The Lyft IPO

Summary Notes


In the episode, hosts Ben Gilbert and David Rosenthal unpack the journey of Lyft, the ride-sharing company that went from a struggling startup to a publicly traded entity with a valuation of $26.6 billion. They discuss Lyft's origins as Zimride, inspired by founder Logan Green's experiences with inefficient public transit and car-sharing in Zimbabwe. Despite battling fierce competition from Uber and experiencing financial challenges, Lyft managed to survive and thrive, thanks in part to strategic investments from companies like Rakuten and GM. The episode delves into the company's IPO, its positioning as a mission-driven brand, and the broader implications of ride-sharing in the transportation industry. They also touch on the potential impact of autonomous vehicles on Lyft's future profitability.

Summary Notes

Personal Excitement and Anticipation

  • Speaker A expresses difficulty sleeping due to excitement about the podcast episode.
  • Speaker A woke up early and ran to the office to prepare for the episode.

"I've literally, like, I've been like, I've had trouble sleeping the last couple nights. Like, dude, I so pumped early this morning."

The explanation of the quote is that Speaker A is very enthusiastic about the upcoming podcast episode, to the point of it affecting their sleep.

Introduction to Acquired Podcast Season Four, Episode Four

  • The podcast is about technology acquisitions and IPOs.
  • Hosts are Ben Gilbert and David Rosenthal.
  • The episode focuses on the first major IPO of 2019, the Lyft IPO.

"Welcome to season four, episode four of Acquired, the podcast about technology acquisitions and IPOs."

The quote introduces the podcast and its theme, setting the stage for the discussion on the Lyft IPO.

Significance of the Lyft IPO

  • The Lyft IPO is important for Lyft and the ridesharing industry.
  • It represents a positive outlook for the technology industry.
  • A drought in big tech IPOs existed prior, with companies staying private longer.
  • Lyft's IPO success eases concerns about startup valuations.

"Well, obviously this is an important moment for Lyft and ridesharing broadly, but what it represents for the entire technology industry is possibly even greater."

The quote explains the broader implications of the Lyft IPO for the technology industry, beyond just ridesharing.

A New Generation of Tech Companies Going Public

  • There is a generation of tech companies preparing to go public.
  • Companies like Lyft, Uber, Slack, and others have raised significant private capital.
  • These companies are expected to IPO within the next six months.

"This is a whole generation of tech companies that are all going to go public all in the next probably two."

This quote highlights the trend of many tech companies from the past decade planning to go public in a short timeframe.

Limited Partner Bonus Show and Corporate Development Insights

  • The bonus show featured David's partner, Sarah, who has experience in corporate development.
  • The discussion included Airbnb's strategy and acquisitions, particularly the HotelTonight deal.
  • Listeners are encouraged to become limited partners for more content.

"The limited partner bonus show that we've been doing, the one that we did with David's partner, Sarah, was so timely and so awesome."

The quote promotes the bonus content available to limited partners, offering insights into corporate development strategies.

Pilot Sponsorship and Importance of Outsourcing Non-Core Functions

  • Pilot is a partner of the podcast, offering accounting, tax, and bookkeeping services.
  • It emphasizes the importance of focusing on core business functions and outsourcing the rest.
  • Pilot has grown significantly and is trusted by many startups.

"Pilot is the one team for all of your company's accounting, tax, and bookkeeping needs, and in fact, now is the largest startup-focused accounting firm in the US."

The quote explains the services offered by Pilot and its position as a leading accounting firm for startups.

Lyft IPO Details and Historical Context

  • Lyft raised $2.3 billion in its IPO, with a market cap of $24 billion.
  • The IPO was successful, closing the first day of trading above $26 billion.
  • The podcast aims to explore the history of Lyft and the evolution of peer-to-peer ridesharing.

"The company raised $2.3 billion in its IPO, priced with a market cap or basically a valuation at the top of their expected range."

This quote provides specific financial details about the Lyft IPO, indicating its success on the first day of trading.

The History of Lyft's Founders and Their Missions

  • Logan Green and John Zimmer had different backgrounds but shared a mission-driven approach.
  • Green focused on solving traffic issues, while Zimmer was interested in hotel management.
  • Both founders were influenced by their experiences and education to address transportation inefficiencies.

"Oh, man, this is a thriller. Okay, so we begin our tale in the 1990s with two young men who are growing up at complete opposite ends of the country."

This quote introduces the narrative of Lyft's founders, setting the stage for their eventual partnership and the creation of Lyft.

The Convergence of Green and Zimmer and the Birth of Zimride

  • Green and Zimmer met through a mutual friend and decided to work together.
  • They were inspired by the potential of Facebook's API to build trust in ride-sharing.
  • The company initially focused on college campuses for growth.

"So Zimmer pings Siegel that night, and he asks him to introduce him to Logan. And Siegel does."

This quote describes the pivotal moment when the two co-founders of Lyft were introduced, which led to the creation of Zimride.

Early Marketing Tactics and Business Model of Zimride

  • Zimride initially focused on college campuses for adoption.
  • They used unconventional marketing strategies, including dressing up in animal suits to parade around campuses.
  • Zimride's business model involved selling licenses to colleges to establish official car-sharing services on campus.
  • They experienced initial success with colleges paying for licenses, but it was not the sustainable model they hoped for.

They start doing at schools that they really want to get adoption at. They start doing these crazy marketing stunts. They go out and they buy a frog suit and a beaver suit... And so they're trying to land on the business model for this. And what they decide is once they get adoption at college campuses, they decide they're going to go to these colleges directly and ask the colleges to basically buy a license from them to set up Zimrides as the official car share on campus.

The quote explains their grassroots marketing approach and their initial business strategy of licensing to colleges, which brought them early revenue but was not the optimal long-term model.

Zimride's Transition and Investment Decisions

  • As Zimride grew, they received their first institutional investment from Facebook.
  • The investment was part of the Facebook fund, which supported growing apps on the platform.
  • Zimmer had to decide between continuing in finance or focusing on Zimride full-time.
  • The decision was made easier when Lehman Brothers went bankrupt, signaling the instability of a finance career compared to the potential of Zimride.

Zimrides gets its first institutional investment... It was Facebook... they invested $250,000 in Zimrides to help support it because it was this growing app on the platform. And they announced the investment on stage at f8 2008... Zimmer is coming to the end of his analyst program at Lehman Brothers, and he's trying to decide... Two things happen that help him make his decision... Lehman goes under. Financial crisis happens.

The quote details the investment from Facebook and the circumstances that led Zimmer to commit to Zimride, including the collapse of Lehman Brothers.

The Birth of Lyft and the Influence of Sidecar

  • Lyft originated from Zimride, which had an existing network of drivers.
  • Lyft differentiated itself with unique features like sitting in the front seat and fist bumps.
  • The iconic pink mustache on cars helped Lyft gain visibility and grow demand.
  • Lyft's development may have been influenced by their awareness of Sidecar's operations.

They decide they're going to hold an internal hack day to come up with new ideas... The clear winner when the company votes is the third option. Zimride instant... They build and launch an MVP app in three weeks... Let's call it Lyft... Lyft's first logo was sea foam green... In 2012, we launched Lyft and pioneered the idea of on-demand, peer to peer ride sharing.

The quote narrates the internal process that led to the creation of Lyft, its early branding decisions, and the company's claim to pioneering peer-to-peer ride-sharing.

The Story of Homobiles and the Rise of Peer-to-Peer Ride Sharing

  • Homobiles was a grassroots ride-sharing service in San Francisco for the LGBTQ community, operating on a donation model.
  • They provided safe transportation for at-risk populations and inspired the peer-to-peer ride-sharing model.
  • Sunil Paul, who later founded Sidecar, was influenced by Homobiles' model and integrated it with technology to create a scalable service.
  • Despite Lyft's success, Homobiles continued to serve the community, highlighting the ongoing need for safe transportation for marginalized groups.

I took homeobiles to the airport for a trip to New York. It cost me $20 for a trip that normally cost $50 in a taxi... We wondered, can we create a scalable, technology-enabled version of homeobiles that could allow us to create our shared ride vision?

The quote emphasizes the impact of Homobiles on the conception of peer-to-peer ride-sharing and the inspiration it provided for the creation of Sidecar, which later influenced Lyft.

The Impact of Lyft's Marketing and Sidecar's Role

  • Lyft's marketing, including the pink mustache, was crucial for raising awareness and driving adoption.
  • Sidecar, although a pioneer, could not keep up with the capital-intensive competition.
  • Both Lyft and Sidecar had used the donation model initially to navigate regulatory challenges.
  • Lyft's success was partly due to its strategic marketing and existing driver network.

Lyft started to really take off... Every driver who signs up for the service, we're going to make them put a big, fuzzy pink mustache on their cars... You've got cars driving around the city with this fuzzy pink mustache.

The quote describes Lyft's effective marketing strategy that helped the company stand out and become a major player in the ride-sharing market.

Competitive Dynamics in Ride-Sharing

  • Ride-sharing companies like Uber, Lyft, and Sidecar were in a fierce competition for market dominance.
  • Uber, known for its aggressive tactics, initially tried to lobby against Lyft and Sidecar, labeling them as illegal operations.
  • After failing to shut down competitors through regulatory means, Uber pivoted its UberX service to directly compete with Lyft and Sidecar in the peer-to-peer ride-sharing market.
  • Uber's pivot was announced through a white paper, emphasizing competition over regulation.

"In the face of this challenge, the challenge being from these unlicensed peer to peer ridesharing apps, Uber could have chosen to do nothing. We could have chosen to use regulation to thwart our competitors. Instead, we chose the path that reflects our company's core. We choose to compete."

This quote from Uber's white paper signifies their strategic shift from attempting to use regulations to shut down competitors to directly competing with them in the peer-to-peer ride-sharing space.

Silicon Valley's Reaction to Ride-Sharing Market

  • The ride-sharing market was quickly recognized as a massive opportunity, larger than the market for home-sharing represented by Airbnb.
  • Unlike Airbnb's winner-take-all dynamic due to strong network effects across markets, ride-sharing was seen as a market that could sustain multiple players, even within the same city.
  • This realization led to a massive fundraising race among companies like Uber, Lyft, and Sidecar.

"And so this quickly becomes, to your point, David, even within a country, even within a city, something that there's going to be multiple players in."

This quote highlights the understanding that the ride-sharing market could support multiple competitors within the same geographical area, which was a significant departure from the winner-take-all assumption.

The Fundraising and Competitive Tactics

  • All three major ride-sharing companies engaged in aggressive fundraising and competitive tactics.
  • Uber was notorious for "slogging," where they would have employees order and cancel rides on competitors' platforms to lure drivers away.
  • Lyft, despite being less capitalized, managed to continue operations through strategic investments from companies like Rakuten and Carl Icahn.

"All three companies, Sidecar, Lyft and Uber start raising massive amounts of money."

The quote emphasizes the intense fundraising efforts by ride-sharing companies to fuel their competition and growth.

Lyft's Survival and Growth

  • Lyft faced numerous challenges and near-death experiences but managed to survive through strategic investments and partnerships.
  • The company's ability to keep raising funds from non-VC sources like hedge funds and corporations was crucial to its survival.
  • Lyft's market share increased significantly following Uber's public controversies and leadership changes.

"Lyft is about to die."

This quote captures the dire situation Lyft faced before securing crucial investments that allowed it to continue competing in the market.

The Role of Autonomous Vehicles

  • Lyft and Uber both view autonomous vehicles as a game-changer for their business models, potentially improving profitability.
  • Lyft has invested heavily in autonomous vehicle technology, with the belief that it will significantly impact their future success.

"Lyft believes that they can materially flip their economics to become a profitable company when self driving comes into play and they intend to be a leader in that space."

The quote reflects Lyft's strategic focus on autonomous vehicles as a critical factor for future profitability and market leadership.

  • Public markets are showing a shift towards valuing companies like seed investors, focusing on revenue rather than earnings.
  • This trend includes buying into a company's story, prioritizing growth over profitability, which is common in early-stage investing but now seen in public markets.
  • Lyft's IPO reflects this shift, with its emphasis on brand and sustainable practices over immediate profitability.

"It is scary that the public markets are looking more and more like seed investors, where people are valuing on a multiple of revenue instead of a multiple of earnings, or perhaps just buying in on a story, or perhaps valuing growth over profitability."

The quote highlights the concern that public markets are valuing companies in ways traditionally associated with early-stage, high-risk investments, which could indicate a change in how investors assess the potential of publicly traded companies.

Lyft's Brand and Sustainable Practices

  • Lyft's brand is positioned as sustainable and responsible, differentiating itself from Uber's more transactional reputation.
  • The company emphasizes being good to its people, including riders and drivers, which is part of its public image and IPO narrative.
  • Lyft's email to riders and social media campaigns reinforce this image of responsible corporate citizenship.

"And Lyft over and over and over and over again. And their s one beats the drum and did all throughout their roadshow on being a sustainable company, on being a company that sort of does right by its people, be it riders or drivers."

This quote describes Lyft's consistent messaging around sustainability and ethical treatment of stakeholders, which is central to its brand identity and appeal to investors and customers.

Public Market Analysis and Financial Rigor

  • There is a concern that late-stage private investors may not have been rigorous, but public market reactions suggest this is not a major issue.
  • Lyft's hiring of talented individuals in Silicon Valley is seen as a strong point that could contribute to the company's success post-IPO.
  • Public markets may be applying more rigorous financial analysis than previously thought, as seen in Lyft's IPO performance.

"But I do think one other thing for me on the bull case, know Uber's bleeding seems to have stopped."

The quote suggests that despite concerns about financial rigor in late-stage private investments, the positive public market response to IPOs like Lyft's indicates confidence in these companies' future performance.

Valuation and Revenue Multiples

  • Debates exist over the merits of valuing public companies on revenue versus profit multiples.
  • Lyft's valuation at IPO was not considered unreasonable, with a twelve times revenue multiple based on the previous year's net revenue.
  • The forward-looking revenue multiple for Lyft, assuming growth, could be less than ten times, which is seen as acceptable.

"Lyft's valuation is not crazy at IPO. So where they finished trading yesterday, they are trading at a twelve x revenue multiple of last year, 2000 and eighteen's net revenue."

This quote provides a perspective on Lyft's valuation at the time of its IPO, suggesting that the revenue multiple was within a reasonable range for a growing company in the public market.

The Bear Case and Net Losses

  • Lyft's IPO marked the largest ever net loss for a company entering the public markets.
  • The bear case focuses on Lyft's variable costs exceeding net revenue, indicating a loss on each transaction even without considering fixed costs.
  • Critics argue that Lyft's financial model may not turn profitable, with ongoing concerns about the sustainability of subsidizing rides.

"This is the largest ever net loss for a company entering the public markets for the first time. Full stop."

The quote underscores the bear case's emphasis on Lyft's significant net losses at the time of its IPO, which is a critical point of concern for investors evaluating the company's long-term viability.

The Future of Ride-Sharing and Public Offerings

  • There is speculation about whether Lyft will need additional public offerings to raise more cash in the near future.
  • The discussion includes the contrast between profitable and unprofitable tech unicorns, with Zoom being an example of a profitable company going public.
  • The trend of companies staying private longer yet going public unprofitable is noted as a new and potentially concerning development.

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

This quote raises questions about the financial strategies of ride-sharing companies like Lyft and whether additional public offerings will be necessary to sustain their growth and operations in the absence of profitability.

  • The S-1 filing highlights key tech themes such as the shift from ownership to sharing, on-demand services, flexible work, mission-driven brand appeal, and multimodal transportation.
  • The importance of the iPhone 3G/3GS and its GPS capabilities in enabling the success of ride-sharing companies is acknowledged.
  • The discussion addresses the broader impact of mobile computing and smartphone technology on industries beyond ride-sharing.

"There's something kind of cool about the fact that the s ones, they list out all these risk factors that are just like, it's great to read how honest everyone has to be and upfront everyone has to be."

This quote reflects on the informative nature of S-1 filings, which require companies to be transparent about risks and trends that have shaped their business, providing valuable insights into the market dynamics and technological advances that underpin their success.

Value Creation and Capture

  • The conversation touches on the balance between value creation and capture, especially in the context of sharing economy companies like Lyft.
  • The impact of these companies on workers, such as providing immediate employment opportunities, is discussed.
  • The debate continues on whether the value captured by companies like Lyft is proportionate to the value they create for the broader economy and society.

"And so I think just to fully represent what the bears are saying, it's that when you read the s one, people do believe that this will never turn right side up."

The quote reflects the skepticism among critics who doubt the ability of companies like Lyft to achieve a sustainable financial model that aligns value creation with value capture, raising concerns about the long-term prospects of such businesses.

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