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Billion Dollar Unicorns: The Ride-Sharing Industry Continues to Deliver Unjustifiable Valuations

Posted on Thursday, Jul 2nd 2015

The global ride-sharing market is seeing skyrocketing valuations. There are several pundits who question these multi-billion dollar valuations. But that hasn’t stopped VCs from continuing to drive valuations upwards – irrespective of the geography in which these companies operate. The lion’s share of the ride sharing market is held by Billion Dollar Unicorn club member Uber.

Uber’s Financials

San Francisco-based Uber was founded in 2009 by Travis Kalanick and Garrett Camp to evolve “the way the world moves”. They helped build a technology platform that uses mobile apps, text messages, or the web to help commuters connect with drivers. The software is able to locate the nearest driver, alert them to pick up riders, help the commuters identify the time needed for the ride to get to them and even enable payment through credit cards. Since being set up, Uber has expanded its presence to over 300 cities globally.

Uber earns revenues by charging a transaction fee that is already built into the price for the ride. They do not disclose their financials, but recent reports reveal that they are trending at $415 million in revenues with losses of $470 million.

They have received $5.9 billion in debt and venture funding so far with investments from Foundation Capital, Times Internet, Goldman Sachs, Baidu, SherpaCapital, New Enterprise Associates, Lone Pine Capital, Valiant Capital Partners, Qatar Investment Authority, Menlo Ventures, Google Ventures, Kleiner Perkins Caufield & Byers, Summit Partners, BlackRock, Benchmark, TPG Growth, Signatures Capital, Bobby Yazdani, Summit Action Fund, Troy Carter, Jeff Bezos, Scott Banister, Innovation Endeavors, Alfred Lin, Lowercase Capital, and First Round. Their last round of funding was held in February this year when they raised $1 billion at a lofty $40 billion valuation. Since last month, they have been looking to raise additional funds at a valuation of $50 billion.

Lyft’s Financials

Uber may be the Goliath in the ride-sharing market, but smaller rival Lyft is also seeing similar VC interest. San Francisco-based Lyft was founded in 2012 by Marcus Cohn, Logan Green, Matt Van Horn, and John Zimmer who wanted to build a peer-to-peer transportation solution that would help make cities safer, more affordable, and better connected.

Like Uber, Lyft is also secretive about their financials. But recent reports suggest that they delivered nearly 2.2 million rides for December 2014. They recorded $130 million in revenues for fiscal 2014 and are expecting to book $796 million in revenues for the current year.

Lyft has raised $1 billion in venture funding so far with investments from Fontinalis Partners, Icahn Enterprises, Kortschak Investments, L.P., Altpoint Ventures, Aslanoba Capital, Rakuten, Melo7 Tech Partners, GSV Capital, QueensBridge Venture Partners, Coatue Management, Mayfield Fund, Founders Fund, Andreessen Horowitz, Benjamin Ling, Ooga Labs, K9 Ventures, FLOODGATE, AFSquare, Keith Rabois, and fbFund. Their last round of funding was held in May 2015 when they raised $150 million from Fontinalis Partners and Icahn Enterprises at a valuation of $2.5 billion. The latest funding is expected to help them increase their market presence in the US.

Didi Dache’s Financials

The increased interest in ride-sharing companies is not only there in the US, but in Asian countries as well. Earlier this year, China saw big moves in the industry when rivals Didi Dache and Kuaidi Dache announced plans to merge. With the merger, the two entities now command 99% of the market share of rides booked through apps in China.

The new entity’s financials are not known. They have been venture funded so far with investments of $817 million in Didi Dache received from investors including DST Global, GGV Capital, Tencent, Temasek Holdings, CITIC Capital Holdings, and GSR Ventures. Kuaidi Dache had raised $725 million in funding from SoftBank, Tiger Fund, Alibaba, New Horizon Capital, Alibaba Capital Partners, and Matrix Partners. Together, the merged entity is estimated to be valued at $8.8 billion.

Ola’s Financials

Indian ride-sharing company Ola is also following a similar trend. Ola was founded in 2010 by IIT Mumbai graduates Ankit Bhati and Bhavish Aggarwal. Like the others, Ola provides riders with the ability to rent cars directly through the Internet or over the phone. Users are able to search the available inventory of cars and choose the one that meets their price and ride requirements. Their inventory not only includes cars, but also the three-wheeler auto rickshaws that are prevalent in India.

Ola does not disclose their financials either, but they have raised $676.8 million so far with investments from SoftBank, GIC, Falcon Edge Capital, Mauritius Investments, ABG Capital, Accel Partners, Tiger Global Management, Matrix Partners India, Sequoia Capital, Steadview Capital, Kunal Bahl, Anupam Mittal, and Rehan yar Khan. Their last round of funding was held in April 2015 when they raised $400 million at a $2.5 billion valuation.

Industry’s Critics

The ride-sharing companies are highly valued, and that is causing concerns. Players like Uber have been in the news frequently because of the several safety concerns such as harassment by drivers as highlighted by riders in various countries. Some go so far to believe that these companies are nothing else but a bigger taxi service, and that too one that is much too loosely regulated. The industry is already facing strong government and local push back from several countries including France, Spain, Germany, and Belgium.

The industry’s supporters however argue that these companies are not really competing with the taxi and the limousine companies, but essentially, they are competing with the need for car ownership or car rental. Their market demand and supply driven pricing has shown to be as much as 30% cheaper than local cab fares in several cities. Some believe that gradually these companies will be able to demonstrate a reduced need for ownership of private cars. Initial results from several studies conducted on this subject point to a similar result.

My personal experience with Uber is excellent. While the company and the industry is over valued, there is no question that the value proposition and the user experience are both excellent. Let us wait and see how this plays out!

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

This segment is a part in the series : Billion Dollar Unicorns


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