On October 19th, Lyft announced a new round of $1 billion in financing led by CapitalG, Alphabet’s growth-focused venture capital fund. The capital raise increases Lyft’s valuation by just under 50%, from $6.9 billion to $11 billion. The investment is accompanied by CapitalG partner David Lawee assuming a seat on the Board of Directors at the startup. Taking advantage of competitor Uber Technologies’ recent corporate troubles, Lyft’s new valuation is their most recent strategic play in steps toward expansion and increased market share.
The ride-hailing company based in San Francisco was launched in 2012 and has since raised $3.6 billion, including the most recent round. Despite the boost, the domestically-operated startup is still valued around 6x smaller than international market leader Uber, valued at $68 billion, and 5x smaller than Chinese-based Didi Chuxing, valued at $50 billion. However, Lyft is heavily exploring expansion into new markets such as Canada and London, the latter of which has claimed it is challenging Uber’s operating license renewal for irresponsible and harmful corporate practices. At the same time, Lyft continues to gain market share in new U.S. cities and has capitalized on Uber’s public scrutiny with targeted marketing and an emphasis on their public perception as the “nice” ride-hailing app.
In the first half of 2017, Uber faced internal accusations on corporate culture and ethics, legal disputes, and major C-suite restructuring culminating with the resignation of CEO Travis Kalanick. Now equipped with a new Chief Executive, Uber faces major investor issues and a fight for board seats while moving forward with a multi-billion dollar investment proposal from Japanese telecommunications company SoftBank and a plan to go public by 2019. The race to be the first ride-hailing company to enter the public markets has been a source of increasing pressure for both companies. Two anonymous individuals reported to be involved in conversations between Lyft and multiple investment banks regarding a possible initial public offering in 2018.
While both companies have been seeking capital injections ahead of issuing public equity to strengthen valuations, the financial relationships within the industry have become increasingly interwoven. SoftBank, whose significant investment proposal in Uber has been accepted, also invests in Didi, who put $100 million into Lyft back in 2015. GV, another venture capital investment arm of Alphabet alongside CapitalG, invested $258 million in Uber in 2013. Since then, Alphabet itself has filed a lawsuit against Uber for trade secret misappropriation in relation to a former head of Waymo, Alphabet’s self-driving car technology, allegedly providing proprietary data to Uber after its acquisition of his startup. The investors seem to lack allegiance, funding ride-hailing competitors and hoping that one will emerge and remain the long-term dominant player. On the other hand, the companies themselves carefully develop and maintain relationships with potential collaborators in current and future projects. Among the countless companies working toward autonomous driving, Lyft has created the Open Platform Initiative to allow collaboration of such technology. The current members include Waymo, startup NuTonomy, and General Motors, the lead investor of a previous $1 billion fundraising round in Lyft. Uber remains the exception, continuing development of their own autonomous driving solo.
It seems to me that Lyft has been taking full advantage of Uber’s tough year and has gained significant ground in acquiring both financial resources and partnerships ahead of an IPO. Given Uber’s ongoing litigation, board uncertainty, and pending investment upwards of $10 billion, I don’t foresee them joining the S&P 500 anytime in the near future. Conversely, Lyft has the positioning, and the Wall Street rumors. A successful IPO would provide abundant capital for international marketing campaigns. I hesitate to hype up the startup’s future too much, as Uber’s existing dominance and potential as a public investment seems reminiscent of Facebook with Snap Inc.’s IPO mess to learn from. The one certainty out of this announcement is a positive outlook for autonomous driving technology continuing its reign in the center of Silicon Valley’s focus.