Today it was revealed that Uber, the largest startup/private-unicorn juggernaut reported spent $200M (cash & stock) to acquire San Francisco’s Jump Bikes, a local startup founded all the way back in 2010. There are lots of interesting transit-junkie and international angles related to this transaction, which I’ll briefly unpack as follows:
1/ Urban congestion and city-level prioritization of bikesharing threaten short-haul ridesharing trips. At least in San Francisco from the Embarcadero to FiDi down to Mid-Market all the way into SOMA, driving around these areas in morning or mid-afternoon/evening rush hour is a death sentence. I’ve tweeted in the past that Uber and Lyft are essentially unusable in these areas. As a U.S. city would never go for congestion pricing, a variety of bikes (docked or not) and scooters (motorized or not) sprouted up with the help of both U.S. venture dollars and consumer behaviors exported from China. These bikes and scooters have taken over places like South Park SF and make sense for the current traffic environment. The average Jump ride was about 2.5 miles, which is roughly equal to the average Uber or Lyft ride. Each of these vehicles present a threat to revenue that Uber or Lyft could’ve captured, but more importantly, it is the behavior-shift that would frighten them. As more bikes and scooters would come online and more people saw them and got comfortable riding them, calling and waiting for a $12 Uber would begin to feel like the equivalent of a $24 avocado toast.
2/ Unlike in China, it would be unlikely today in 2018 for billions of dollars to flow into a bikesharing or electric scooter startup. It’s no longer 2013. While Limebike has raised over $100M, it’s not clear any other company would be able to raise as much in the U.S. market, which is simply not anywhere near the scale or density of what is going in China (obviously) — Mobike and Ofo have together raised over $4B, and out of 18 or so bikesharing startups which have mushroomed in China, only a third or so are still standing. So, as Jump raised $10M and Spin has raised about the same, it’s not clear either of them could raise the Bird or Limebike-style $100M+ in equity financing. On the flip side, while the low cost of bike production and ad-model on bikesharing would empower firms like Ofo and Mobike with a short payback period, to justify the same model in the U.S. likely wouldn’t fly given the cost of customer acquisition and geographic expansion.
3/ The U.S. market presents startups with only two legitimate buyers, as M&A by foreign ridesharing networks may encounter new groundswells of regulatory scrutiny. This is a new wrinkle. Startups like Limebike, Jump, or Spin may have been able to see an exit to Uber or Lyft and perhaps Google, but also could’ve been attractive to overseas ridesharing giants like Didi or Ola as they look to expand overseas. However, in today’s political climate, it is not entirely clear if foreign firms will be able to easily scoop up startups via M&A, especially in sensitive areas that involve more intimate consumer behavior data (like where folks like, work, rent, etc.), logistics, transportation, and mapping.
4/ If Instagram gained distribution by selling to Facebook, does the same principle apply to Jump jumping over to Uber? Um, yes! Instagram’s growth obviously was amazing and it could’ve raised private capital easily and kept growing; now within Uber’s network, Jump will theoretically get cash, resources, a network of offices, and data to smartly launch Uber “bikes” in different cities. This empower a Uber user with a new “multi-modal” option of transportation — one day, could we imagine personal drones, or a ferry system (my personal wish!)? The Jump team has already launched in 40 cities across six countries, which is impressive for a startup that only raised a bit over $10M. Worth noting here that it appears part of Jump’s value to Uber was that it had a history of working with various cities on these bikesharing networks. Also, while Uber doesn’t own the automobiles in its network marketplace, it will assume ownership of the Jump Bikes, which will present Uber with potentially new accounting and legal considerations, albeit at a smaller scale.
5/ Will Lyft respond competitively? Lyft appears to be doing well in the U.S. market. I’ve always thought they should have an answer for UberEATS given its success and should integrate a solution into their network. The same may be said for having their own Jump Bikes in the portfolio. Lyft doesn’t have the same cash pile as Uber, but luckily for them, there are a variety of options (with different prices) for them to choose from in M&A.
6/ M&A beauty is in the eye of the beholder. If you’re the founder of Jump living in the Bay Area and assume you still own 20% of your business eight years into the struggle, pocketing $40M on a sale to Uber is a terrific outcome. Presumably Uber also wants to launch Jump bikes in different cities. Let’s see, but they could also have made this move to stunt the growth of other companies to threaten their short-haul routes. While $200M is a ton of cash for the founders and employees, it represents a smaller exit on the venture scale — yes, that is not entirely fair, but worth pointing out that given how much cash growing Bay Area unicorns have on their balance sheets combined with the insane local cost of living and inflation, we may see more of these “smaller exits” where founders and early employees opt to get into the black rather than take on tens of millions extra in venture capital.