Dec 3, 2018
Lime and Bird are two of the fastest growing companies ever. Lime and Bird have collectively raised nearly a billion dollars within 14 months of founding at valuations of $1.1 billion and $2 billion, respectively.
They’re leaving competitors in the dust (see graph below.) And this is just the beginning.
If you’re in the tech industry or following it, we’re here to provide an in-depth look at the short trip vehicle sharing category along with the growth outlook for Lime and Bird.
The essence of any successful startup is exponential growth. Bird and Lime clearly check that box in terms of usage growth.
While it’s early days, the velocity of usage growth and adoption is intense and seems to be on track with that of Uber and Lyft during their early days.
This exponential growth may also be self-perpetuating. Each person who rides a highly visible electric scooter or bike (they often come in very bold colors) is a moving advertisement for others to try the service.
In addition, investors are signaling that both businesses are experiencing strong growth with over $400 million invested into each company at high valuations within 14 months of launch. These aren’t any investors, either. The cap tables of both companies carry strong social proof. Bird is backed by Sequoia and Accel, who invested in Google and Facebook, respectively. While Lime is backed by Google / Alphabet itself as well as Uber and Andreessen Horowitz.
Top Lime Investors
Top Bird Investors
From a hiring perspective, social proof is also very strong. Per the table below, both companies have poached very senior executives who are savvy and unlikely to leave lucrative posts without compelling growth outlooks for the scooter companies.
Key Lime Hires
Key Bird Hires
Former Founder of Excite
Stephen Schnell, COO
Former US & Canada Head of Operations at Uber
Li Fan, Head of Engineering
Former SVP Engineering at Pinterest
Ryan Fujiu, VP Product & Compliance
Former Head of Driver Growth and Compliance at Uber
David Richter, Chief Business Officer
Former VP, Global Head of Business & Corporate Development at Uber
David Estrada, Chief Legal Officer
Former VP Government Relations at Lyft
Paloma Castro Martinez, Head of Communications
Former Global Director of Corporate Affairs at Louis Vuitton Moet Hennessy
Dennis Cinelli, VP / Head of Finance
Former Head of Finance, Global Rides at Uber
It’s difficult to precisely size the market for electric scooters and electric bikes at this point. Nonetheless, a simple proxy is the Chinese market for bike sharing services.
Though the US has 24% of the population of China, the revenue opportunity in the US is still 4.7x that of China (19.5 x 24% = 4.7). If we assume Bird and Lime exit at the same price-to-sales ratios as Mobike and Ofo, then that would put their exit valuation at $9B to $12B.
For Lime, that represents a ~10x upside on its last valuation of $1B. For Bird, that represents a ~5x upside on its last valuation of $2B.
Furthermore, Lime and Bird provide electric scooters and bikes. In contrast, Mobike only launched electric bikes after their exit. As electrification greatly increases convenience, there is potential for further upside where Lime and Bird grow their use relative to Mobike and Ofo adoption in China.
Some back of the envelope costs indicate that the payback period on scooters is a bit over a month, after which they earn about $11 per day per scooter. See this analysis by Quartz and this independent analysis.
Lime recently indicated their latest scooters have an average lifespan of 4 months. So if the payback period is a month, that’s 3 months of profitable operation per scooter.
The same Quartz article above pegged the price of a scooter at $320, the revenue per scooter at $16 per day and the cost of recharge at $5 per day. Over the 4 month lifespan of each scooter, that’s $1,920 in revenue and $920 in cost which makes for $1,000 in profit and a healthy return on the upfront cost.
Additionally, we may see unit economics improve over time as these vehicles get redesigned to be more rugged and efficient, providing a longer lifespan and more operational efficiency in terms of charging, maintenance and rebalancing.
Lime and Bird are positioned to win the lion’s share of the short trip transportation market. This market requires significant working capital and complex coordination to buy, charge and maintain vehicles. These businesses also benefit from network effects. I.e. the more scooters and bikes a company has in a region, the more users will want to use the service. This in turn enables that company to invest in more scooters and bikes.
To provide a concrete example of regional network effects, a customer who lives in San Mateo will not want to download and setup a new scooter app when they are in adjacent cities such as Burlingame or Belmont.
Due to economies of scale, complex coordination and network effect moats, the largest players in this space will keep getting larger and maintain dominant market share. And Lime and Bird are certainly the most well funded and adopted companies in this space per the table below.
App Store Reviews
Play Store Funding
Acquired by Uber
Acquired by Lyft
1.0K for Citi Bike, their largest deployment
1.1K for Citi Bike, their largest deployment
Note that though Jump and Motivate are owned by heavyweights Uber and Lyft, these companies may not be able to compete effectively. More about this further down.
It’s also worth discussing supply moats around Lime and Bird. Multiple scooter companies have cited the need for strong supplier relations. A quick iteration cycle to build better, more durable scooters results in serious competitive advantages. And Lime’s COO, Joe Kraus, spoke about the potential profits of vertically integrating backwards.
As an example of the power of supplier relationships, Lyft has gotten into serious trouble with its scooter operations after Xiaomi, its scooter supplier, posted a cease and desist order.
Lastly, two other factors will play into Lime and Bird’s favor. One is city permitting, which will hinder new players from entering this space. Another is subscription lock-in. A16Z Investor and Lime Investor, Andrew Chen, has talked about subscription lock-in for scooters and one can envision programs similar to Amazon Prime that lock customers into Lime or Bird.
Every rapidly growing company has risks. Lime and Bird are no exception. We believe the two most significant risks are Uber and Lyft as well as regulation, though both risks are moderated.
Uber and Lyft
First, Uber and Lyft already have massive reach with consumers. And an experience where you could pick from a full menu of choices (scooters, bikes, cars) from a single app would be compelling. Moreover, the economics of electric scooters and bikes are favorable compared to cars. Consider the math below. Uber and Lyft may make similar or more revenue from electric scooters and bikes than with cars for short trips.
- Average scooter trip length: 1.6 miles
- Average scooter trip revenue: $2.92
- A 1.6 mile costs about $11.50 via UberX and $7.50 via Lyft Economy though exact prices will vary depending on location, time of day, surge pricing, etc.
- Assuming Uber and Lyft take 25% of each ride as their platform fee, their revenue is $2.88 and $1.88 per short trip which is comparable or less than the equivalent scooter revenue.
No wonder Uber CEO Dara Khosrowshahi is OK with having a significant share of the business be electric scooters and bikes.
Alas, it’s not that simple for Uber and Lyft to replicate Lime and Bird. Running electric scooter and bike sharing is operationally very complex due to the need to charge, maintain and rebalance vehicles. Furthermore, your run-of-the mill consumer scooter lacks the durability needed for heavy shared use. This is why Bird has launched its own proprietary hardware and Lime has as well.
It may also be difficult for Uber and Lyft to outsource hardware improvements to suppliers such as Xiaomi per their cease and desist order. While this area is more opaque, Lime and Bird have exclusive agreements locking in current suppliers (thus the cease and desist). Would suppliers want to sacrifice guaranteed and rapidly growing revenue from Lime and Bird for promised revenue growth from Uber and Lyft when it’s unclear whether Uber and Lyft will commit to these businesses long term?
In other words, to compete effectively, Uber and Lyft would need to dig their heels in to build up a hardware competence. Hardware is hard and this would represent an orthogonal skill set compared to Uber and Lyft’s current businesses. Will Uber commit to this given an impending Uber IPO and will Lyft move aggressively here with their hands full carving out market share in the car rideshare business?
And to throw in another variable, Alphabet is an investor in Lime. There's also Joe Kraus, former GV partner, who is COO at Lime. What would happen if there was a Lime and Google Maps integration? Alphabet subsidiary Waymo sued Uber and the two companies are not on the best terms so the incentives here might just line up in favor of Lime.
The big wild card, though, is whether Uber or Lyft buy Lime or Bird. Uber is talking to both companies about an acquisition so this is not just a hypothetical question. If Uber buys one of these scooter companies, it could seriously challenge the remaining independent scooter company due to Uber’s massive customer base, resources and its ability to then offer a full transportation menu from scooters to bikes to cars.
This would really change the ultimate valuation of Lime and Bird. Suppose company X gets acquired. This would set its terminal valuation at the price tag of the acquisition. As for the scooter company that doesn’t get acquired, let’s call it company Y, it would introduce much more risk around its terminal value including the possibility that company Y gets pressured to also sell.
However, it is unclear whether Lime or Bird will want to sell as both are growing very quickly so there may be more upside to their founders and investors if they stay independent. Maybe for the right (very high) price, one of these companies would agree to an acquisition. But it is unclear if Uber and Lyft will want to rock the boat by making such large acquisitions ahead of planned IPOs.
Regardless, a possible acquisition of either Lime and Bird is certainly something to keep an eye on as it would really change market dynamics here.
The second major risk for Lime and Bird is regulation. Electric scooters and bikes have been involved in fatal accidents. And cities like San Francisco have banned scooters only to bring them back with quotas and without approving Lime or Bird for return to the city.
However, just as Uber and Airbnb ultimately resolved disputes with major cities, we think Lime and Bird will do the same. In fact, favorable regulations have already passed. For example, California recently removed helmet requirements for adults riding scooters and Washington D.C. recently increased their scooter quota from 400 to 600. After all, electric scooters and bikes address two real problems for cities: traffic congestion and pollution.
Lime vs. Bird: Who Will Win?
So if Lime and Bird are both well positioned, who will ultimately win?
Based on publicly available data, the two companies are neck to neck on revenue and users. Lime just hit 11.5 million rides and Bird just hit 10 million rides. In the App Store and Play Store, both apps rank highly and have a similar number of reviews. Both companies have also grown at a similar pace.
So most likely this trend will continue. I.e. Lime and Bird will split this market right down the middle. If anything, Uber and Lyft have shown that the car ridesharing market can have two major players. And we think the same can play out for electric scooters and bikes. The key difference being that Lime and Bird started around the same time, so they are likely to split the market more evenly.
Of course, the major caveat here is if Uber or Lyft acquires Lime or Bird. Per above, that could leave whichever company doesn't get acquired with a lot more risk.
Based on our analysis, we believe the dockless scooter and bike industry will continue to grow with Lime and Bird growing 5x to 10x from their current valuations barring early acquisitions of either company. Both companies benefit from a business model with strong unit economics, growth prospects and competitive moats.
And beyond their existing businesses, there’s potentially significant additional upside. Consider LimePods, a car share where users can find and unlock cars via the Lime app. This competes much more directly with Uber, Lyft and the massive car ownership market in general. Moreover, because the largest current cost for car ridesharing is the driver fee, car share services such as LimePods could significantly lower prices, take share as well as grow the market. It’s just the beginning for LimePods, but services like this could represent an order of magnitude multiple for the ultimate market capitalizations of Lime and Bird.
So there you have it - these unicorns will be very exciting to follow indeed.
Thanks for reading and you can email us at team [at] futureengine [dot] org with comments and concerns.
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