we are not going to go through the same thing that the music industry is going to go through they turn around they sue scour I believe this was it got to this height because of the like a per instance violation they sued scour for $250 billion that is one quarter of a trillion dollars that you know Travis has got to be like 21 maybe 22 3 ubers yeah exactly like 3 ubers today that the MPAA sue scour for and obviously they knew they weren't going to pay $250 billion but they were like we're going to sue you into oblivion and I think more importantly they were sending a message to Michael Ovitz of hey man you built your career on the interests of artists and like you just funded a piracy company and so Ovitz as you would imagine gets the message and he all of a sudden wants nothing to do with scour so now according to this is according to Travis Travis talked about this in an interview supposedly what happens next in Ovitz denies this is that Travis is scheduled to speak at a private entrepreneur's conference that Jason Callicanis is putting on in LA and he's going to go on stage and speak and before he goes on stage he seated at a table and somebody comes up to him and suggests to him that if he's going to go up and talk about everything that's going on and he's going to get asked about the lawsuit he might not want to mention Ovitz's name and there might be consequences if he does what is with these failed threats throughout this episode I know well we do this is the backdrop to Uber and of course this scares even Travis and so he goes up and he behaves and doesn't talk about Ovitz and this is in an interview with Jason Callicanis does with Travis after he starts Uber and Travis is like oh yeah I thought I played a cool in Jason was like oh man you were sweating bullets up there so that happens the company ends up filing chapter 11 bankruptcy to get rid of the lawsuit and then the assets of the company gets sold how to bankruptcy so the company is torched like here's Travis he has just had this wild experience the company was completely torched he walks away thankfully with no personal liability but it's over so what does he do next he and one of his co-founders from scour they go and they say you know this technology it is pretty interesting as a technology this is kind of mirror other episodes we've had here unacquired what if rather than using it with a front end to enable illegal peer-to-peer downloads we take the same technology and we use it for moving content around on the internet and who would want to move content around the internet maybe it's those guys who just sued us the movie studios like they're trying to like online online movie distribution isn't there yet but people are moving content around there's like a little bit like their clips that are being played online maybe we can help them with their bandwidth by using peer-to-peer hosting to enable to enable better bandwidth management for these movie companies and we should on a technical note just just make a point to folks listening that like when you type in a URL right now on the internet even though it seems like okay cool it goes to the server where that website is hosted and gets it you know in the early days of the internet it had to go literally all the way to the one server where the website was hosted like now things happen much faster because these things are cashed all over the place they're much closer to you not really fully developed at this time nope and Akamai existed but was just starting to get going so Travis starts takes this says great I'm going to start my next company he calls it RedSwish and it does this it's competitive Akamai focused specifically on the movie industry and it is also a wild journey he ends up running it for I believe six or seven years raises a very very small amount of money including from Mark Cuban as an angel and Travis ends up not taking a salary for four of those six or seven years that he's running the company he moves back in with his parents and he lives at home in L.A and eventually we mentioned Akamai Akamai ends up acquiring the company and consolidating it into Akamai for $19 million so finally at the end of this it's now ten full years that Travis has been on this grind starting with dropping out of UCLA and he's lived with his parents for a long time he's had his safety threatened he's been sued for a quarter of a trillion dollars and he finally has an exit and he makes I wasn't able to get the final the exact figure but several million dollars because he hadn't raised too much money out of that $19 million acquisition so the money is one thing that like that that has happened but the mold has been cast for Travis going forward based on just some traumatic experiences incredibly incredibly traumatic experiences so he moves to San Francisco at this point I don't know if he'd already moved to San Francisco or as part of the sale to Akamai he did but this is the backdrop that he's operating in now coming into 2008 where he's angel investing he's having fun he's going out with Travis also with Garrett also in San Francisco is he looking for his next thing? he's looking for his next thing thinking about this this Airbnb idea and they go to Paris they're in Paris and they spend most of the time just Garrett and Travis jamming on these two ideas Garrett on his on his James Bond uber idea and Travis on his you know luxury apartments around the world idea and throughout the week that they're there in Paris they start spending more and more time on the uber idea and apparently according to to melody they all all three of them go out to dinner one night at a fancy French restaurant and typical French bistro style they have paper tablecloths on the on the table and Travis is in Paris and Travis and Garrett are so deep in uber discussions that they fill the entire paper tablecloth throughout dinner with sketching out the unit economics of uber it's amazing and to do I mean I want to make some crack here that like maybe they should have sketched the unit economics for uber on something a little bit more high fidelity than an napkin and a more seed today well well no no they actually great and this gets back to Travis being really smart so the outcome of that I don't know if it was specifically from that dinner but the outcome of that week is you know Garrett was thinking about buying these Mercedes and renting a garage a garage and storing them themselves and Travis like based on looking at the economics he's like do not buy cars like whatever you do do not buy cars use the existing cars that limo drivers that sedan drivers already have and just give them iPhones and put the app on there that's all you need to do and the economics are going to be so much better so by the end of the week he's convinced Garrett not to not to take the Mercedes approach and Travis is intrigued enough by what's going on he says all right I'm not going to like join I'm still thinking about other things that I might want to do my other angel investments but all angel invest in this and I'll be like a super advisor to the company this is my favorite part of this story that like he's like committing but like to what active you know like I'm gonna yeah you know I'm gonna like I'm not joining but I'm in yeah so I believe the idea is that Garrett is really gonna run with this so they get back to San Francisco this is now January 2009 and Garrett though on well everybody makes out well but what happens next is that eBay comes to their senses gets to the end of their drunken hangover this is you know post stock market crash in the recession and they're like why do we own stumble upon and they decide to spin stumble upon back out and Garrett's like great I'm gonna come back and be the CEO of stumble upon again basically gets put on pause but Travis is still like pretty interested in it and so he's like still saying to Garrett you know hey let's keep working on this they make a little progress they go out they they talk to the black car drivers they already knows they give them phones they tried out they'd contracted with a developer who Garrett knew based in New York City a guy named Oscar Salazar who was originally from Mexico and Oscar built the app in in New York City with two contract developers back in Mexico and so they had this kind of rudimentary app and they tried out and it sort of works and so they do that over the next year in 2009 and then in January 2010 the two of them decide hey there's enough here to actually start a company we don't really want to run it you know we're we're still enjoying our lifestyles but what if we recruited somebody to come in and run this company and so on January 5th 2010 Travis tweets one of the most infamous tweets famous and infamous tweets in Twitter and all of internet history he tweets quote looking for number four entrepreneurial product manager slash Dev killer for a location based service dot dot dot pre launch big all caps big equity big equity big peeps involved dash any tips all caps question mark question mark and before getting into where this leads can we just talk about how broad of a description that is it's a product what is Dev killer right also I mean people in silicon valley circles not to marry all circles you know new Travis at this point but like the broader Twitter like who is Travis and what is this what is this tweet what is going on here it's big nonetheless in the most face faithful Twitter reply to this point in Twitter history in Chicago a 27 year old GE employee who's in the GE management development rotation program which is a fantastic program a really smart young guy named Ryan graves sees the tweet of Ohio graduate indeed indeed Ohio Midwest wrong he sees the tweet and he replies quote here's a tip email me smiley face graves dot Ryan at gmail dot com and that with those two fateful tweets a couple of the Twitter can we say it's like that on the show what's on it's on Twitter so it may or may not be his email I just anyway and I mean Ryan of course now has a has a family office saltwater capital which are great investors we're co-investors with them in a few companies here at wave big fans of them he moves out to San Francisco from Chicago now Ryan's married his wife is a school teacher in Chicago but he sees this is the this is his shot and so he moves out to San Francisco and he becomes ubers first CEO Travis and Garrett bring him on and that's apparently what the definition of a biz dev killer yeah I would love to ask the how did how did that that tweet turned into CEO we we may never know but he becomes the first CEO of what is at this point uber cab so he and Travis start going around the city they're signing up more black car black cab companies and drivers in June 2010 they officially launch the non beta consumer facing app writer app to writers they have about ten cars on the platforms the app is live in the iOS app store they're ten black cars on the platform in San Francisco and they go out to raise a seed round on angel list which had just gotten started as well and so they the email blast gets sent out on angel list and the description is that Garrett Travis and Tim Ferris are investors and advisors Ryan Graves is the CEO and only employee of the company and it gets blasted out to I think something like a hundred and seventy hundred and seventy five investors slots people see it most people don't respond some people respond and want to invest including first round capital rob he's which leads the round right to six hundred thousand dollar check Chris Saka invests 300k Mitch Kapoor invest Jason Calacanis who we talk invest friend of the show Alfred Lynn who was still its app was not joined Sequoia yet he invests in the round and once again they get another call I think this was probably a response like a crazy superstar party round like I mean you totally look it's it's the who's who on the sort of advisory team you know founding ish team and who's who in this initial angel round yep totally well you've got to you know proven entrepreneurs who are not running the company but you know as investor you're like well maybe maybe they might run the company we'll see they get another response to the email though and it is once again Bill Gurley he sees he had a Caesar he had a Caesar here's about this round that's happening and he takes Travis and Ryan out to dinner and says all right tell me your plans let's talk about this what's going on and they say we're raising a seed round but we have big ambitions here and Bill says okay benchmark doesn't do seed do your do your seed round but let's stay in touch I want to I'm very interested in this space so the seed round ends up getting done there is one point three million in total at a five point three million dollar post money valuation wow even despite trading today in the IPO that is a that is a long distance many many thousands of percent return from that valuation and then on July 5th the day after July 4th 2010 Tech currents writes an article announcing the launch of Uber cab and San Francisco it was as Ryan Tolkien on our latest LP show talked about it was basically instant product market fit I mean the pent up demand everything we talked about with taxi be magic and cabulous despite all of those problems and how much demand there was for that finally a service that is actually going to address writers and solve all of these problems and in a city that is such a big city like San Francisco and has only 1500 taxi cabs it is off demand is off the charts and they're about to learn the real difficulty of a high growth marketplace business you're never in a really good place because either you have too much demand for supply or too much supply for demand and you have to sort of figure out what your strategy is to go get the other side built up just in time for you to over build and then need to switch back yep totally so they had hired a driver operations manager just trying to onboard drivers and get things going in San Francisco and it was not working out it was not going too well and this is where one more amazing story happens I believe also on Twitter Jason Calcane I see it obviously angel invested in the round he posted a tweet about the launch of Uber and I believe that they were looking for an intern and somebody sees that tweet again and doesn't reply to the tweet but finds does some sleuthing finds Ryan Graves email address didn't take much on twitter to find it emails him and says that she wants to apply to be the intern and the person who does that is Austin gate who rang the bill on the New York Stock Exchange this morning right in the middle of the big group of people in the middle of the big group of people she is now I'm pretty sure the longest serving employee at Uber she joins that summer as an agent Ryan Graves is on the board but no longer an employee so that's probably no longer an employee Travis obviously is no longer there and I believe I believe all the people who were all two other people who were there before Austin or gone she becomes the fourth employee of the company and her story is just amazing it's been told but we're going to tell it again here because this is an incredible story Austin grew up in Marin in Marin County just north of San Francisco in the suburbs and she went to Berkeley for undergrad and a short time into her in her time at Berkeley in her college career she developed a pretty serious drug addiction she's very open and honest so she was giving many interviews about this and a great talk and a fortune about this and it basically ruined her life and she had to take she dropped out of college took several years off of college, worked with her family and got completely sober and then she returned to college in her mid-20s ended up graduating from Berkeley at age 25 and it was that summer of 2010 when she graduated and she saw that tweet and she was she had I believe the story she'd applied to be a barista either at Peats or Starbucks and gotten rejected to even go be a barista at I believe it was Peats but ended up getting this internship at Uber and you know she says later in this fortune interview she said I think this is just amazing she said I'm so proud of the work my team has done at Uber that I've done at Uber but it's not the proudest thing I've done I'm more proud of being sober and being able to share that with my family means a whole lot and it's incredible so Austin would join as an intern and then we mentioned a few minutes ago the first driver operations manager who was onboarding drivers to try and just get supply to keep up with this crazy demand wasn't working out Austin takes over and becomes the first successful driver operations manager in San Francisco and then would go on to lead and run the launch team for Uber and she launched I believe just about every city that Uber operates in around the world incredible okay so things start getting going on the driver onboarding in San Francisco by the fall in October of 2010 people are starting notice this is a big thing in San Francisco and other people who are in particular people who are starting to notice is the taxi industry and so they taxi cabs they show up at the city regulators and they start loving and say you got to shut these guys down they're taking away our business and what they're doing is illegal and so on in October 2010 while there is a board meeting for Uber going on and Ryan Graves and Travis and everybody are at first round capital's office in the middle of the board meeting the Uber office gets rated and regulators show up and they issue a cease and desist order I believe they have like a head shot of Ryan Graves there and they're like this is a wanted man and they say that Uber has to shut down and stop operating because they are not following the rules quote-unquote and to the company into Travis's credit again given all of his background they say what rules aren't we following Travis is not you he would talk about this in an interview later he says this feels like a quote-unquote homecoming for him after his experience at Scalp and they had been really careful this is this is another point that has been completely lost in the last couple years of Uber they follow the rules they were not doing anything illegal they were operating in the black cab market that was regulated by the state not the city they were not a taxi company and they had been very careful about what they were doing was certainly not envisioned by current regulations but it was not against the rules and so they fight this and they end up winning because like I said the city had no jurisdiction over what they were doing they're using black cars given the narrative around this company that is like a completely lost fact to history yep completely lost fact to history but super important for two reasons one because they win and they do not get shut down the state of California allows them to continue operating the other outcome of this is you know I mentioned those quotes about Travis saying this felt like a homecoming this is what pushed his Travis over the edge to decide you know what this is going to be huge I am I am born to do this I need to come in and be the CEO of this company the company got rated and the yes this is how Travis is my you know they were looking for this the CEO he was a wanted man I want to be that guy what was the company for me like it like he said it was a homecoming because he went he was in the meetings with the regulators and he thought I can do this so he comes in he very amicably with Ryan you know he'd hired Ryan Ryan becomes I believe SPP of operations and and Travis comes in becomes the CEO he negotiates he already had a 12% stake in the company from his advising and angel investment he negotiates he gets a 23% stake in the company this is post seed round as CEO and he basically says he's going to devote his entire life to making Uber as big as it possibly can be he actually he he a bread writes about this in the book he broke up with his longtime girlfriend and he explained this is a quote he said I realized I was more passionate about this company than I was about her I should probably find someone I like at least as much about my job it's probably no no mean slight meant to his girlfriend but this is the mindset he's in this is his life now he is his mission in life is to build Uber as big as it can possibly be getting a lot of color on this guy here totally so the growth continues they go out in the beginning of 2011 to raise a series and based on reputation and on his dinner with him early in the year Travis's goal is Bill Gurley and he wants Benchmark to lead the series and he meets with other firms Travis also talks about interviews about the importance of running a process but he always wants Bill to lead and Bill and Benchmark do end up leading and he's Travis's ass later why do you pick Benchmark Jason Astubin this in this interview his answer is because they're the best it's not even a close call and Benchmark ends up investing $11 million at a $60 million post this is in the beginning of 2011 for an 18.3% percent stake in the company now that was almost unheard of in those days a series a at a $60 million post I was at Madrid on at the time we were doing series a like a three or 12 post and they were three or $1 million investments indeed indeed so this was a huge you know laying of cards on the table bill had found his company I mean I think one of the other things that I remember when I first read Brad's book the the upstarts and realized all the work that Bill had done for five to ten years before making this investment on the industry and it was the first time that really hit me that truly great investors form an opinion about how the world will be and then go try and find the company that they believe will execute to to create that future and I think obviously there's lots of ways to be a great investor but but you know learning that that is the approach that that Bill took here it's and the traction they had of course but it's no surprise at all that it's a big check at a at a healthy valuation because it's it's sort of the consummation of this years long search yeah he was ready to go all in and I remember so New York was the second city that when there is the series a it's clear it's clear to bill it's clear to Travis it's clear to everybody else in the company this is working we now need to replicate this in as many cities around the country and world as quickly as possible we need to be in the open yeah exactly exactly well and and and all this personally had Austin gate who let the launch team so they go to New York next the third city Seattle and I remember so vividly Bill sending an email to Tom Alberg at at Moderna who we had on the show for the Amazon IPO founder Moderna saying and Bill and Tom knew each other from Amazon and from from several investments over the years and Bill emailing Tom when when Uber was launching in Seattle and saying I think this is going to be a company that is going to be as big as Amazon and it's coming to Seattle it's going to be the third city would love anything you can do to help at Moderna with Amazon everybody to help to help bring Uber to Seattle it is just incredible and I vividly you know Tom forwarded the email to everybody at Moderna and I remember seeing and I'd heard of Uber at that time of course and I was like wow that is that is a really busy and involved move for a board member to do and to try and drum up support and obviously Bill was right in February 2011 I believe right after during as this round was closing there's an amazing video we'll link to in the show notes that Austin Guide took on her phone of they do an Uber happy hour and in San Francisco and Travis is kind of giving the welcoming kind of time to talk at the happy hour they have all the early employees they have the writer community in San Francisco they have the top drivers there he brings everyone up he's super magnanimous he thanks them he thanks the drivers and he says kind at the end of it he says you know we're here in San Francisco this is great we're going to be very soon in 15 to 20 cities not only in the US but we're going to be all around the world and this was you know we'd ask Brian Tolkien on the L. P. show you know was there a moment where was never a debate at Uber that they would go global or not because obviously no other right showing company really did and he said you know if there was it was before I got here there never was it was Travis's goal from the beginning was this is working this is global we're going to go everywhere what was Brian's quote the culture was if it's a city and it's big we need to be there yesterday yep and that is that is exactly that is exactly what happens so first New York then Seattle then Chicago Boston and then Paris is the I guess that would be the sixth city and that was that was a huge a huge moment for the company and and and Travis was insistent that they go to Paris and they go to Paris then and they go international and everybody else in the company was saying this is crazy we can't go international we can't go to Paris we were like barely live in the US and he said no we have to do this we have to do it now and we have to I believe the directive was we're launching in three weeks I think it was for Leweb in 2011 Leweb that they had to launch for the Leweb conference there and they did it and that was the beginning of Uber being an international company so by that time this is now the end of 2011 Uber is already doing nine million dollars a month in bookings and almost two million dollars a month in net revenue for a company that is essentially one year old the traction is just just incredible now launching cities all over the world and this is actually the moment where Travis starts thinking you know what this is we're going all in all in pedal to the floor on ride sharing around the world but this can be bigger than right right sharing you know he gives a quote in the Jason Calacanus interview he says world logistics company and he says you know obviously there's right sharing but he says I want stuff brought to me maybe there's there's one that's you know even more focused they were talking about examples of stuff that could be brought to you and he said yeah you could do anything like Cosmo calm did but maybe there's an even more focused service we can provide where you could say you could say delivery of food as an example like you like to eat at a restaurant they don't do delivery we have liquidity in cars so we can make that really interesting this is the end of 2011 and and that was the beginning of what would become Uber Eats. It's so interesting too it's comments like this that that Travis and others at the company would make saying oh we could move anything around and then they wouldn't say anything for a year and the whole like tech world would get up into a tizzy of like Uber's gonna launch like last mile UPS and deliver it's gonna be a career service that moves anything around a city and I mean that sort of went away with the transition from Travis to Dara but that always did seem like probably a red herring that that was somehow bigger than moving people around was moving non food stuff around but that was always the like what if they expanded to everything yeah well in terms of I mean maybe eventually they will do everything but Uber Eats is a monster of a business that will get into and is is a huge part if not all of Uber's growth at this point and just kind of amazingly precious that even that early one year into the company they were already thinking about it and starting to work on it so that at the end of the year they end up raising what again was you know the series A was a landmark series A the series B was almost as much of a landmark they sell 10% of the company in around there is 32 million dollars of the 322 million dollar post money valuation it's led by Shervin Pichovara and Manlo Bencher so they only sold 10% of the company in the series B which was crazy back in the day and they now have this huge war chest and then they just keep going city by city by city they launch L.A. after that L.A. as we've talked about on other episodes Uber completely transformed L.A. Is the series B before we move on from that is the series B the one with the like last minute change on who the investor was yes so we're going to give him to the so it was going to be Andreessen Horowitz I think this will be telling I was going to tell it a little later but we'll jump ahead now so yeah Travis wanted Andreessen to lead the series B and as the story goes Andreessen was in to do it at roughly 300 million dollar valuation but there was a dinner supposedly between Mark Andreessen and Travis and after that Andreessen Horowitz decided to lower the offer into a valuation in the low 200 million and also wanted to include a much larger option pool in the company and Travis would have none of it and that was that was the end and of course and then as we're about to see Andreessen Horowitz like planted the seed with Travis before like well if anything weird happens like you know where to come you know where to find me and and so Travis called him up and they they did the deal and Andreessen of course then would regret that decision but not for too too long because shortly thereafter they would invest in Lyft and they would lead Lyft's first round after pivoting into peer-to-peer car sharing and are still one of the largest shareholders of Lyft today so but back to Uber this is I would say the the apex of the original Uber so we're now there at a unprecedented revenue growth rate their GMVN revenue growth rate they're raising unprecedented venture rounds their global they're on the path to world domination there at this point I believe it about a hundred million dollar net revenue run rate so like they could go public at this point in time by the old set of rules this is a this were a different point in history they would have and maybe they were even thinking about it but then history turns on a knife point once again and we will refer listeners to our episode about a month or so ago on the Lyft IPO but this is now early 2012 and homobiles has ceded the concept of peer-to-peer car sharing with side car and side car has ceded the concept of peer-to-peer ride sharing with Lyft and side car which feels a lot less legal than what it's doing it sure does feel a lot less legal yes but nonetheless side car and Lyft launch in San Francisco in the spring and summer of 2012 and it is you know we spent all that time describing the regulations in the taxi industry and in the black car industry earlier in the episode peer-to-peer ride sharing is completely ignoring these regulations and definitely illegal you could argue whether uber was in a gray area it was not regulated but it was not clearly illegal what side car and Lyft are doing is clearly illegal nonetheless though uber and Travis because of their personality they've there a lot of people in certainly the taxi industry but especially in regulators and city governments who don't really like them and they're sort of I wouldn't say happy to see something illegal happening but they're happy to see competition arising and legitimate threatening competition to uber so what happens next for the next six months or so uber and Travis fight really hard to get Lyft and side car shut down and they are lobbying with regulators on the side of regulators for protectionism and this is like told like the history of like glossed way over this like uber and the regulators trying to shut down Lyft yes totally and and it makes total sense from uber's perspective and I think according to Brad you know Bill girly drove a lot of this thinking on the board they were terrified of anybody undercutting them on price and what peer-to-peer ride sharing enabled was an undercutting of price and so this was a huge huge threat and they had realized this when Halo moved over from London to launch in the U.S. working with taxis but doing it with a lower take rate I believe Halo had a 10% take rate and trying to undercut on price and that was in response to that uber had rolled out what was then uber X and uber X was cheaper cars Toyota Prius is still with license drivers but to compete at a lower lower take rate margin with Halo I don't think I knew that uber X was licensed drivers when it first launched uber X was licensed drivers it was not peer-to-peer and the original the original purpose of it was to compete with Halo this massive fear of undercutting on price is such an incredible foreshadow for the financial position that the companies are in today because high cheering as it turns out is an incredibly price sensitive market if you open both abs ones a buck cheaper and it's the same you know relatively the same distance away you just do it like there's there's so little gripping u to one platform or the other and that's one of the reasons why these companies are spending so much money competing with each other to acquire and retain customers like it you can see it all the way back back in this era totally and so this is this is the moment where everything changes so you know then we joke about unit economics and the table napkins and parents earlier the before this happened the trajectory that uber was on was the beautiful typical silicon valley story from you know that point up until that point in history they had a beautiful marketplace based business model they were not taking inventory they were working you know they were pushing the edges of regulation but they were working within regulation the unit economics were incredible uber was on a hundred million dollar plus revenue run rate I assume not profitable because they were investing so much in growing cities but they probably could have been and I remember people talking about cities being like wildly LTV profitable I mean I forget numbers that were thrown around that I had heard but you know nine ten plus X LTV to CAC for writers and writers and drivers in San Francisco and for folks sort of on the on the fringe of the biz here that's lifetime customer value to cost to acquire a customer and if it's to if they're if your customer lifetime is ten times the cost to acquire that's a great business you got there and it incredible business and it was also an incredible business for drivers they were drivers in San Francisco and other cities that were making hundreds of thousands of dollars on the platform so much so that drivers were going out and they were you know Uber talked about this and Travis talked about this kind of becoming their own little mini entrepreneurs on the platform you know kind of like to Airbnb sugar and like property managers in Airbnb because they knew that if they got more cars on the system they could make so much more money it was really working for everyone then when peer to peer launched it completely shifted the dynamics of the industry one by changing the unit economics but even more so by impacting like it opened the floodgates of supply so now you had and and listen and and friend Maxwell has emailed us about this this was the huge change that peer to peer ride sharing brought before all of the innovation that was happening with Uber was net good for most players in the industry like I said the drivers were doing much better but now when the floodgates of peer to peer opened all of those gains got competed away because the playing field on the supply side just got massively massively expanded and because of that then there was also the competition for the demand side between Uber and left and sidecar and every and D.D. and everybody internationally and so they had to spend the companies had to spend so much on subsidies to bring in riders on the demand side and it completely changed the unit economics so what happens well well they don't IPO they don't IPO no and the for a while for a number of years the wisdom becomes certainly a Uber and and to a certain extent at other companies to certainly a Uber certainly a D.D. the way we can win this is this is a war of attrition we will raise so much money this we talked about on on the lift episode was it like 16 times the amount of capital that Uber raised versus lift at one point in time something like that that we can just we can just blow away our competitors and crush them into oblivion and once we've crushed them then the unit economics will become more stable and we can return to profitability on these platforms shouldn't be long shouldn't be long so in August of 2013 lift raised the $60 million from Andrewson in May of 2013 in August of 2013 Uber raises 258 million dollars led by Google Ventures with TPG coming in the private equity firm and this is the start of this instead of just investing those 260 million dollars in the US and competing with lift though remember Uber is now international and D.D. in China starts raising huge amounts of capital so Uber is now spreading this capital fighting land wars yeah Uber's to a lot more like they have to capitalize wars on all these different borders and we should say to their they are maintaining a very strong leverage position in this negotiation they raised that whatever 260 million dollars on a 3.7 billion dollar post money so this is like you know that they just got a 10x from that previous round where they were valued at 350 million totally which it was what five six x from from the series a yep and that would have been you know and I think people thought about the time like oh well that would have been like if they had gone public maybe they would have gone public at a relative market cap like this I guess this was just sort of a private IPO type thing turns out that was far from the end of the capital raising and we'll skip over a lot of this year in the interest of time but go go listen to our lift episode go listen to way back our D.D. episode that we did with with Bradstown and Brad really was the foremost reporter in talking about the dynamics between Uber and D.D. it ended up the amount of capital that they were raising from sovereign wealth funds from huge from hedge funds from huge you know entities pump the valuations of these companies so much over the next couple years Uber ends up raising 20 billion dollars in total Ben as you alluded to at the top of the show the valuation peaks at 72 billion dollars on the private markets but all of this capital is going into fighting these wars and until this sort of the big deal is coming in here you know we were talking about this is an era where you would go go public I mean GV made a crazy bet putting an abnormally huge amount of their fund if not like all of the remaining there's a but there's something that while that have well I believe GV operates on an annual budget cycle from from alpha okay but yes they put in a lot of money yeah and then you start to see in June of 2014 Fidelity comes in and this changes everything for startups I mean we talk about the era of stay private longer and while all these companies IPOing now and why haven't they IPOed yet the next set of investors would be Fidelity T.R.O. Price Goldman Sachs then you start getting into these sort of international you get Times Internet Tata capital Tiger Softbanked I mean the list goes on and on from when you get the raising from venture capital is a Saudi Arabia public investment fund comes in puts a lot of money into one of these Uber rounds with D.D. that was before the soft bank vision fund and of course who is the anchor investor in the soft bank vision fund it's the Saudi Arabian public investment fund yep yep I think this is an interesting point a few people have asked David and I and I think there's a lot of good answers floating around but why is this happening now like why is this whole A plus saga you know happening in this like four to six month period at the beginning of 2019 and I think there's a few reasons one it's been this bull run for over a decade and you know people want to get out before the the music stops companies used to IPO you know after three or four years after being founded especially look at like Amazon it was 94 to 97 or something like that now they're a decade or more they've taken private funding for a long time but there is a there there is a time limit to the amount of time that private investors are willing to wait before getting liquidity and we're learning that time is about 10 to 12 years after a company has been founded so a lot of these companies all were started right around the same time in this two year window following the 2008 recession and a lot of them stayed private longer took private capital longer and you know they're facing pressure from their board many companies in a less less documented way to get some liquidity but Uber in fact signed an agreement with Goldman four years ago that they needed to go public within four years otherwise if they hadn't gone public then the convertible bond that they took carries this coupon that will increase over time and I think that that's that clock started in January so they they've been sort of rackin up fees and debt if they if they didn't go public and so that's another big trigger of this whole thing is look if if Uber had to go then lines up the timing for a lot of these other companies to go to yeah well I think this is what's there's there's that to me the most interesting takeaway from doing this all this research and thinking about it is that this whole era we're in now of all these new sources of capital lead stage sources of capital coming into the private venture back start up market was opened up at really by Uber and by everything we're talking about here it had been happening slowly before then but this opens the floodgates and it opened the floodgates because Uber because peer-to-peer red sharing launched and it changed the economics and Uber now needed to raise all this money and it's just so interesting that like the narrative has been these sources of capital came in because they couldn't find growth in the public markets and like that's absolutely true it's a hundred percent true that is why all these other alternative sources of capital are now have been over the last decade interested in investing in private venture back startups but it wasn't like Uber saw this and was like oh great source of capital I'm going to do that instead of going public they had to they couldn't go public they needed all this money to fight these wars and it is really great that that trend is now extended to you know plenty of companies even that maybe being a great example they also fought a war which we will cover when we cover them but it was a much more contained word that they definitively won and so they didn't have these same dynamics and with Uber for a long time until very recently where Uber sort of cut these deals to merge or or take large ownership stakes in some of their competitors and internationally instead of competing the thought was oh my god the global ride sharing market is one of the biggest markets in history and it is a single market and it's going to win or take all and it is worth just go go go put as much money into this company as you can because they're going to take it all and then from there we will get to do all sorts of interesting things in margin expansion over time and whatever else it turned out that that wasn't true like it's not actually a global market they are you know what's global market but it's not a global network effect well I I would say it's a series of markets it that in the way that sort of like information on the internet is a global market where you can put something out there and it can be consumed everywhere you don't need to sort of like go open each market differently and have completely different products and marketplace dynamics and like ride sharing turns out to be a nationally fragmented market in a way that it's it's not accessible by one company leveraging their asset to just sort of scale perfectly so I guess that's what I'm getting at here is so then there had to be this this sort of pivot later on where this company had had this huge valuation had been massively capitalized if they're just going to be the North American winner in ride sharing then they have to be the North American winner and other things and they should own other companies that are going to you know dominate the other parts of global ride sharing and so I think you know we saw pretty definitive shift in strategy when it became clear that it is not one singular large market that they can win. Yep both on the capital raising and then on the mergers and acquisitions and divestitures front. Okay so on a normal acquired episode I think we would wrap things up here and this already extended extra long episode and say come back for part two the next time where we tell everything that all of you know happened after this unfortunately we don't have that luxury because today is the IVO day and we're gonna get this out we got to give this out all right so here we go extra special you thought you had enough drama you didn't have enough drama what happens next we fast forward to January of 2017 the Annis Harbillus for Uber and Travis Kalanick in the back Jeff of all this I'm like not I think it means it's like a really bad it's it's a I think it's Latin for a terrible year horrible year okay everybody knows what happens in 2017 to Uber I think having told this whole story and the story of Travis's background and what we were just talking about of this new this new environment the company suddenly found they thought they were gonna be the next Google they thought they were gonna be the next eBay or Amazon but it turned out the dynamics changed and now they are in this incredibly huge market but that were the all the dynamics change and they had to fight all these wars I can only imagine the toll that that took on the psyche of people at Uber and in particular on Travis and just like I think we've seen with Elon leading up to the episode we did on Tesla and then after that with everything that's happened with Elon Musk over the last year that's a lot of weight to carry you know and and so I think it's it's important to keep that in mind as we go through all of these horrible things that are about to happen and honestly horrible things that Travis either did or was party to at Uber yeah we should we should not because at this point I think we've played the narrative of everyone else has said terrible things about Uber and Travis and we want to talk about a lot of the amazing things that the company and he did and a lot of the redeeming qualities we by no means want to say that he had a clean made really bad decisions and and did really bad stuff and I think like we should we should just make sure we're super clear on that totally totally at the end of the day everybody everybody's a human including and especially founders and humans are capable of being very fallible listeners you should know that the header in David's notes for this section is chapter four the systems broken yes I was actually inspired by Kanye West lyric there but that's another human for another day okay January 2017 Donald Trump has just been inaugurated as the president of the United States I'm living in Paris we're recording acquired episodes remotely over the internet across continents we have Brad Stone on the show to talk about everything we're just talking about with Uber and the the and DD in the Uber DD merger what is the first thing Donald Trump does in his first week in office he annex the travel ban a terrible terrible thing in my view not this is a political show but I that's like I will 100% stand by that statement forever what happens because of the travel ban people are stranded at airports and particularly people are stranded at JFK in New York people who have been flying to and from countries with the travel ban from predominantly Muslim countries where the travel ban is enacted demand for Uber and Lyft spikes off the charts particularly a JFK because everybody stranded there they're trying to get home they're trying to figure out what's going on this completely throws off the market and Uber has you know surge surges how they respond to to imbalances and supply and demand they're trying to do the right thing like the drivers are getting screwed here and the drivers are like putting so much pressure on Uber they do fence the JFK airport in New York and enact surge pricing for JFK the reaction to this among the public is not good now it is this is super interesting story the lift of course does not go into prime time is is Lyft's version of surge in JFK apparently at the time I don't know if it still is Lyft's technical infrastructure was not architected to be able to turn on and off surge like draw arbitrary geofences and so their options were either turn on surge on like all of New York or don't turn on that was kind of how the beat one of the inputs into how they made their decision not to turn on prime time when this happened but so Uber does lift doesn't you can imagine how this looks the public you know excursiates Uber for for what happens here that they're gouging they're taking advantage of the travel ban they're gouging people immigrants who have been stranded they're charging them hundreds of dollars to get where they're going people also realize hey we Trump has enacted this technology advisory council Travis is on Trump's advisory council is he in league is he in league with Trump is he like trying to profit is Uber trying to profit over this on this travel ban definitely was not the intention or the case and Travis puts out a statement that like joining the group he says joining the group was not meant to be an endorsement of the president or his agenda but unfortunately it has been misinterpreted to be exactly that there are many ways in which we will continue to advocate for change on the immigration but staying on the council was going to get in the way that he resides from the council immediately but like the damage is done and what emerges out of this is hashtag delete Uber and David this geofencing thing I think that's a pretty under reported little tidbit I also think like people still when they hear the delete Uber on they link it to all the events that would follow here and they remember something happened at the airport but I think there was sort of a massive misconception and misunderstanding between the company what they were able to do what they were trying to do and then what they got roasted for yep totally I I genuinely think they were they were trying to do the right thing and they were already under so much pressure from drivers about driver earnings massively declining in this new peer to peer world they were trying to do the right thing for drivers I really think that is the case and this was also not like a Travis decision this was you know this was way farther down in the company and I think they were trying to do the right thing however the company deserved everything that was coming next and on this initial spark you can't start a fire unless there's a bunch of fuel around the spark to catch and so we had a whole bunch of non-goodwill from the public from drivers from you know all sorts of people that you know it could have been any number of star of sparks but they had there was it was latent badwill yeah and worst inside the company so very shortly after this within a couple weeks a female Uber engineer named Susan Fowler I believe was was time's person of the year in 2017 I believe because of this publishes a blog post announcing that this is this is mid February that this is her last day at Uber she's leaving the company and she tells her story in this blog post about how from day one when she was hired her boss at Uber in the engineering organization tried to proposition her for sex and tried to do it over text over chat in recordable ways within the company within company systems she reported it to the company she reported it to HR and what followed is all too common in many industries and especially the tech industry nothing happened to him and she was punished and HR gave her the choice according to her and she documented all of this to either switch teams and not work for this boss anymore but you would be fine and she would have to change her career or she could stay and on the team continue working for him continue putting up with this and probably be given a poor performance rating probably because she wouldn't have sex with them just horrifying like at totally totally horrifying there's absolutely nothing else to be said and what's even worse things got even worse from there she continued interacting with HR she and did end up eventually transferring other parts of the company this continued to be a case HR did not acknowledge it did everything wrong and it went up to senior levels of the company who continued to do everything wrong she writes this blog post it is that is the if the spark was delete Uber at the airport this is the bomb that goes off and the next week Travis meets with a group of female engineering leaders within the company an audio recording of this meeting services and it's basically not particularly flattering Travis doesn't say anything like particularly bad but he's also not like really empathetic to what's going on here and it's not helped that Travis himself had made plenty of public comments over the past years about how his own sexual conquest his own partying you know back to the garrard and Travis days go announced here for Cisco that started the company and you know he he referred to Uber by a hominem that implies that it allowed him to to sleep with lots of women not good on the back of this the company and the board hires the former attorney general of the U.S. Eric Holter to who had just left to his in the Obama administration to come in and lead a thorough investigation into the company into HR practices harassment everything going on okay that's bad next thing happens we're now like a week later in the end of February Google remember Google is a major investor in Uber they sued the company they sue Uber because Uber had acquired a company called auto which was led by Anthony 11 Dowski who was a former employee within Weimo Google's self-driving car division and according to Google in the lawsuit he took most of all of his intellectual property that he had developed at Uber brought it illegally into auto Uber acquired auto and now had illegally Google intellectual property around self-driving cars and what was especially a bad look for for Uber here was that auto was bought for a good amount of money and hadn't built much and so then the question was like what do you okay why did they do that they basically spent I think it was 650 million dollars to acquire auto Uber did and it looked and probably essentially was that they spent that money to acquire Google trade secrets not good okay things keep getting worse February 28th Bloomberg publishes a video that has been leaked a dash cam video from an Uber driver of Travis in this Uber with it probably intoxicated on a night out on the town getting into an argument with the Uber driver the Uber driver realizes its Travis in the back of the car and starts talking to Travis about how his earnings have gone way down on Uber and Travis just starts berating him and yelling at him it's terrible that comes out that's the next body below in several days later it comes out that Uber sponsored a trip to escort bar in Seoul South Korea with several senior Uber executives participating in this and this has come out as part of holders investigation into the company gets leaked to the press executive start resigning immediately and the resigning for two reasons one so Jeff Jones had just come in from target to help kind of clean up the image at Uber here is this was starting to happen he was I believe CMO or COO he leaves immediately and he resigns and he says I do not want to be this is not who I am I do not want to be associated with this company I do not want to be associated with this culture I'm out of here he doesn't even negotiate an exit package he's like I don't want any stock in this company I'm gone other executive start resigning because they know that they did really bad things and the investigation is coming for them all told something like six or seven senior executives leave Uber like within the month of March next thing that comes out in May is the New York Times reports that Uber has been using software that it called internally gray ball to mask its activity mask Uber was continuing to operate in cities with peer to peer operate in cities that shut down peer to peer right sharing Uber was continuing to operate and using the software to mask regulators and police from seeing that they are operating that's pretty bad and a abrupt turnaround from several years earlier the company was committed to pushing the rules but operating within the month of March all the way to the beginning of March and then in late May tragedy strikes Travis's parents are involved in a terrible boating accident and his mother is killed in this boating accident in California his dad severely injured again you know you can imagine what's going on in his head through all this and the pressure he's dealing with in June it comes to light that this is the next month it comes to light that Uber there was another terrible tragedy that by an Uber driver during an Uber ride the company and India investigated into it and as part of the company's investigation into what happened they legally accessed the woman's medical records basically stole the woman's medical records and they wanted to confirm that she was indeed raped because the implication was Uber didn't believe that that what she was saying was true. I have not had a lot of time to say that. I had not had a lot of time to say that. I mean it's uncomfortable to just like hear it blow by blow by blow. Oh totally well then it's like these are just facts you know this is terrible on June 11th right after this the holder report is issued to the Uber board it's really bad the very next day a senior executive in the company named Emil Michael who was involved in many of these incidents and who for a long time it had a reputation at Uber and within Silicon Valley as an effective operator but it was no surprise that he was involved in these things he'd been involved in a confrontation with the journalist Sarah Lacey a few years earlier he resigns the next day under pressure from the board based on what was in the holder report two days later on June 13th the board convinces Travis that he needs to take a three month leave of absence from the company a because of everything that's going on and you know be his mother was just killed tragically his father's in critical condition they ask him to leave the company he agrees to a three month leave of absence on that same day this is incredible I remember when this happened it was just like watching a train wreck the same day there's an all hands meeting at the company led by several of the Uber board board meetings this is the worst during this all him to meeting the purpose of which is to talk about all these problems stemming from you know the Susan Fowler what she reported within the company everything going on to talk about the outcome of the holder report David Bonderman a co-founder of TPG who is on the board from TPG's investment investment in Uber is on stage alongside other board members including Ariana Huffington who I believe is the only female board member at this point time at the company and Ariana says to the company a quote there's a lot of data that shows that when there's one woman on the board of a company it's much more likely that there will be a second woman on the board and Bonderman makes just like the most awful awful awful comment in that he interjects here to what Ariana just said he says actually what it shows is there's much more likely to be more talking and this is just like like this total sexist comment like what this meeting was called to try and ease everyone's concerns that we are not a bunch of sexist horrible like what are the worst the worst thankfully Bonderman immediately is kicked off the board like that day that I mean how you could even even go there is just beyond the pale he's kicked off the board that day and that is I think you know while secondary to Travis I think that's kind of the last draw that like something very very very fundamentally needs to change in the company and the only thing that is going to do that is a new CEO and completely new you know a decapitation of old leadership and new leadership coming in at the top yep and so this this whole thing started in January it's now June mid June and we should like take a quick moment and say you recall from the lift episode they were on the ropes like they were dead Uber was beating him they do so much money like they were who would fund lift they lost yep and then it's not just sell itself lift it tried to sell itself to Uber at least once if not multiple times at this point Uber and Travis believed that they would just crush them they wouldn't have to buy them they could do operating and all the problems would be solved and then all this happens and so on June 20th at this point in time you know benchmark and Bill Gurley as kind of lead investors have been at their wits end trying to deal with this and just a this terrible situation billhead stepped off the board fellow benchmark partner Matt Kohler had taken his place on the board to try and broker some kind of relationship moving forward here they decide they've had a lot of work forward here they decide they've had enough so they organize a group of of the core investors core venture investors in the company benchmark first round men low lowercase capital and then they get fidelity involved too they write a letter they all sign a letter and Matt Kohler and fellow benchmark partner Peter Fenton they fly to Chicago Travis is in Chicago remember he's supposed to be taking a leave of absence from the company he's interviewing a COO candidate for the company and supposedly behind the C&C's he's agitating to try and come back as soon as possible and stay super involved they fly to Chicago they meet Travis at his hotel and they present him with this letter the letter demands that he resigned from the company and there's several hours of negotiation at the end of which Travis signs the letter and he does resign a CEO of the company on June 20th part of the discussion was that as part of him resigning he would be able to say it was his decision it was part of everything personally that was going on responsibility but he could say you know this was my decision all of this gets leaked to the press in real time and it becomes clear this is not his decision this was the investors led by benchmark forcing this upon him this is after he signed that this becomes clear and so he as one might expect knowing his history and mental state he kind of revolts and he starts calling other shareholders within the company to see if he has their support for a vote by the way this is all reported in the press by great supporting by the New York Times and by by Bloomberg and by Brad and his team and he calls for starts jumping up support for a vote to come back as CEO of the company it's just sad to talk about but I think we have to talk about this A because it's I don't think there's any debate that this actually happened and B this is part of the story so benchmarking response files a lawsuit to Travis so once again you have investors suing a CEO of a company suing Travis while they're investors in the company I heard of for you know a firm like benchmark to be suing a founder of a company that they had backed but this is what it had come to and honestly you know these were this is the end of the days of founder friendly you know and I think that's a good thing like it's great to be found the founders but there's certain behavior that just cannot be tolerated so benchmark sues Travis for fraud and breach of fiduciary duty the way that that all plays out is in negotiations over who is going to replace him as CEO so Travis realizes he doesn't have the support to come in as CEO but he thinks he can bring somebody in who's going to be supportive of him and his interest in the company as the CEO and he still has several seats on the board his choice is Jeff Emel who until recently was CEO of GE benchmark choice is Meg Whitman who was CEO of eBay and one of one of their you know best investments and that has played a big role in the story there is a dark horse candidate though and so everybody like I know Meg Whitman at least like tweeted like yeah I'm not like I don't know you guys are talking about I'm not taking this job right they both independently confirmed to the press like no I will not be the CEO of Uber and so everyone sort of scratching their heads like well who's he going to be who who is going to be the CEO and it's a me it is it is amazing like that this does not get not come out does not get reported until the announcement is made on Sunday August 27th 2017 who the new CEO of Uber is and it is Dara Kaz Rachahi he had been the CEO of Expedia since 2005 and really is an incredible story and an incredible kind of choice to come out of all of this and and lead lead the company through what was probably the most public mess of a venture back start up to play out in the press probably ever yep so Dara's story like we said is incredible he grew up it was born initially in Iran his family was a wealthy Iranian family in the pharmaceutical industry in the late 70s though during the Iranian revolution the company got nationalized they had to escape persecution they moved they immigrate to the US with nothing they restart everything it was the whole family he grows up in the suburbs of New York when he's 13 in 1982 his father has to go back to Iran to care for his grandfather he didn't see his father again for six years incredible despite all this he goes he excels in school he ends up going to Brown he then does banking after school at Allen & Company where his brother also works at Allen & Company is now an MD at Allen & Company he joins IAC after Allen & Company he becomes the CEO of IAC of course Barry Dillers median internet holding company in 2001 IAC buys Expedia with you know a lot of Dara's work on that Dara a couple years later becomes the CEO of Expedia and he is the anti-travel see he is a super outspoken critic of Trump and the immigration policies that Trump was putting in place obviously because of his family history and also because that's like the right thing and the board tasked him with basically three things to come in and do three easy tasks one fix the culture at Uber two stem the losses that we've been suffering in these wars all around the world and focus on core markets and three take the company public and get this done and so this is August 2017 I think unquestionably he has done about his good job as you can imagine with part one fixing the culture I think there's still of course problems and things to be solved but like he comes in and pretty immediately he revises the core values of the company he settles the Google lawsuit he retains employees he makes great hires and I think you know again still more work to be done but certainly compared to the trajectory that Uber and Uber's culture was on unquestionable turnaround also on point three of taking the company public they just went public today but that really starts in January 2018 he orchestrates a deal there's all this fighting on the board and with Travis and everybody he orchestrates a deal with soft bank to come in and so soft bank leading along with dragony or Sequoia and Dede itself they do an almost nine billion dollar transaction with Uber same size as the IPO that just happened last night in this morning 7.7 billion of secondary sales much of which comes from Travis directly but also from other existing shareholders including the venture investors that soft bank and others by at a 48 billion dollar valuation another one and a quarter billion dollars of primary equity from the company at a 70 billion dollar valuation at the end of the days some investment into the company to give them cash but mostly taking money off the table and at what a discount like that pretty is round with the Dede merger had been a 68 billion dollar post this is a 48 billion dollar offer you know hey take it or leave it we'll buy your shares at this share price you know it's a it's a pretty wild way to buy up to 15% of a company totally they get so soft bank gets 15% but more importantly this cleans up all the problems so benchmark agrees to drop the lawsuit as part of this Travis lays down his arms and everybody unites behind Dara as the unquestionable kind of leader of the company going forward amazing peacemaker I mean given the circumstances coming into there I mean coming from you know his banking days and I see in very diller in the next video like you can see how as great as Jeff Mildred and McWhip and are like very few other people could have executed this you know the best as well as Dara had now number two on his task list of getting to you know stemming the losses more questionable and that takes us to today so obviously yesterday Thursday May 9th Uber priced its IPO at $45 a share towards the bottom of the inch or equal to an 82 billion dollar market cap open trading today on Friday at $42 a share or a 76 billion dollar market cap as we speak I believe they are trading at $43.84 oh wow no I have down to $41.76 oh I just refreshed and saw that too yeah so still slightly below that opening of 42 down to share down 7% off the opening yeah we'll see what happens in the coming days yeah that we should say like the first day of trading is a pretty terrible predictor of as we learned on the lift episode yeah yeah so or even the next year right like you I mean we all saw sort of Facebook's trough after after IPO yeah so there we have it the history and facts wow oh man what a story no really what a story I mean I don't think it's any consideration to say like the certainly not the whole story of the time but like a one of the biggest if not the biggest stories of our time right now in you know the in the technology startup and venture capital world like this is unprecedented on almost every front yep well David should we now that we're doing the first section of the show yeah I think we've probably covered the narrative you know the bull in case narrative is pretty pretty thoroughly here but let's nail them though because I I feel like it's let's get crystal on on sort of what what different folks would paint because I think we've alluded to a lot of things but I think it's important to to sort of paint what different people were saying about the company going into the IPO so the fascinating thing was in the Uber road show they were comparing themselves to Amazon and one of the reasons was not only are we you know going to develop into this massive global market but Amazon famously didn't make a profit for you know had this razor thin they never really made any profit for the longest time and when they IPO they were generating losses now of course the fallacy there is they were not generating three billion dollars of operating loss but that is sort of the way that they were positioning it to IPO buyers they've also shown like incredible growth in Uber Eats so it's already more than 13% of Uber's revenue it's only a few years old but last year they did one and a half billion in revenue the year before was only half a billion in revenue so just wild you know bright star there for for Uber Eats and I have massive personal gripes with the way this S1 was written because it made my job researching this this episode just terrible and they intentionally did this and you know it feels not dishonest but in a gray area it is extremely difficult to figure out how the ride sharing business is doing because Uber has chosen to create a metric called monthly active core platform users and they group core platform as ride sharing Uber Eats and new methods of multi-modality transports those scooters and ebites and the micromobility so the the bull cases that they're monthly active core platform users continues to to rise I think a lot of that growth is Uber Eats but really hard to to to read into that but they said that that's the number you're looking at users continue to rise and yeah I think the other part of the bull case here is that we're still less than three years into Dara being the CEO of Uber and his ability both through his personality but also through his background to be a peacemaker and a deal maker around the world and return the dynamics the unineconomics and dynamics of Uber's core operations to something much more profitable and sustainable versus all our wars that they've been in. So yeah the thing that you I think have to believe is well look globally across all these fragmented markets that is ride sharing it's one of the largest Uber markets of of all time and you know they're really well positioned to be the main player in the space and own big chunks of these companies and in other other markets and at some point when they are able to ramp down marketing spend they're they're they're going to generate you know a lot of money the thing you have to sort of ask yourself is okay well when is the knife fight gonna end like how how what will be the catalyzing event for all companies involved to start making money instead of spending to steal share. Yep and with the lift IPO you know six weeks or so ago and them now being a public company I don't see that happening in most US markets any anytime soon. Yeah yeah yeah okay well let's go into bears this may take a little couple minutes so revenue growth has slowed pretty dramatically if you look at the ride hailing business from 2016 to 17 it grew a hundred percent from 2017 to 18 it grew 42 percent and then over the last two maybe three quarters it's been basically flat. So the growth is not coming from the ride hailing business so if you want to believe that this is a growth company and it is because you know they're they're they're on a lot of vectors it's not coming from ride sharing and you have to really be honest with yourself and acknowledge that. Well and a big problem there is that there probably is a lot of growth happening in ride sharing but they've also been losing share in the US in their core markets to lift over the over the last year so there's growth happening in some markets but attrition happening in others. Yes so this is something that was a little buried also in the S1 but you can find where they come out and say in 2017 our ride sharing category position in the US and Canada was significantly impacted by adverse publicity events which we covered although the rate of decline in our ride sharing category position has since quote unquote moderated our ride sharing category position generally declined in 2018 in the substantial majority of the regions in which we operate impacted in part by of course heavy subsidies and discounts by our competitors in various markets that we felt compelled to match in order to remain competitive and so the takeaway here is I think the important word there is moderated they are still losing share in the these these core ride sharing markets so anyone who wanted to blame delete Uber for lifts resurgence and say but we're all good now you know we're growing share again it's just not the case. Yep. Another thing so that's looking at growth and of course the way that these IPOs tend to get valued as growth stocks were early in a company's life there's lots of growth ahead you know they're going to get more profitable over time they're going to both get more profitable over time and continue to grow at these great rates that they've been growing not like a little 10% public company growth rate but like a you know these these sort of start up you know growing 30 40% per year growth rates so I said get more profitable now let's dig into that and specifically into contribution margin so the contribution margin for the core platform business which is of course the ride sharing and Uber Eats which was 18% a year ago was actually negative 3% in Q4 of last year so really sort of dangerous trend there where we start to see them you know even that's a direct reflection of the subsidies and competition. Completely it's that and it's because this is all lumped together into one category here it's also very likely due to the aggressive marketing spend for the rapid expansion of Uber Eats. But nonetheless it's a you know you don't want to see a contribution margin shrinking as a company is getting more mature. Yep. So I think those are the two biggest things the growth and the contribution margin that are scary from a bear perspective. One thing to flag is that a lot of very high profile investors including founder collective and soft bank are selling big chunks of their shares in the IPO sort of but they sold them last night to new investors as in a secondary transaction rather than sort of waiting for the lock up period. This I wouldn't read too much into this because the money has been tied up for a long time they're trying to get liquidity and this is not unprecedented but it's certainly not an encouraging sign if you're a sort of potential buyer. Yeah I agree not to read too much I mean these are shareholders that have been holding the shares for a very long time. But no I think the question is a lot of the questions that emerged when the dynamic changed for Uber both nationally in the US and globally with the emergence of Peter Pierre Reggiering. You know the hope was that the massive amounts of capital raised and the operational investments would have settled those questions over the last four or five years. They're still very much open questions doesn't mean the market is still enormous and massive and the potential is there and relative to the way way back in the beginning of this episode where there were 1500 taxi cab medallions in San Francisco this market is so much bigger and open but who will win and how it will play out in the unit economic of that is still an open question. Yep the other thing is there's a this isn't really a bull or bear but it's interesting to just think about this 20% of the value of this company is actually a holding company. They own 15% of D.D. and in China, 38% of Yandex taxi in Russia, 23% of grab in Southeast Asia and that's 18 billion dollars of equity that they own in these other companies and if everyone remembers the Altaba so with Yahoo and Alibaba being a holding company that owns a bunch of other assets you don't get to value the assets at exactly what they're trading for because they're sort of inherent risk in well is this entity going to be able to get liquid on those assets if they ever needed to. And so you know a good chunk of Uber's valuation is actually holding these these foreign rides sharing companies. Yep. All right so that's bull and bear. Let's go and grade this thing on a couple points first before we paint sort of what an A-plus would look like if you know we had 6 to 12 months to reflect back on this thing and then of course what an F would look like it's worth noting that every shareholder who bought shares since gosh end of 2015 including everyone who bought the IPO last night is now underwater they had a pretty terrible narrative leading up to this thing that was really botched where a year ago investment fingers were rumoring that there would be a 120 billion dollar market care for this company when an IPO'd and a couple months ago the rumors sort of changed to a hundred billion and then they gave guidance that they were going to have an IPO range that went somewhere from you know mid 80s up to low 90s and then they priced at the very bottom of that range so coming into this IPO it already felt like it had been sliding I mean the public sentiment was I'm buying something on the way down so it's not surprising that there wasn't a big pop on the first day Uber to their credit was conservative on pricing which I think was a good idea but the question is what do you have to believe to love this right now and one is that ride sharing will somehow get less competitive marketing spend will decrease and you know the other is that they've built this incredible infrastructure and now they can really light it up with Uber Eats and other things on their infrastructure that are great businesses but of course Uber Eats is also wildly competitive with DoorDash and GrubHub so that's also not a smooth sailing market but the next one is that they're going to be able to effectively use that and what will it look like if they effectively use that well they needed to raise a bunch of money like I will say it went well by the criteria of oh my god they needed to raise a bunch of money and get it into the company's coffers and they did there's no pop so people who bought the IPO at least so far did not see an immediate benefit although they're holding for a long time anyway and we'll see what happens in a year but Uber got basically the most money that they possibly could have out of this IPO and if they're taking an operating loss of $3 billion a year oh and by the way they said they think that will continue to increase this year like they need a lot of money in order to start to pull out of this thing and it wouldn't surprise me again if we saw a secondary offering at some point where when they felt good about their share price they tried to sell more the company yeah it very much could happen and I think I think the question is yeah when will when will it turn but you know it's it's so far the scale is orders of magnitude larger than amazon but I will say this is the amazon story and the amazon history and so I think yeah the A-plus case is exactly what Uber what Dara and the company have been saying on the road show and the process which is this is amazon we are bleeding tons of money but we are building this infrastructure across multiple businesses that will that will be extremely defensible and profitable in the long term and I think that is an incredible story it's a very incredible story it's a question people are struggling with is how you price it right now 20 billion dollars and there are however 10 years old like can we get more than a credible story I know but that's the so I think that's the that's the that's the that's the A-plus yeah 100% and and so let's get more specific on what that looks like they are contribution margin positive on the ride sharing business some small number of years from now and Uber Eats continues this great great growth rate that they're on and also gets profitable well and because they I think the other part of the story is because they share the same infrastructure and supply side across both of those businesses and potentially other businesses in the future that is going to be a very strong battleship if you will that will turn the tide in their fight with competitors that their economics will be fundamentally different than other they can afford to spend more on the infrastructure than lift or any of these players because as they apply as they acquire the supply side that they're spending to acquire drivers they're leveraging that spend across multiple businesses whereas competitors are only leveraging it across one business yeah my other favorite structural advantage of that that I saw was somebody pointed out that if you can keep a ride a driver busy 100% of the time between Eats and the core ride sharing business then they have less of an incentive to multi-home on other apps and then if you reduce the supply on lift then it's a worse driver, a worse user experience etc and you can start to tip the field and as we talked about on you know another company that Bill Gurley was intimately involved in on our Rover Dog Vege episode and that I saw firsthand that is absolutely true if you can tip Uniteconomics in a market in favor of one competitor over the other they will tip so I think the A plus scenario is this capital infusion gives them the resources to continue to be able to do that and the F scenario is it just takes too long they they they go for this and it and I think it's more likely that like given an infinite time scale and dollars they'll actually be able to do this I think all the fundamentals hold I think the F scenario is they're not able to access the capital that they need to and I think investors stop signing up to put more cash in before the music stops and then I think that there's a very you know that could also happen I don't know what happens to Uber at that point but you know that that's definitely the downside scenarios they can't get it done and a short enough time frame to not need to do that and actually the downside scenarios they can't get it done and a short enough time frame to not need to go and and access new capital in a really either delutive or are potentially a competent challenging way yeah yeah yeah yeah well I think that's the so yeah if I'm in the shoes of of Dara and the Uber Board and it's all thank given their influence here I think I would imagine like the nine billion dollars that they just raised in the IPO that's my time for employing I think you have to believe there is no more capital coming yep that's a great point so all right well the F obviously is that doesn't work I'm sure there will be some follow-up episodes we do on this various transactions along the way so stay tuned to acquired in the coming years but this is just to put a bow on this you know I thank you listeners for for bearing with us through this super extended piece just like the lift IPF so we had to do this here like this is the you know this is the not the only but this is one of the key stories of our time and we wanted to do it as justice and as be as fair from from all sides as as I think we could so hit us up with any feedback but we're we're super excited to see where things go from here indeed well if you aren't subscribed and you like what you hear you should we will be continuing to cover all of these 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 and my personal beliefs you should become a limited partner you can click the link in the show notes or go to slash acquired and I promise you'll be overjoyed with how buttery smooth it is to get more acquired right here on your favorite podcast player and everyone gets a free trial so don't be afraid to give it a shot we we've got some awesome awesome episodes coming up and we'll see you next time. we'll see you next time.