The Uber IPO

0:00 My God, this is insane. I have literally twenty one pages of notes in the Google Docs. Mm. Welcome to season four, episode six of Acquired, the podcast about technology, acquisitions, and IPOs. I'm Ben Gilbert. I'm David Rosenball. And we are your hosts.

0:32 We sit here today on the day of Uber's long awaited IPO and David, let me tell you, I am super pumped. To be here today. Me as well, Ben. Me as well. Well here uh here was my alternate intro, and frankly I have a few here. We covered Pinterest and Lyft recently, both valued at about 15 billion dollars. Today we are covering a company who has raised over twenty billion dollars.

0:54 In Uber. Or perhaps this third, Uber just raised eight billion dollars, or approximately one half of Lyft's entire market cap. In its IPO. Or maybe this fourth one. Today we are diving into a company whose epic history is matched

1:08 Only by its epic operating losses with over three billion last year, the largest of any company to ever go public. But what you really need to know about Uber, they are a broad multi mobility transportation platform, a hyper Growth. food delivery service that leverages Uber's existing customers and driver assets and an international ride sharing holding company with enormous chunks of DD Yandex Taxi and Grab.

1:34 And a trucking shipping marketplace called Uber Freight to top it all off. So holy God, David. There is a lot to cover here. At this point, what's the difference? What is the difference? Yep. All right, well, listeners, before we dive in, I wanna say this past week's limited partner bonus show, we had an incredibly appropriate guest join us for a deep dive on Uber's history. Brian Tolkien. And Brian was one of Uber's first one hundred employees, helped start the product operations group, and eventually ran Uber Pool when it was first getting off the ground. And Brian had some really practical insights on how Uber developed their infamous playbooks and launched cities in the early years. So if you like acquired and you want to go deeper on company building topics, you should totally consider becoming an LP yourself. It's brain dead easy, it takes two taps in ten seconds, and you can listen right here in your favorite podcast player. And aside from great interviews like Brian, you can also get David and my walk through of a term sheet, how VC firms really work, and some of our personal investment theses.

2:35 You can click the link in the show notes to join or go to glow dot fm slash acquired. That's right. glow.fm slash acquired or click the link right in the show notes from this episode. And everyone gets a one week trial, so feel free to check it out. Man, so professional. We've come so far. It's great.

2:52 It's funny, we're finding fit in how to actually describe that thing. I think when we first uh first got started we we we were a little all over the place in describing the uh the L P show. It's all about the ride. It is. Oh, David. There we go. All right. All right listeners. Now is a great time to talk about a new partner of ours here on Acquired, Lagora. The agentic operating system that is redefining how the world's best legal teams work.

3:20 Yep. It's sort of obvious that AI is gonna completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chat bot out there. Ligora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do. operate with obsessive customer focus. They embedded inside a massive law firm. For months.

3:47 They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review where you Drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legor's bet here is interesting, since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time. And they recently launched Lagora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And Lagora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Ligora numbers essentially

4:43 speak for themselves. When they have a head to head pilot with their top competitor, they win seventy percent of the time. Lagora now has over a hundred thousand lawyers on the platform from twelve hundred legal teams in fifty countries. And crazily, they went from one million In about

5:03 Eighteen months. truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at Lagora.com/slash acquired.

5:26 And just tell'em that Ben and David sent you. Oof. Okay, David, that is All that I have, I promise. before you take us back to like sometime in the fourteen hundreds when we were like just discovering transportation or something. Oh man. I wish I were. I wish I were.

5:43 Uh you've overshot, but I'm trying to I don't remember I'm trying to think if this is the farthest back we've ever gone. I don't know. Listeners uh if you remember going back further. Let us know. Hit us up on the slides. As if there's not enough to talk about an Uber. Let's let's extend the history of the U.S. All right, here we go. We're starting. Appropriately enough.

6:01 In San Francisco. Downtown San Francisco. Uh in the year eighteen eighty nine. Ben's reaction on video is great there. Okay, so a businessman named F S Chadbourne gets off of a ferry at the newly constructed ferry building terminal at the end of Market Street in downtown San Francisco. An amazing place. I love going to the ferry building. It is a

6:28 beautiful treasure of downtown San Francisco. It was built the year prior in eighteen eighty eight. And he Chadbourne gets off of his ferry And he hails. Uh what is very common back in the day, a horse drawn carriage that is driven by what is known as a hack to take him where he is going on his business. And this horse drawn carriage is driven by a man named James Nosey Brown.

6:50 Why is he called Nosy? We're about to find out. Nosey drives Chadborn not to where he is supposed to be going, but takes him to an out of the way location, probably in what was then very sketchy Soma. Uh un un unconfirmed, now also sketchy, home to startups. And um He holds him up. He says hey For me to take you where you're going. I'm going to unclear if he actually threatened his physical safety, but

7:14 You're gonna have to give me more money to take you where you want to go. Chadmore, he jumps out of the cab, he runs away. But he's really pissed. And he's not just anybody, he is a wealthy muckety muck and he has contacts in the city government. He lobbies them. to enact this is this has been a totally unregulated industry. It was just happening people uh who had these hacks, who had I now know where this is going. Yeah. Uh horse drawing carriages that they would just line up, do whatever they pleased. And he lobbies his friends the government to enact very strict regulations

7:45 And henceforth, in what would come to be known as the Chadbourne uh I don't know if it was act or Uh w whatever, uh regulations. All drivers in San Francisco. had to be licensed with a badge, and that badge number had to match the vehicle's number. And uh I think it was in a city ordinance. We jump a couple short years later to New York City, where most people in America think of the center of the cab industry and indeed would become

8:11 fully fifty percent of the entire taxi industry in the US. In nineteen oh seven were the first cars, the first motorized cabs, uh arrive in New York City and a businessman named Henry Allen imports them from France and he starts the first cab company, the first network of drivers, a transportation network company, if you will. And uh he he um he hires a bunch of drivers He has huge success. There's tons of demand. This is so much better, so much faster than horse drawn carriages. It's cheaper. Everybody loves it. This might sound familiar of something that would happen a little over a century later. Um But one year in

8:48 Uh It becomes clear that not all is utopian in this this new transportation model in cities. the drivers are unhappy and they go on strike. And they argue in their strike that Alan had kind of promised them that they were gonna be employees, they were gonna get a pension plan, these were gonna be great jobs, uh he was gonna give all sorts of benefits. It is crazy how what a mirror this is.

9:12 repeats itself over and over again. But the reality is they were not employees. They were essentially independent contractors. And they got charged by the day they got charged twenty five cents a day for a uniform rental fee. They got charged ten cents a day for a quote unquote brass polishing fee. And then they also had to buy their own Gasoline. I think I've seen that that brass polishing fee on my Uber receipts from time to time. Totally. It's amazing. This is nineteen oh seven. And so they strike. And this is the beginning of the

9:43 illustrious history of labor issues in the taxi industry. We fast forward a couple decades, uh moving quickly here. Something else that is gonna get mirrored again later on in the episode. Nineteen twenty nine, the stock market crash happens and the Great Depression begins. Now what happens when this happened? in in the Great Depression, people all over the country lose their jobs. They're looking for work, part time work, anything to make some money to get by. And what is a relatively flexible, easy to start, low amount of training?

10:13 job that you can do, especially in New York City, you can become a cab driver. So this becomes the backup job for a lot of these people who lost their jobs on Wall Street or you know in other industries in the in the stock market crash and the depression. So much so that car dealers, you know, they can't sell cars to people who are buy them for their personal luxury transportation vehicles, they start marketing cars to these newly unemployed as job creators. Buy a car. Get a job. You can start driving your own Taxi cab. Wow, there's like a reminiscent thing of Airbnb here too, where it's totally Yeah, the same the very same issue that cities are having with, you know, people taking houses out of the supply market to be rented. Um

10:54 It's happening with cars at this point in the city. And so what does this result in? This results in a huge oversupply of taxi cabs on the streets in New York because a demand for taxi rides is down because everybody's losing their jobs. Supply is through the roof because our everybody who just lost their jobs is now trying to become a taxi cab driver. And it becomes a total race to the bottom. Fairs plummet through the through the floor, nobody can make any money and it becomes a huge problem. The cav the streets are congested with Cabs. Mm-hmm What does New York City respond with? Uh and other cities around the country. They respond with basically creating

11:29 the medallion system and a bunch of other regulations around it, which limits the number of Licensed. Taxis that can operate. in cities, especially New York City, but also San Francisco and other big cities at any given point in time. And that continues to this day. That is the taxi industry. But what happened to all of these other people who had gone out and bought cars and now they were no longer able to operate.

11:53 They don't just go away. This Weird, interesting sort of shadow market develops in cities where These people are no longer regulated taxi cab drivers approved by the city. And but the regulations for for taxis centered around meters. So you would hail the taxi and then you would pay a time and mileage fare that was measured and regulated by the city as you would go. But there was nothing that stopped people on their own from offering flat rate services. So if you pre negotiate a rate of where

12:26 the ride is going and paid up front, then you can do that outside of the existing system. And this is the beginning of What was first called sedan service. Then becomes the higher. industry. This is the four hire industry as you know, sedan, limo, black car is eventually what it mostly becomes known as. And and then as we'll see, there's kind of some sketchiness that develops in this industry and it it becomes a an uh derogatory term sort of known as the gypsy cab industry. And so this becomes like these two markets, the official regulated taxi market in cities in the US, and then the black car market, the four higher market, kind of develop in tandem over the next

13:03 hundred years and the taxicab industry is highly regulated and the four hire market is relatively less. Regulated. There are some kind of sustaining innovations in Clay Christians terms, but Nothing disruptive. The sustaining innovations. Uh in the forties, nineteen forties, radio dispatch is introduced. So there's no there's no coordination uh system in the early days you just hail a cab on the street. Finally radio dispatch is invented in the forties. Which for anybody who's ever tried to hail a cab through the radio dispatch system, you know exactly how well that works.

13:35 Exactly. And then computerized dispatch in the eighties. But the problem is the taxi drivers are still independent contractors. So it's kinda like a suggestion. You know, if the a dispatch goes out on the radio or on the computer system to somebody who needs a ride from a given location to a given destination, it's optional whether you go get them. If you see a fair on the street along the way, you can just pull over and Pick them up instead. Mm-hmm. So this kind of uh a San Francisco taxi driver named John Han wrote a blog post in twenty eleven.

14:06 Right after Uber and Taxi Magic and Cabulus and all the other companies we'll get into as launched and he kinda describes the current situation. He says, You don't have to respond to a radio call if you don't want to. Remember, dispatch service, we are told, is just a quote unquote information referral r service. This is due to complications that have arisen from independent contractor status. I guess what that means is that dispatch service doesn't legally entitle any public passenger in any way to a taxicab that they've just ordered by phone. They can call, but they're not guaranteed to get one. It only guarantees that their information will be dispatched to us drivers, so that their request will be made known to us. I do, I like them, but I guess you could just as well Take one and leave the passenger hanging on the phone for fun as a prank, so long as you see another fair on the street that could be better. Anyway.

14:55 And he's like, I don't actually do this, but in theory I could. I'm just making a point. And anybody who is old enough to remember The world before. Uber and lift and Sidecar and Didi and everybody else. That really was how it worked, and it was awful.

15:12 New York was probably the best American city, uh the most efficient cab market, but Any other city in particular San Francisco. It was impossible to get a ride as a passenger. And drivers. They kinda do okay here. I mean they're the ones

15:27 The the cab companies and the drivers are the ones who are always lobbying to sustain the regulation that uh keeps the industry dynamics like this, but it's not like the drivers are doing great either. There's strikes all the time. There's tons of labor unrest and the industry kinda tick tocks between drivers doing sort of okay to drivers doing really poorly. The the industry is completely Broken. That goes on for a century. And then we fast forward to two thousand eight.

15:57 And two super critical things happen in two thousand eight that completely change the course of this market. One As we have talked about. many times in the last couple of months here on the show, Lehman Brothers goes bankrupt and the great recession begins.

16:12 We're gonna come back to that, but this the dynamics of what happened here totally mirror what happened seventy years prior in the stock market crash and the great recession. But unlike then there is another thing that happens, and that is in that in two thousand eight. Apple introduces third party apps for the iPhone. with iPhone OS.

16:34 two point oh. That definitely did not exist in nineteen twenty nine. I iPhone OS. It was not iOS yet. There's no iPad. Iphone OS two point oh. So right around this time. Mm. Virginia based

16:49 Entrepreneur. named Tom Di Pescale, decides that These I don't think he was necessarily thinking about The effects of the great recession and the Lehman Brothers collapse. But he definitely was thinking about

17:02 iPhone OS two point oh. And says this is The wedge to finally bring some modern customer centric innovation to the city transportation and and taxi industry. And Tom Uh had previously started a

17:18 software company that was a travel booking tool and it was acquired by Concur. Uh. Seattle company and uh great uh technology company. So he had left Canker and he starts This new company, he calls it Taxi Magic. And his co founder, it just to glue up, is a guy named George Harrison. Uh I know George George is um many years later, has become the CEO of Shift, the used car marketplace, uh here in San Francisco. Uh it's amazing. Yeah, can't you it's amazing how much We talk about so much on this show how small all of these little subworlds in technology are. And in in Taxi Magic, they're they're doing a logical thing of saying, Gosh, there's all these taxis, like there should be a better interface to hail them.

17:57 There should be a better interface to hail them. Yep. And the other thing that consumers hated, and I remember this, you could do it in New York, but not anywhere else. Yeah. Pay for the Rides with credit cards. Uh you needed to have cash to pay for

18:14 all every city and in plenty of cabs in New York too. So Tom and Taxi Magic, they're like, Okay. With this computer in your pocket, you can have a better interface for ordering and dispatch the cabs and you can also take payment via credit cards. uh that are built in to this, you know, computer in your pocket and and pay for them. And

18:33 It worked great. People loved it. It was I mean, I remember using Taxi Magic around this time. It was fantastic. In in every city except New York in America, it was a like huge revolution, especially in LA. Um where uh Jenny was doing her PhD at UCLA in the time. We used it all the time there. But there was Just like So many companies that start at the very beginning of a wave. They got one

18:56 And that was that they worked within the existing system. So Taxi Magic, of course, worked with Taxi worked with w taxis worked with the cab companies. And so that meant a couple of things that were just sort of big problems. So one What the blog post described about how Dispatching worked.

19:17 still applied to taxi magic. even though it was now done via in a more friendly consumer facing way, when a consumer would make a request, it was just a suggestion that went out to all the drivers in that taxi company's network. And the ride wouldn't get assigned to whoever had first dibs on it was not who was closest to the customer. It was the driver that had been waiting the longest in the queue. So if you think about like any city, but even Los Angeles, where Taxi Magic was most popular, LA is a huge city. It can take two hours to get across the city with traffic. And you're getting rides assigned based on where you are in the queue. This is how bad the world was before all of these transportation network companies that like that was progress, you know? Um

20:04 And of course the problem still existed that uh if a taxi magic cab was on the way to pick up a customer and they saw somebody else on the street, they could still just pick up the person on the street and cancel the ride. Point it really shows how much power is on the supply side and how little power is on the demand side, where even with a uh user interface innovation like that, they're still meeting the needs of the supply side, which is you've been waiting a long time, you deserve a fare. You deserve fair. Yep. Absolutely. So nonetheless, like I said though, this was like a drop of water in the desert. Consumers loved it.

20:36 Concurrency. ended up investing in the company. It's still based in Virginia. It quickly expands to twenty five cities around the country. And the next year, in two thousand nine, a certain Venture capitalist who is going to come to play

20:53 For the taxi and the transportation space and he had invested in some other companies that had taken a marketplace approach to disrupting things like restaurant reservations and reviews online and he'd been thinking about there's time might be right for an online marketplace for taxis It was of course. Bill Gurley at Pennsmart.

21:16 And Bill. Heard about Taxi Magic and Tom, and Tom, of course, was a knopreneur. Bill flies out to Virginia from Silicon Valley and he says, This is what I'm looking for. I want to invest in your company.

21:29 I want Benchmark to lead your series. A concurr had had invested a little bit of money before. I'm offering I'm gonna invest eight million dollars at a thirty two million dollar valuation for the company. He says but I think we need to think about expanding out of the tax.

21:45 And into the black car market, bring them on as well because all of the things I was just describing about the taxi market are kind of limiting and you might be able to solve that. In the black car market and we could just have a new version of the product. We can keep taxi magic. Let's create a new version of the product, also called

22:01 Limo magic. You could see how if you're if you're the founder of a company and you have a pretty dead set vision of exactly how you think you're gonna run your playbook, how this could be a little jarring. A little dry and we have to say huge thank you to friend of the show, Brad Stone, uh, and his book The Upstarts, where he chronicles all of this. Uh we're gonna refer to Brad Many times on this episode. Tom, exactly, Ben. As you say, he says Okay, you know, I appreciate the offer, but like this is my company. I'm a second time entrepreneur, I know what I'm doing here.

22:30 Uh Thank you, Bill. You're great. Benchmark is great. I'm not gonna take your money. He declines The investment. And that

22:39 Obviously turns out to be the wrong decision on on both declining the investment and not doing limo magic. Taxi Magic ultimately would go on to change its name to Curb if you came across Curb in the last few years. Uh and it would get sold to Veriphone. Which is the company that provides the credit card payment terminals to the back of cabs in a in a fire sale. So not the trajectory of what would become Uber. There's another company though.

23:04 That gets started right around this time, sees the same vision. This one isn't even Better story. So back in two thousand eight. Well I'll uh I'll I'll start telling the story and I'll let I'll let you and listeners judge whether it is or isn't it. Back in two thousand eight. In Los Angeles.

23:21 Mm, if you know the history of Reber, you might know a little bit about Los Angeles. One of the great American corporations. the Best Buy company, Best Buy Corporation, had set up an in house incubator in LA. I think Best Buy is based in Utah, right? Um I don't know. I believe that's where their headquarters is. But they'd set up an innovation incubator in Los Angeles.

23:41 And The idea was that retail employees this was like This was pre recession when they set it up. This was a marketing thing. retail employees at Best Buy stores could apply to the incubator with their startup ideas. And if they got selected To join the incubator, Best Buy would pay for them to move to LA for two months.

23:59 And work on it. Uh work on their idea. Uh in LA for two months and then they'd go back to working on the retail for it. I know it's completely nutty. This is completely nutty. So A Geek Squad technician. Named Daniel Garcia.

24:13 had the idea that consumers should be able to see their Geek Squad cars on a map as it was coming to their house. And that this new ability to build applications for iPhone, third party applications for iPhone, they could build a Geek Squad app that would Oh wow. consumers to know, you know, see and track when their Geek Squad uh service was arriving. So he goes, he applies the incubator, he gets in.

24:36 Uh And um the head of the incubator was a guy named John Wolpert. And John and Daniel kinda realize Um

24:48 doesn't move the needle on Geek Squad or for Best Buy. But If they applied this to the taxi industry more broadly, There might be something interesting here. And um so they're riffing on on what they could call it, and it's super fabulous. Uh, this idea. They decided, great, we're gonna call. Cabulous. Uh fabulous, cabulous. And Wolpert, the head of the incubator, uh, he was a former IBM guy. And He starts to realize as they're digging into this, like, Oh wow, this is

25:16 This is big, and the time is now. And of course it's two thousand eight things are starting to go south in the economy and Best Buy. Is hurt. more than anybody. Uh not more than the banks, but second to the banks are like the car companies and the you know retailers. Particularly large consumer electronics retailers, exactly. And so Best Buy Wilbrid goes to the corporate execs at Best Buy and he says Hey.

25:42 You don't wanna be supporting this incubator anymore. You need to cut costs. I wanna work on this. Can I just take this idea cavalous out of the incubator, move to San Francisco and start building it and working on it. And they're like, Yeah, sure. Take it, spin it out. They don't even take any equity. Yeah, exactly. Like my hair is on fire. So they uh They let it go. And uh well, Britt and I b I believe Daniel too, Garcia, move to San Francisco and they start they build the company. They start working on Cabulus. They raise a small angel round. And they get a call uh Wilbrid gets a call one day. I've n knowing Bill, I know this is exactly how he operates. He just gets a call. Wilbrid's never talked to Bill Gurley before. He picks up the phone and it's Bill Gurley. And um Wilbrid's and Gurley says, Hey, I hear your uh I heard about what you're doing. I'm very interested.

26:31 Uh I hear you are fundraising right now. I would like to talk to you about it. And Wilbert says, You know, we're only raising A very small angel amount. Any of you know.

26:41 But I don't know if Gurley or or Wolpert says this, you know, Benchmark doesn't do see the uh series of investment. Yeah, series A firm, they invest larger checks. Uh and unlike most other series A firms, they basically really mean it when they don't do seed investing. Um and so Walpert says, Yeah, yeah, we'll talk later. I really think I just want to raise a small amount. And Girly says. Okay. What is with these people turning down Bill Gurley? Like what are you doing?

27:07 Well, it was probab well debatable as we go on through the story, but uh for several years it was probably the best thing and and and and still to this day the best thing for Bill and Benchmark that all these people did turn them down. Um So they raise a small angel round we'll come back to all the history behind this meeting, but um Eventually, while they're up in San Francisco. They get a they get a call, another call from um Uh two guys that want to meet that are also working in the transportation industry.

27:36 Two guys named Ryan Graves and Travis Kalanick that uh Wanna go take them out to lunch and meet with them and understand what their roadmap is and um where they're planning to go with this Cabulous thing. And so the three Of those guys, three those three men sit down to lunch and and Ryan kinda says, um

27:53 Hey, so are you gonna stay in the taxi industry or are you thinking about the black car industry? And Walpert says, Oh no, no, no, no. We're gonna stay in the taxi industry. We're gonna do this with the existing system. We're gonna work with the taxi companies. This is a highly regulated industry. This is the only way to go. And Ryan and Travis say thank you very much. They pay for lunch and they walk out. We'll we'll put a pin in that and come back to it later, but that is the Cabulus would eventually be c rebrand as Flywheel. Uh so if you see many of the taxis in San Francisco owned by the DeSoto Cab Company, they did a partnership with Flywheel and they still exist and it is a Ordering a dispatch system for Taxis one of the best ways to order in an actual taxi.

28:33 It is. It is. Unfortunately for them, that is not the big market anymore. Okay, so who are Ryan and Travis. People probably know who Travis is, but what is going on here?

28:46 Let's come back to the black car industry. Okay, so it seems obvious. We've just told you this whole history. And so many people, so many entrepreneurs, so many venture capitalists to disrupt and innovate in Transportation. Everybody knew this was broken. This was obvious. Why hadn't

29:03 people looked at the black car industry before. Way less regulation in In many states, including California, it was regulated at the state level, not at the city level. So if you to the extent you did have to deal with regulation, it was a far easier path. What were the barriers? Seems like way lower barriers to actually. Well. Here's why. Because every time somebody did try to go innovate in the black car industry, this is what would happen. So people might know about a company named Seamless Web.

29:32 Uh so there was a young corporate lawyer in New York in the late nineties named Jason Finger. And he was eating uh this will also come back. He was uh a a uh like many people in banks and law firms in New York in those days would eat dinner every night in the office while he was working, and the ordering system for ordering food and having food delivery would delivered was nuts. And so he came up with this idea of how to organize and deliver food in cities, started Seamless Web. It became huge. I used it every night when I was in banking in New York.

30:03 it eventually merged with Grub Hub, uh is now part of Grub Hub, one of the one of the largest food delivery services in the US. But Jason thought like while he was a couple years into working on Seamless. He thought. Well, the other thing that lawyers and bankers do in New York is they order black cars. And Where there was this opportunity to use the internet to make meal delivery much better. I could do the same thing with all the black cards that people use. And so he actually started working on it. And his idea was that there was gonna be

30:31 Seamless the core product, the meal delivery product was going to become seamless meals. And then he was also gonna build seamless Wheels. And so we talked to a couple. Black heart companies, he got some supply on board, he is talking to banks and law firms about using it, and then one day he comes into work And there's a voicemail on his phone in the morning and he uh and David I'll I'll stop you here for a moment and say

30:50 Gosh, you know, food delivery and ride coordinating on a platform, that sounds like a really good idea to combine those two. Yeah, man, I mean why wouldn't you do both of those on the same platform? Um So he he gets into the office and he he's got the flashing light on his phone. This is like the early two thousands. Oh yeah. And uh he plays the voicemail. And it's from uh it's from a a blocked number, so we can't tell what the number's from. And the voicemail says uh he tells us to Bradstone in the upstart. Jason.

31:20 We understand you've been pitching a car service to large enterprises in the New York City area. We don't think that would be a good idea. You've got such A beautiful family. Why don't you spend more time with your beautiful baby daughter?

31:34 You've got such a good thing going with your food business. Why would you want to broaden into other areas? Click and um Wow. As you can imagine, and uh if you hadn't put two and two together. Uh lightly regulated industry.

31:48 Growing up in New York City over the past century companies, a fragmented and uh not super visible array of companies that operate in them. It's run by the mafia. So every time somebody would try and encroach on their turf. And I think this is probably mostly in New York City, but I bet in lots of other cities around the country some version of this would play out. And uh did seamless bail on the idea after that? They bailed em yeah, immediately bailed on the idea. The meal delivery was working great and

32:18 Um, as the voicemail said, you know, Jason had a young family, like I I would do the exact same thing if I were in his position. And uh so that was the end of seamless wheels. And and of course everything ended up Great. Seamless. meals, you know, and like we said, ended up merging with Grab Hub is doing great today. But so sometimes when you have a situation like that, the only way to break the log jam is just kinda with somebody who doesn't know any better. So we come back any better. We come doesn't know or doesn't care. And we've got

32:48 Two people, one who doesn't know and one who doesn't care. So in The middle of two thousand eight. Eh Canadian entrepreneur who was in Silicon Valley by this point had started a company back in Canada called Stumble Upon. And this is of course

33:04 Garrett Camp. And of course Mark Time, we are what, like twenty two minutes into this episode and now discussing somebody involved in the fountain chamber. Oh man. This is uh uh apologies for all this backstory, but I think it's super important and like as we've seen this All of this history that's played out over a hundred years and then over ten years is gonna play out again. So Garrett had still sold Stumble Upon. Uh he had started some stumble upon back in Canada. He had sold it to eBay, and Stumble Upon was um Stumble Upon was content discovery on the internet. And he had sold it to eBay the past summer in two thousand seven for seventy five million dollars. By the way, we covered this in our Skype episode, but like eBay went through like This yeah drunken binge of buying all of these companies that did not make sense. And of course, who was the largest venture capital backer of eBay.

33:59 It was Benchmark. Benchmark. And uh as chronicled in uh the great book E Boys, which I think we've recommended many times on this show. Uh So eBay drunk on um on their market cap. Acquire Skype. Insane business model of never holding any inventory on anything and you can buy, you know, it's cra it's it's Um Still, I'm not going to be able to do marketplace business models are a good idea, Ben.

34:27 Well I would I mean. But yes, yes, different. Um the power of marketplace business models. Ebay acquires Stumble Upon for seventy five million dollars. Garrett is like nominally working at eBay sort of. He ends up just leaving eBay. He's moved to San Francisco. He's still he's young. He's single. He's doing what Any maybe not any, but

34:48 Uh you could imagine somebody, a young single man who's just come to a big city like San Francisco and has millions and millions of dollars would do He hangs out all day watching James Bond movies during the day and going out in. Why not? Why not? He's like twenty six, twenty seven, something like that. Yeah. Mid twenties and he'd you know, he'd been working really hard on Stumble Upon for for a little while and come into this money and he wanted to You know? Enjoy the fruits of of his labor.

35:16 wouldn't blame I probably wouldn't make the same decision myself, but that's what he did. Uh I don't know. Maybe when I was that age. Well no, Jenny and I've been together since I was like twenty. So no. Definitely would not have happened. Anyway, I don't blame him for doing it. But Both of those things were really important. He was going out at night, going to nightclubs in San Francisco, having a terrible time getting there and coming back because there were fifteen hundred taxi medallions for all of San Francisco, which is, you know a major city. And so he couldn't get around. And during the day he talks about this. He was watching James Bond movies and he was watching Casino Royale. And uh there's this scene in Casino Royale where Bond summons his car with his phone. And this has happened in a bunch of Bond movies, but in the Casino Royale version of this, on his phone he's watching on the screen on a map as the car is coming to him. Yeah, and uh

36:04 And Garrett's like Wow. That's Super cool. At at this point he had already flip the switch in his head to screw this taxi thing, I have a good amount of money. I'm just gonna hire a black car whenever I wanna go anywhere. Like I'm I'm done with this taxi crap.

36:24 Yes, he was done with the taxi crap. And so what he what he started to do, you know, and remember, but i it is hard to remember now, but I uh if you were in if you were living in cities, the the stigma of the black car industry, the quote unquote gypsy cab industry, was super strong. Everybody knew, don't talk to them. These were p guys who would be driving cars, they'd roll down their windows as you're on the street if you're trying to kill a cab they'd be like, You need a ride where you're trying to go? And everybody's like, Don't do that, don't do that. And uh so K Garrett was like You know what, how bad can these guys be? So he starts. using it a little bit and he finds they're actually not that bad. Like these these black car drivers, what they're trying to do, they have their scheduled rides that they're doing for the banks and the law firms and um that they're getting through limo companies or, you know

37:08 prom nights for high schoolers or whatnot. But in between those scheduled rides, they're just trying to make some extra money. And by and large, they're pretty you know, good people. They're they're entrepreneurs. And so he gets like fifteen of these guys' numbers on his phone and he stops using the taxi industry. He's just call goes through the list when he's when he's out at night, calls one, then the next says, Hey you free, can you come get me? Uh and he starts building relationships with them. And uh so he's like this is all going through his head. He has the black cars. He sees the James he sees Casino Royale. He says. Why don't I just put two and two together and

37:42 And build what I saw in the James Bond movie. Marry it up with my friends who are the black car drivers. And have a private It is amazing that It was that both pieces of that puzzle, both going to nightclubs

37:57 And watching James Bond movies all day were both requirements in in discovering the idea and being able to implement it. I know, I know. And um so he's like uh this is he's he's very excited, very, very excited about this. And at the time he's dating a woman named Melody McCloskey, who would go on to become the founder and CO of Style Seat. And he Tells he's talking to Melody, he's trying to figure out what to call it. And Garrett would had this uh this turn of phrase. I don't know if this is from being Canadian or just what, but when things were like really great and he really thought it was awesome, he would call it Uber. So he would say like, you know, if uh if he had like a really great coffee at you know Sight Glass or whatever, said Man, that was an Uber coffee. And um and so he and Melody were were talking and he said, you know, and uh this is a quote in in the upstarts in in Brad's book, he says Uber, it means great things. It means greatness.

38:48 And that's what he decides to call this service. Uber. He calls it Uber Cab. And he registers the domain name in August of two thousand eight. So funny that in this A plus era that we're in and Yeah, all these big IPOs that um Uber or the most or the greatest or the top or the biggest, you know.

39:07 Is is exactly that. Like it's an a very aptly named company. Very, very aptly named. So his initial idea though, he's got this network of drivers and he uses this. He has lots of other friends who are, you know, part of the the kind of new web two point oh era entrepreneurs in San Francisco. He thinks they would like to use this too, this private driver network. And his idea is he's gonna go to sign up these um sedan drivers that he knows, and then he's gonna buy a fleet of cars. He's gonna have his own basically his own black car company. He wants to buy a fleet of Mercedes S class uh cars and then lease a garage in San Francisco and kind of keep them as his private network that he and his friends would use.

39:49 And so he asks this is great. He asks he's friends with Tim Ferris, the uh angel investor and now uh big podcaster, and he asks Tim Ferris' assistant to help him research the industry and figure out, you know, can he do this? And um Turns out. He can. So this is now at the end of two thousand eight.

40:10 And All of these ideas are spinning in his head. And Garrett. goes off with a bunch of his friends. To Paris.

40:18 At the end of two thousand eight. Yeah. And he's um He's he's going there'cause he wants to go to the conference, but also his good buddy fellow entrepreneur who has recently sold his company.

40:30 Travis Kalanick is hosting a bunch of San Francisco entrepreneurs in a really, really cool Uber, one might say. Apartment that he has rented out. in Paris on the VRBO website.

40:43 Which should surprise no one. Like this is it's like the the very first thing we learn about Travis in this story. is that he has like a swank apartment for a bunch of his like wealthy friends coming in from another city to like have this unique experience. Like You can already get a picture. And The super amazing thing about this

41:03 is why w he was doing this because A, that fits with his personality, but B, he was thinking about his next startup idea. And unclear if he had heard about Airbnb, but he thought That A network. of luxury residences around the world

41:21 that people might have access to, kinda like, you know, the private homes versus the private driver, might be a pretty good idea. And so he was traveling around the world and looking for any excuse to go to conferences, tech conferences around the world and rent out the fanciest places he could find on V R BO because he was trying to figure out if he wanted to start a company and Very unlikely he had heard of Airbnb because these companies were started within three months of each other. And of course Airbnb at this time, you know, was w very far from anything luxury. Brian Nat and Joe were not hanging out with the crowd that uh Garrett and Travis were running in. That is for sure. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done.

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43:41 That Ben and David sent you. Okay. So let's say a little bit more about Travis. Travis is a guy who Right before he officially became the CEO of Uber. He gave a a talk on YouTube that we'll we'll link to and actually a couple of listeners sent to us, which is really great. Yeah. And he introduced himself in the talk as he says, I like to think of myself as the wolf in pulp fiction. Uh he is an interesting

44:06 Interesting character. And I would say After having now done many, many hours of research on Travis. I think that is a very accurate characterization. He has incredibly All of the Good and bad qualities of the wolf in Pulp Fiction. And if you haven't seen Pulp Fiction, it's an amazing movie. I I would assume most listeners have. But go see it and you'll know what we're talking about. So Travis, he grew up in LA, hence the LA connections for Uber.

44:33 He was born in nineteen seventy six in a suburb in the San Fernando Valley outside of LA. His father Don had served in the army and was a civil engineer for the city of Los Angeles. So some like maybe DNA in the family of thinking about city infrastructure. His mother, Bonnie, sold ads for the newspaper, the Los Angeles Daily News. And Travis was

44:53 Super smart. And and this is something that comes through that I think has gotten lost in the story of Uber and and Travis over the last two years. He is Incredibly smart and uh very much a human, as we will see, and very fallible, but very smart. And so The lore is when he was growing up In middle school he got

45:14 Extremely good grades. He was top of his class and everything. And in middle school he was bullied because of that. And apparently he made a decision one day in middle school to stand up to the bullies that he wasn't gonna take it anymore, and the way he was going to deal with the bullies is he was gonna become hyper aggressive and give it right back to them. And You know, that is kinda how things go. He he also was naturally quite athletic. He played uh football in high school. He ended up running track. He was an excellent track runner. In high school he essentially turned himself into a jock. But he didn't stop studying either, uh and uh and turn off his brain.

45:48 And so while he was still in high school, when he took the SATs, he got a fifteen eighty on the SATs. He aced the math section, uh, got an eight hundred on math. And a seven eighty on verbal. This is really telling me. Like it's just it's uh this this also says something about the guy that we know these numbers. Like Uh

46:06 Oh he's he's very he's very vocal about the numbers. Because he started uh on the back of this, he started an SAT prep company to help other kids in the area make some and profit off of this. And I I believe the not the name of the company, but the class he taught was something like above fifteen hundred or something like that. Um and uh this is great. When he was giving in in an interview later, he would talk about he talked about this and he said, you know, the math like it would be a thirty minute math section, I would be done in eight minutes. Uh the fact that he timed himself to eight minutes too is incredible. But then the verbal was super hard for him and he had to like He had to develop systems to make it work. And he and he said, When I would do the verbal, my shoulders would hurt and my neck would hurt. It would be so Hard on himself. But uh

46:52 But he persevered and he managed to do it and he taught systems to his his students to do The same. So on the back of that score, he goes to E CLA. Incredible school. He becomes a C S major. And this is in the late nineties.

47:07 And he drops out in nineteen ninety eight to start a startup, because this is the dot com go go go days. He and a bunch of classmates start a startup called Scour. Now this is super important. This is like the in the Tesla episode, the equivalent of where you start learning about what it is that made Elon Elon. Yeah this is what makes Travis. Travis. He uh much like Elon's first company. So What was this company started? It was called Scour.

47:32 It was a rip off of a rip off of Napster. But there were a couple Also can we talk about how the roots of Facebook and Uber. Both have a P to P file music sharing thing with Wirehog and Scour at their uh at their earliest days. Absolutely. It's uh uh

47:55 I I think it says a lot about entrepreneur uh when you see a problem that is possible to exploit even in a gray, if not very much crossing the line area, like the most aggressive just can't help but go and exploit that thing. And this was the era where you absolutely could exploit with peer to peer file transfer. Absolutely. And and you know

48:17 I think probably much like Uber and Well Not Uber specifically in the early days, but then the peer to peer true ride sharing uh industry that

48:27 becomes the big industry that we talked about on the lift IPO episode, it's not entirely clear that it's like wrong to do this. Right. Ultimately probably better for the there would be no Spotify if there were no Napster. Hundred percent. And you know, could be sharing anything on there too. It's not necessarily like explicitly designed to rip off music. Yeah. Okay. So you nailed One of the key things that is different about Scour versus Snapster.

48:50 There are two. One is that. Scourge. Whereas Napster was architected Peer to peer file sharing architected specifically for music. Scour was meant to scour your hard drive.

49:02 And B For anything. Any file. And what would people want to share besides music? Well, they might want to share videos and movies. And so

49:11 The other thing that was very different about Scour was it was based in Los Angeles, and And what is the big industry in Los Angeles? It's The movie industry. So this is Mm-hmm. You know, like I said, the dot com days, the go, go, go.

49:25 Who hears about Scour? Michael Ovitz. Now this might ring some bells for for listeners. I don't think we've talked about this too much on the show before, but Michael Ovitz was the famed superagent who started Creative Artist Agency, CAA. He then went on and became the president of Disney for two years. Well the kind of the co running Disney with Michael Eisner, who was CEO. They fought in Michael Eisner ended up ousting him after two years. But Ovit and CAA

49:53 became the inspiration for Andreessen Horowitz and how how Ovitz architected CAA to have the artist at the center and then all of the suite of services that a talent agency could surround the artist, that was the blue print for how Mark and Ben envisioned And Drees and Horowitz when they started and really what that's Mm. So Ovitz has just been ousted from Disney by Eisner and he's looking for you know, looking around, making some investments, trying to decide what he's gonna do next. He hears about Scour.

50:24 Boy, these hyper successful people looking around for their next thing sure are dangerous for these stories. Sure are dangerous. So he hears about Scour and he Along with his buddy fellow LA billionaire Ron Burkel, they Meet with the scour team of these dropouts from UCLA. computer science department who fit, you know, the mold to a T and they say, All right, guys We want to invest in your company.

50:48 And uh we're gonna give you four million dollars. Which was A lot. back then, even in the go go days. And we're gonna give you four million dollars, but we're gonna do it. We're gonna By fifty one percent of the company for four million dollars. This is like an ESPN style first investment. Totally. Totally. And and

51:07 Travis and and his co founders, they're Pretty naive and they're like, Well, this is cool. Michael Ovitz and Ron Burkle want to invest in our company like yeah, let's do this. So they sign a term sheet But Ovitz was also known for playing hard barrel. So what happens next? This is like It is amazing. How much this

51:24 This foreshadows what is gonna come with Uber. They sign the term sheet, and After they sign the term sheet, Ovitz delays funding the company and And Travis and his co founders are like Oh What's up? Like like we signed the term sheet, we're ready to go.

51:39 wire the money, we'll give you fifty one percent of the company. Ovit starts trying to retrade on the deal. And he was, you know, famous for being a tough negotiator. And so he locked up Scour. uh with the terms he signed and he wanted to get even more of the company. So months go by. They're deadlocked in negotiations. Travis in

51:58 You know, what will become a a Travis signature here. He's not gonna budge. Ultimately, after a bunch of months go by and the exclusivity period on the term sheet had expired. uh Travis and his co founders go out and they start talking to other people about investing in the company. Also that the I just want to pause and say what that is exactly the wrong mindset for for early stage. Companies are so fragile at that point that like Th zero people should be in value capture mode'cause there's nothing to capture. Like you have to be in value creation mode. A hundred percent. I mean this would not fly today, but and I mean also like

52:29 Uh I completely agree. This is absolutely wrong. We're talking about Michael Lovitz here. He just left Disney. Like he's used to he's accustomed to negotiations at a at a different stage here. This is uh this is like bringing a bazooka to uh, you know, uh a a sandbox uh a shovel fight. Uh a sandbox plastic shovel fight. Ovitz flips out and he does what you know, his nuclear negotiations. He sues the company. So here we have Travis in his very first to consummate the deal and be able to invest in the company. And Travis like talking lady like what investor sues the company so that they can invest in the company. Ooh indeed, indeed. So this is Travis's first

53:14 not only CEO experience, but experience with investors and quote unquote venture capital. So after this lawsuit, you know, again, these are kids who just dropped out of UCLA. they capitulate, they sign the deal. I I don't know what terms it actually ended up getting done at, but it is done and Ovitz and Burkel invest. They control the company, they control the board, but Travis and his co founders are

53:38 Actually building the thing. And uh So as we said earlier, the other thing different about Scour versus Snapchat is you can share anything and you can share movie files. And they're in LA and Michael Lovitz just funded this company. You can imagine that the Motion Picture Association of America, which also at this point the recording industry Association of America, the R I A, is like I believe already sued Napster at this point. They see Scour right in their backyard with Michael Lovitz involved and they're like

54:03 Oh no. This is we are not gonna go through the same thing that the music industry is gonna go through. They turn around, they sue Scour. I believe this was It got to this height because of the like a a per instance violation. They sued Scour for two hundred and fifty billion dollars. That is one quarter of a trillion dollars. That you know, Travis has got to be like twenty one, maybe twenty two. Ubers.

54:30 Yeah, exactly. Like three Ubers today that uh the MPAA sues Scour for and obviously they knew they weren't gonna pay$250 billion, but they were like, we're gonna sue you into oblivion. Um And uh and I think more importantly, they were sending a message to Michael Ovitz of Hey man. You built your career on the interests of artists. And like you just funded a piracy company. Um

54:56 And so Oh, it's as you would imagine, gets the message. And uh He all of a sudden wants nothing to do with Scour. So now accord this is according to Travis. Travis is Talk about this in an interview.

55:09 Supposedly what happens next in Ovitz denies this. Is that Travis is scheduled to speak at a uh a private entrepreneurs conference uh that Jason Calicanus uh is putting on in LA. And

55:22 He's Gonna go on stage and speak. And before he goes on stage he's seated at a table. And somebody To him.

55:32 That If he's gonna go up and talk about everything that's going on and he's you know gonna get asked about the lawsuit, he might not wanna mention Yeah. And uh There might be consequences if he does. I know. Well, I mean this is the backdrop to Uber. Uh and um

55:53 And of course this this scares even Travis. Uh, and so he goes up and he Behaves and Yeah, it doesn't. talk about uh Ovitz. Uh and and this is in in an interview with Jason Jason Calcanis does with Travis after he starts Uber. And Travis is like, Oh yeah, I thought I played it cool and Jason was like, Oh man, you were sweating bullets up there

56:14 So uh that happens. The company ends up filing chapter eleven bankruptcy. to get rid of the lawsuit. And then the assets of the company get sold. out of bankruptcy. So The company is torched. Like here's Travis.

56:27 He has just had this wild experience and Uh the company was completely torched. He walks away, thankfully with no personal liability. But It's over. So what does he do next?

56:38 He and one of his co founders from Scourge. They Go and they say you know. This technology It is pretty interesting as a technology, and this is gonna mirror other episodes we've had here on Acquired. What if rather than using it

56:53 with a front end to enable illegal peer to peer downloads. We take the same technology and we use it for moving content around on the internet. And who would want to move content around on the internet? Maybe it's those guys who just sued us, the movie studios. Like they're trying to like online uh online movie distribution isn't there yet, but people are moving content around. There's like a little bit of like their clips that are being played online. Um maybe we can help them with their bandwidth by using peer to peer hosting to enable uh to enable better bandwidth management for for these uh movie companies. And and we should we should on a technical note just just make a point to um um to folks listening that like when you type in a URL right now on the internet, even though it seems like okay, cool, it goes to the server where that website is hosted and gets it. You know

57:40 in the early days of the Internet Uh it had to go literally all the way to the one server where the website was hosted. Like now things happen much faster because these things are cached all over the place and they're much closer to you, not really uh fully developed at this time. Nope. And uh uh Akamai existed, but was just starting to get going. So Travis starts, takes this and says, Great, I'm gonna start my next company. He calls it Red Swoosh, and it does this. It's a competitor to Akamai focused uh specifically on on the movie industry. And it is also a wild journey. He ends up running it for I believe six or seven years.

58:16 raises a very, very small amount of money, including from Mark Cuban as an angel. And Travis ends up not taking a salary for four of those six or seven years that he's running the company. He moves back in with his parents and he lives at home in LA. And eventually that we mentioned Akamai, uh Akamai ends up acquiring the company and consolidating it into Akamai for nineteen million dollars. So finally at the end of this, it's now ten full years that Travis has been on this grind, starting with dropping out of UCLA. and he's lived with his parents for a long time. Uh he's had his safety threatened. He's been sued for a quarter of a trillion dollars. And he finally has

58:54 An exit. And he makes uh I d wasn't able to get the final the the exact figure, but several million dollars because he hadn't raised too much money uh out of that nineteen million dollar acquisition. Yeah, so the money is is one thing that like that that that has happened, but The mould has been cast. For

59:12 Travis going forward based on just some traumatic experiences. Incredibly, incredibly traumatic experiences. Um So he moves to San Francisco at this point. I don't know if he'd already moved to San Francisco or as part of the sale to Akama, he he did, but this is the backdrop that he's operating in now coming into two thousand eight, where he's angel investing, he's having fun, he's going out with Travis also or with uh with Garrett also in San Francisco. Is he looking for his next thing? He's looking for his next thing. He's thinking about this this Airbnb idea. And um

59:47 And they go to Paris. They're in Paris. And They spend most of the time just Garrett and Travis jamming on these two ideas. uh Garrett on his on his James Bond Uber idea and Travis on his you know luxury apartments around the world idea.

1:00:04 And uh Throughout the week that they're there in Paris, they start spending more and more time on the Uber idea. And apparently, according to uh to Melody, they all all three of them go out to dinner one night at a fancy French restaurant in in typical French bistri style, they have paper tablecloths on the on the table. And Travis and Garrett are so deep in Uber discussions that they fill the entire paper tablecloth throughout dinner with sketching out the unit economics of Uber It's amazing. And I mean I want to make some crack here that like

1:00:38 Maybe they should have sketched the unit economics for Uber on something a little bit more high fidelity than a napkin. It's not what we're seeing today. Well well, no, no. They actually grew and this gets back to Travis being really smart. So the outcome of that, I don't know if it was specifically from that dinner, but the outcome of that week is, you know, Garrett was thinking about buying these Mercedes and renting a garage. A garage and storing them. uh themselves and Travis, like based on looking at the economics, he's like

1:01:04 Do not. Buy cars. Whatever you do, do not buy cars. Use the existing cars that Limo drivers that sedan drivers already have, and just give them iPhones and put the app on there. That's all you need to do, and the economics are gonna be so much better. So By the end of the week he's convinced

1:01:23 Garrett. not to to not to take the Mercedes approach and Travis is intrigued enough by what's going on, he says, All right, I'm in I'm not gonna like join. I'm still thinking about other things that I might want to do in my other angel invest uh investments, but I'll angel invest in this and I'll be like a super advisor to the company. This is my favorite part of this story that like he's like committing, but like to to what? He's like, Well I'm gonna be like active. You know, like I'm gonna Yeah, you know, I'm gonna like um I'm not joining, but I'm in.

1:01:51 Yeah. So I believe the idea is that Garrett is really gonna run with this. So they get back to San Francisco. This is now January two thousand nine. Garrett, though on well Everybody makes out well. But What happens next is that eBay comes to their senses, gets to the end of their drunken hangover. This is, you know, post stock market crash and the recession. And they're like, Why do we own Stumble Upon? And they decide to spin Stumble Upon back out and Garrett's like great, I'm gonna come back and be the CEO of Stumble Upon again. So Uber basically gets

1:02:22 Put on. Pause. But Travis is still like pretty interested in it. And so He's like still Saying to Garrett, you know, hey let's let's keep working on this. They make a little progress. They go out, they they talk to the the black car drivers that Garrett already knows, they give them phones, they try it out, they'd contracted with a developer who Garrett knew.

1:02:40 uh based in New York City, uh a guy named Oscar Salazar, who is originally from Mexico, and Oscar built the app in um in New York City with two contract developers back in Mexico. And so they had this kind of rudimentary app. And they try it out and it sort of works. And so they do that over

1:03:00 The next uh year in two thousand nine. And then in January two thousand ten The two of them decide, hey, there's enough here to actually start a company. We don't really want to run it, you know, we're we're still enjoying our lifestyles. But what if we recruited somebody to come in and run this company? And so on January fifth,

1:03:19 Two thousand ten. Travis. Tweets. One of the most infamous tweets, famous and infamous tweets in Twitter and all of

1:03:29 Internet history. He tweets, quote. Looking at Four, number four. entrepreneurial product.

1:03:36 Manager slash Bizdev Killer. for a location based service. Dot dot dot. Pre launch big all caps, big equity. Big equity.

1:03:47 Big peeps involved. Any tips? All caps. Question mark, question mark. And before getting into where this leads, can we just talk about how broad of a description that is? It's a product what Bizdev Killer. Right. Also, I mean, uh people in in Silicon Valley circles, not premieral circles, you know, knew Travis at this point, but like the broader twin, like who is Travis and what is this what is this tweet? What is going on here? It's big.

1:04:14 None the less. In the most faith fateful. Twitter reply. to this point in Twitter history. In Chicago, a twenty seven year old GE employee who's in the GE management uh development rotational program, which is a fantastic program, a really smart young guy named Ryan Graves. And Miami of Ohio graduate.

1:04:36 Indeed, indeed. Ohio Midwest strong. He sees the tweet. And he replies. Quote. Here's a tip. Email me. Smiley face.

1:04:47 Graves.rian at gmail dot com. And that uh with those two fateful tweets a couple weeks later, can we save email address like that on the show? What's on the Twitter, so it may or may not be his his email address anymore. And and Rina Christ now has a has a family office at Saltwater Capital, which are great investors. We're co investors with them and a few companies here at Wave, big fans of them. he moves out to San Francisco from Chicago. Now Brian's married. His wife is a school teacher in Chicago, but he sees this is the opportunity, this is his shot. And so he moves out to San Francisco and he becomes Uber's first.

1:05:21 CEO. Travis and Garrett bring him on. And uh That's apparently what the uh definition of a biz dev killer probably whatever is actually that would love to ask the how did how did that that tweet turn into CEO. We we m we may never know, but he becomes the first CEO. of what is at this point Uber Cab. So he and Travis

1:05:43 start going around the city. They're signing up more black car black cab companies and drivers. In June twenty ten, they officially launch the non beta consumer facing Up. uh writer app to writers. They have about ten cars on the platforms. The app is live in the iOS app store. They're ten black cars on the platform in San Francisco. And they go out to raise a seed round. on Angel List, which had just gotten started as well. And uh so they the email blast gets sent out on Angel List.

1:06:11 And the description is that Garrett, Travis, and Tim Ferris are investors and advisors. Ryan Graves is the CEO and Only employee of the company. Um, and it gets blasted out to I think something like a hundred and seventy, hundred and seventy five investors. s lots of people see it. Most people don't respond. Some people respond and want to invest, including first round capital, uh Rob Hayes, which who leads the round, writes a six hundred thousand dollar check. Chris Saka invests, invests three hundred K, Mitch Kapoor invests, Jason Calicanus, who we talk uh invest, friend of the show, Alfred Lynn, uh who uh was still at Zappos had not joined Sequoia yet.

1:06:46 He invests in the round. And Once again they get another call. I I think this was probably a response to the way this is like a crazy superstar party round. Like I mean you totally look it's it's the who's who on the sort of advisory te you know, founding ish team and the who's who in this initial angel round. Yep. Totally. Well you've got two

1:07:07 you know, proven entrepreneurs who are not running the company. But you know, as investor you're like, well maybe maybe they might run the company. We'll we'll s we'll see. They get another. response to the email though. And it is once again Bill Gurley. He sees he either sees or hears about.

1:07:22 This round that's happening and he takes Travis and Ryan out to dinner and says, All right, tell me your plans. Let's talk about this. What's going on? And uh They say we're raising a seed round. But we have big ambitions here. And Bill says, Okay, benchmark

1:07:36 Doesn't do seed. Do your do your seed round, but let's stay in touch. I wanna I've I'm very interested in this space. So The seed round ends up getting done, they raise one point three million in total at a five point three million dollar post money valuation. Wow. Even despite uh trading today in the IPO. That is a that is a long distance, many, many thousands of percent return from that valuation. And then on July fifth, the day after July fourth, two thousand ten.

1:08:04 Tech Crunch writes an article announcing. The launch of Uber Cab. I remember reading this. San Francisco. It was um as Ryan Tolkien on our latest LP show. Uh talked about it. It was basically

1:08:16 Instant. product market fit. I mean the pent up demand, uh everything we talked about with Taxi B Magic and Cabulus, despite all of those problems and how much demand there was for that. Finally. a service that is actually going to address writers and solve all of these problems.

1:08:34 And in a city that is such a big city like San Francisco and has only fifteen hundred taxicabs, it it is off demand is off the charts. And they're about to learn the real difficulty of a high growth marketplace business. You're never in a really good place because either you have too much demand for supply or too much supply for demand and you have to sort of figure out what your strategy is to go get the the the other side built up just in time for you to overbuild and then need to switch back.

1:09:03 Yep, totally. So they had hired a driver operations manager to start trying to onboard drivers and get things going in San Francisco. And uh It was not working out. It was not going too well. And this is where one more amazing story happens. I believe also on on Twitter. Jason Calcanis who would obviously Angel invested in the round. He posted a tweet about the launch of Uber. And I believe that they were looking for an intern.

1:09:30 And Somebody sees that tweet again and uh doesn't reply to the tweet, but finds does some sleuthing, finds Ryan Graves' email address. Didn't take much on Twitter to find it, emails him and says that she wants to apply to be the intern. And the person who does that is Austin Gite, who rang the bell on the New York Stock Exchange this morning. In the middle of the big group of people she is now I'm pretty sure the longest serving

1:09:57 Employee at Uber. Uh she joins that summer as an entire. Brian Graves is on the board, but no longer an employee. Um Travis obviously is no longer there. Uh and I believe I believe all the people who were all all two other people who were there before Austin are gone. She becomes the fourth employee of the company. And her story is just Amazing. It it it's been told, but we're gonna tell it again here because um

1:10:22 This is an incredible story. Uh Austin grew up in Marin. uh in Marin County just north of San Francisco in the suburbs. And um She went to she went to Berkeley for undergrad. And

1:10:34 a short time into her into her time uh at Berkeley, into her college career, she developed A pretty serious drug addiction. She's very open honestly to give was given many interviews about this and a great talk at at Fortune about this. And uh it it basically ruined her life. And she had to take she dropped out of college, took several years off of college, worked with her family and got completely sober. And then she returned to college in her mid twenties, ended up graduating from Berkeley at age twenty five. And it was that summer of twenty ten when she graduated and she saw that tweet and she was she had I believe the story is she'd applied to be a barista either at Pete's or Starbucks and gotten rejected uh to even go be a barista at uh at uh I believe it was Pete's But ended up getting this internship at Uber. And uh you know, she says later in the in this fortune interview, she said, I think this is just amazing. She says, I'm I'm so proud of the work my team has done at Uber, that I've done at Uber, but it's not the proudest thing I've done. I'm more proud of being sober.

1:11:28 And being able to share that with my family means a whole lot more. And it's incredible. So Austin would join as an intern and then we mentioned it uh uh a few minutes ago, the first driver operations manager who was onboarding drivers to try and just Get supply to keep up with this crazy demand, wasn't working out, Austin takes over and becomes uh The first um successful driver operations manager in San Francisco and then would go on to lead and run the launch team uh for Uber. And she launched uh, I believe just about every city that Uber operates in around the world. Uh incredible. Okay. So things start getting getting going on the driver

1:12:04 onboarding front in in San Francisco by the fall in October of twenty ten. people are starting to notice this is a big thing in San Francisco and Other people who are in particular people who are starting to notice is the taxi industry. And so they uh taxi cabs, they show up at the city regulator's office and they start Having said you gotta shut these guys down. They're taking away our business and what they're doing is illegal. And so

1:12:28 on in October twenty ten. Uh, while there is a board meeting for Uber going on and and Ryan Graves and Travis and everybody are at First Round Capital's office uh in the middle of the board meeting. The Uber office gets raided and regulators show up and they issue a cease and desist order. I believe they have like a headshot of Ryan Graves there and they're like, This is a wanted man and they say that Uber has to shut down and stop. Operating because they are Yeah.

1:12:56 And To The company into Travis's credit, again dr given all of his background. They say What rules aren't we following? You know, Travis is that he he he would talk about this in an interview later. You know, this he says this feels like a quote unquote homecoming for him, uh, you know, after his experience at Scout.

1:13:14 And they had been really careful. This is this is another point that has been completely lost in the last couple years of Uber. They followed the rules. They were not doing anything illegal. They were operating in the black cab market that was regulated by the state, not the city. They were not a taxi company. And they had been very careful about what they were doing was Certainly not envisioned by current regulations, but it was not against the rules. And so They fight this and they end up winning because

1:13:42 Like I said, the city had no jurisdiction over what they were doing. They were using black cars. Like given the the the narrative around this company, that is like a completely lost fact to history. Yep. Uh completely lost back to history, but super important for two reasons. One, because they win and they do not get shut down. The state of California allows them to continue operating. W the other outcome of this is, you know, I mentioned those quotes about Travis saying this felt like a homecoming. This is what pushes Travis over the edge to decide, you know what? This is gonna be huge. I'm I am born to do this. I need to come in and be the CEO of this company. The company got raided and uh official scenario. You know, they were looking for this the CEO, he was a wanted man.

1:14:25 I wanna be that guy. This is the company for me. Like it like he said, it it was a homecoming. Because he went he was in the meetings with the regulators and he thought, I can do this. So he comes in, he very amicably with with Ryan. Uh he'd hired Ryan. Ryan becomes, I believe, SPP of operations and um And Travis comes in, becomes the CEO, he negotiates. He already had a twelve percent stake in the company from his advising an angel investment, he negotiates, he gets a twenty three percent stake in the company. This is post seed round uh as CEO.

1:14:56 And um he basically says he's going to devote his entire life to Making Uber. As big as it possibly can be. He actually he he uh Brad writes about this in the book. He broke up with his longtime girlfriend and he explained this is a quote. He said, I realized I was more passionate about this company than I was about her. I should probably find someone I like at least as much about my job, but it's probably no no mean slate meant to his girlfriend, but this is the mindset he's in. He said, This is his life. Now he is his mission in life is to build Uber as big as it can possibly be.

1:15:29 Getting a lot of color on this guy here. Totally. Uh so The growth continues. They go out in the beginning of twenty eleven. To raise a series A. And based on reputation and on his dinner with him Early in the year.

1:15:44 Travis's Goal is Bill Girley. And he wants Benchmark to lead the series, eh? And uh he meets with other firms. He Travis also talks about in interviews about the importance of running a process, but he always wants to build a lead. And

1:15:57 Bill and Benchmark do end up leading and he's Travis's ass leader. Why'd you pick Benchmark? Jason asked him in this in this interview. And his answer is because they're the best. It's not even a close call. And Benchmark ends up investing eleven million dollars at a sixty million dollar post. This is in the beginning of twenty eleven. For an eighteen point three per stint. percent stake in the company. Now that was Almost unheard of in those days. Uh series A at a sixty million dollar post. I was at Madrona at the time. We were doing series A's at like a twelve post. And then they were three or four million dollar investments. Indeed, indeed. So this was

1:16:30 A huge you know, laying of cards on the table. Bill had found his company. I mean, I think one of the other things that I remember when I first read Brad's book, uh, the the Upstarts and realized all the work that Bill had done for five to ten years before making this investment on the industry. And it was the first time that it really hit me that truly great investors form an opinion about how the world will be and then go try and find the company that they believe will execute To to to create that future. And I think uh obviously there's lots of ways to be a great investor, but but um

1:17:04 you know, learning that that is the approach that that Bill took here, it's uh and the traction they had, of course, but it's no surprise at all that it's a big check at a at a healthy valuation Because it's it's sort of the consummation of this year's long search. Yeah, he was ready to go all in. And I remember so New York was the second city that uh w when th when there is the series A, it's clear it's clear to Bill, it's clear to Travis, it's clear to everybody else in the company this is working. We now need to replicate this in as many cities around the country and world. As quickly as possible. We need to go to New York Tulkin. Yeah, exactly. Exactly. Uh well and and all Austin Gate, uh who led the launch team. So they go to New York next, the third city of Seattle, and I remember so vividly Bill.

1:17:50 Sending an email to Tom Allberg, uh at at Majona, who we had on the show for the Amazon IPO, uh founder of Majona, saying And Bill and Tom knew each other from Amazon and from from several investments over the year years and Bill emailing Tom when when Uber was launching in Seattle and saying I think this is going to be

1:18:09 a comp the could company that is gonna be as big as Amazon and it's coming to Seattle, it's gonna be the third city would love anything you can do to help Uh at Madrona with Amazon everybody to help uh to help bring Uber to Seattle. And it's just incredible. And I I vividly you know, Tom forwarded the email to um to everybody at Madrona and I remember seeing and I'd heard of Uber at that time, of course, and I was like wow. That is that is

1:18:33 Yeah. really ballsy and involved move for a board member to do and uh to try and drum up support. And um obviously Bill was right. Yep. In February twenty eleven, uh I believe right after or during as this round was closing. There's an amazing video we'll link to in the show notes uh that Austin Guy took on her phone of they do an Uber happy hour.

1:18:53 And uh in San Francisco. And uh Travis uh is is kinda giving the welcoming kind of ten minute talk at the at the happy hour. They have all the early employees, they have the writer community in San Francisco, they have the top drivers there. He brings everyone up, he's super magnanimous, he thanks them, he thanks the drivers, and he says kinda at the end of it, he says, You know, we're here in San Francisco, this is great. We're gonna be very soon in fifteen to twenty cities, not only in the US, but we're gonna be all around the world. And this was you know, we'd ask Brian uh Tolgan on the L P show, you know, was there a moment where was there a debate at Uber that they would go global or not? Because obviously no other ride sharing company really did. And he said, You know, if there was it was before I got here. There never was. It was Travis's goal from the beginning was

1:19:35 This is Working this is global, we're gonna go everywhere. Wha what was Brian's quote? The culture was if it's a city And it's big, we need to be there. Yesterday. Yep, and that is

1:19:46 That is exactly um That is exactly what happens. So first New York, then Seattle. Then Chicago, Boston. Uh and then

1:19:55 Paris is the I guess that would be the sixth Uh city. And that was That was a huge uh a huge moment for the company. And um And and Travis was insistent that they go to Paris and they go to Paris then and they go international. And everybody else in the company was saying, This is crazy. We can't go international. We can't go to Paris. We were like barely live in the US and he said, No, we have to do this, we have to do it now. And we have to I th I believe the directive was we're launching in three weeks. I think it was for Le Web in twenty eleven, Li Webb.

1:20:24 that they had the launch for the the web uh conference there and they did it. Um And that was the beginning of Uber being an international company. Hm. So by that time this is now the end of twenty eleven, Uber is already doing nine million dollars a month in bookings and almost two million dollars a month in net revenue for a company that is essentially one year old. The traction is just uh just incredible. They're launching cities all over the world. And um This is actually the moment where Travis starts thinking.

1:20:55 You know what? This is We're going all in. pedal to the floor on ride sharing around the world. But this can be bigger than ride ride sharing. You know, he gives a quote in the Jasanus interview, he says, We're a logistics company

1:21:09 And he says, you know, obviously there's ride sharing, but he says, I want stuff brought to me Maybe there's there's one that's, you know, even more focused. Uh they were talking about examples of stuff that could be brought to you and he said, Yeah, you could do anything like Cosmo.com did, but maybe there's an even more focused service we can provide where you could say you could say delivery of food as an example. Like you like to eat at a restaurant. They don't do delivery. We have liquidity in cars, so we can make that really interesting. This is the end of twenty eleven. And uh and that was the beginning of what would become Uber Eats. It's so interesting too. It's comments like this that That

1:21:41 Travis and others at the company would make saying, Oh, we could move anything around and then they wouldn't say anything for a year and the whole like tech world would get up into a tizzy of like, ooh, Uber's gonna launch like last mile UPS and deliver it's gonna be a courier service that moves anything around a city and and it it I mean it that sort of went away with the transition from Travis to to Dara, but that always did seem like Probably a red herring that that was somehow bigger than moving people around was moving non food stuff around. But that was always the like, what if they expand into everything? Yeah. Well, and it turns out I mean it maybe eventually they will do everything, but Uber Eats is a monster of a business that we'll get into quickly. And is is A huge part, if not all, of Uber's growth at this point. And

1:22:25 Just kind of amazingly prescient that even that early, one year into the company, they were already thinking about it and starting to work on it. So that uh At the end of the year they end up raising what again was, you know, the series A was a landmark series A. The series B was Almost as much of a landmark. They sell ten percent of the company.

1:22:44 in around they raised thirty two million dollars at a three hundred and twenty two million dollar post money valuation. It's led by Shervin Pishvar at Menlo Ventures. They only sold ten percent of the company in the series B, which was crazy back in the day. Um And They Now have this huge war chest and then they just keep going city by city by city. They launch LA after that. As we've talked about on other episodes.

1:23:07 Uber completely transformed LA. Is the series B before we move on from that, is the series B the one with the crazy, like last minute change on who the investor was. Yes, so we I was gonna get into this. So it was gonna be Andrews and Horowitz. Yeah. Uh I think this is both telling. I was gonna tell it a little later, but we'll we'll jump ahead now. So yeah, Travis wanted

1:23:27 Anderson to lead the series B. And As the story goes. Andreessen was in to do it at a roughly three hundred million dollar valuation. But there was a dinner supposedly between Mark, Andreessen and and Travis. And after that

1:23:43 Andrew Snorowitz decided to lower the offer into a valuation in the low two hundred million and uh also wanted to include a much larger option pool in the company and uh Travis would have none of it. And that was uh that was the end. And of course then as we're about to see Horowitz. like planted the seed with Travis before like, Well if anything weird happens, like you know where to come. You know where to you know where to find me and and um So Travis called him up and and they they did the deal.

1:24:13 Andreessen, of course, then would um regret that uh decision. but not for too too long because shortly thereafter they would invest in Lift and they would lead Lyft's first round after pivoting into peer to peer car sharing. Um And are still one of the largest shareholders of Lyft today. So but back to Uber.

1:24:33 This is I would say the the apex of the original Uber. So we're now They're at a unprecedented revenue growth rate. their G M V N revenue growth rate. They're raising unprecedented Venture arounds.

1:24:47 They're global. They're on the path to world domination. They're At this point I believe at about a hundred million dollar net revenue run rate. So like they could go public. at this point in time by the old set of rules. If this were a different point in history, they would have. They would have. Uh and maybe they were even thinking about it.

1:25:04 But Then history turns on a knife point. Once again. And we will refer listeners to our episode about a month or so ago on the lift IPO. But this is now

1:25:16 Early twenty twelve. And homobibles has seeded the concept. of peer to peer car sharing. with Sidecar and Sidecar has seated the kind the concept of peer to peer ride sharing with lift.

1:25:30 Inside car. Which sure feels a lot less legal than what Uber's doing. But nonetheless, Sidecar and Lift launch in San Francisco in the spring and summer of twenty twelve. And It is, you know, we spend all that time describing the regulations in the taxi industry and in the

1:25:50 uh black car industry earlier in the episode. Peer-to-peer right sharing is completely ignoring these regulations and definitely illegal. You could argue whether Uber Uber was in a gray area, it was not regulated, but it was not clearly illegal. What Sidecar and Lift are doing is clearly illegal. Nonetheless, though, Uber and Travis, you know, because of their personality, they've There are a lot of people in certainly the taxi industry, but especially in regulators in city governments who don't really like them. And

1:26:20 They're sort of Uh I wouldn't say happy to see something illegal happening, but they're happy to see competition arising and legitimate threatening competition. Two. Uber. So

1:26:32 What happens next for the next six months or so? Uber and Travis if I really hard to get lift and sidecar shut down. Uh and they are lobbying with regulators. On the side of regulators for protectionism. Uh this is like total like the the history has like glossed way over this. Like Uber and the regulators trying to shut down Lyft. Yes, totally. And and and it makes total sense from Uber's perspective. And I think uh accord according to Brad, you know, Bill Gurley drove a lot of this thinking on the board.

1:27:02 They were terrified of anybody undercutting them on price. And what peer to peer ride sharing enabled was an undercutting of price. And uh so this was a huge, huge threat. And they had realized this when Halo moved over from London to launch in the US. Working with taxis, but doing it with a lower take rate. I believe Halo had a ten percent take rate and trying to undercut on price. And that was in response to that, Uber had rolled out what was then Uber X. And Uber X was cheaper Cars, Toyota Prius's, uh still with licensed drivers, but to compete at a lower lower take rate margin with Halo. I don't think I knew that Uber X was licensed drivers when it first launched. Uber X was licensed drivers. It was not peer to peer. And the original the original purpose of it was to was to compete with Halo. This massive fear of undercutting on price

1:27:51 is such an incredible foreshadow for the financial position that the companies are in today because hide sharing, as it turns out, is an incredibly price sensitive market. If you open both apps, one's a buck cheaper and it's the same, you know, relatively the same distance away, you just do it. Like there's there's um so little gripping you to one platform or the other, and that's one of the reasons why these companies are spending so much money competing with each other to acquire and retain customers. Like it You can see it all the way back back in this era. Totally. And so this is this is the moment where everything changes. So You know, then we joked about Unit economics, uh and the the table napkins in Paris earlier.

1:28:31 Before this happened. The trajectory that Uber was on was the beautiful typical Silicon Valley story from You know, that point up up until that point in history. They had a beautiful marketplace based business model. They were not taking inventory. They were working, you know, they were pushing the edges of regulation, but they were working within regulation. The unit economics were incredible. Uber was on a hundred million dollar plus revenue run rate.

1:28:58 I assume not profitable'cause they were investing so much in growing cities, but they probably could have been. And I remember people talking about cities being like wildly L T V profitable. I mean, I forget numbers that were thrown around that I'd heard, but you know, nine, ten plus X L T B to CAC for Riders in in uh writers and drivers in San Francisco. And and for folks sort of on the on the fringe of the biz here, that's lifetime customer value to cost to acquire a customer. And if it's to if there's your customer lifetime is Ten times the cost to acquire. That's a great business you got there. An i an incredible business. And it was also an incredible business for drivers. There were drivers in San Francisco and other cities that were making hundreds of thousands of dollars on the platform. So much so that drivers were going out and they were, you know, Uber talked about this and Travis talked about this, kind of becoming their own little mini entrepreneurs on the platform. You know, kind of like to Airbnb's chagrin, like property managers in Airbnb, because they knew that if they got more cars on the system, they could make so much more money. It was really working for everyone.

1:29:56 Then when peer to peer launched, it completely shifted the dynamics of the industry. One by changing the unit economics, but even more so by impacting like it opened the floodgates of supply. So now you had and and listener and and and friend Max Wallace emailed us about this. This was the huge change that peer to peer ride sharing brought. Before All of the innovation that was happening with Uber was net good for most players in the industry. Like I said, the drivers were doing much better. But now when the floodgates of peer to peer opened, all of those gains got competed away because the playing field on the supply side just got massively, massively expanded. And because of that, then there was also the competition for the demand side between Uber and lift and sidecar and ever and D and everybody internationally.

1:30:41 And so they had to spend the companies had to spend so much on subsidies to bring in writers on the demand side. And it completely changed the unit economics. So Yeah. Well they don't IPO.

1:30:55 No. And the For a while, uh for a number of years. the wisdom becomes certainly at Uber and and to a certain extent at other companies too, certainly at Uber, certainly at Didi. The way we can win this is this is a war of attrition. We will raise so much money. This we talked about on on the Lyft episode, what was it, like sixteen times the amount of capital that Uber raised versus Lyft uh at one point in time? Something like that. That we can just

1:31:23 We can just uh blow away our competitors and crush them into oblivion. And once we've crushed them, then the unit economics will become more stable and we can return to profitability on these platforms. Shouldn't be long. Shouldn't be long. So in August of twenty thirteen, Lyft raised the sixty million dollars from Andreessen in May of twenty thirteen. In August of twenty thirteen, Uber raises two hundred and fifty eight million dollars led by Google Ventures, with TPG coming in the private equity firm. And this is the start of this. Instead of just investing those two hundred and sixty million dollars in the US and competing with Lyft though, remember Uber is now international and D D in China starts raising huge amounts of capital. So Uber's now spreading this capital

1:32:04 Fighting land wars. Yeah, Uber's doing a multi front war. Like they have to capitalize wars on all these different borders. all of these all of these different borders. We should say too they they are maintaining a very strong leverage position in this negotiation. They they raised that whatever two hundred and sixty million dollars on a three point seven billion dollar post money. So this is like you know, they're they they just got a ten X from that previous round where they were valued at three hundred and fifty million. Totally. Which it was uh what five, six X from from the series A. Yep. And and that would have been, you know, and I think people thought about the time, like, Oh wow, that would have been like if they had gone public, maybe they would have gone on public at a relative market cap like this. I guess this was just sort of a you know private IPO type thing. Turns out that was far from the end of the capital raising. And uh we'll skip over a lot of this here in the interest of time, but uh go go listen to our lift episode, go listen to way back our Didi episode that we did with with Brad Stone, and Brad really was the foremost reporter in talking about the dynamics between Uber and Didi.

1:33:03 It ended up the the amount of capital that they were raising from sovereign wealth funds, from huge from hedge funds, from huge, you know, entities uh pump the valuations of these companies so much over the next couple of years, Uber ends up raising twenty billion dollars in total. Ben, as you alluded to at the top of the show, uh the valuation peaks at seventy two billion dollars uh on the private markets, but all this capital is going into fighting And and to list sort of the folks that start coming in here, you know, we were talking about this is an era where you would go go public. I mean, G V made a crazy bet putting Well I believe D V operates on an annual

1:33:48 uh budget cycle from from Alpha. Uh But but yes, they put in a lot of money. Yeah, and then you start to see in T June of twenty fourteen Fidelity comes in. And this changes everything for startups. I mean we we talk about the era of stay private longer and why all these companies IPOing now and why haven't they IPO'd yet. The next set of investors would be Fidelity.

1:34:10 T Row Price. Goldman Sachs. Then you start getting into these sort of international uh you get Times Internet, Tata Capital, uh uh Tiger, soft bank I mean th the the it the list goes on and on from not raising from venture capitalists. Saudi Arabia public investment fund comes in and puts a lot of money into That was before the Soft Bank Vision Fund. And of course, who is the anchor investor in the Soft Bank Vision Fund?

1:34:38 It's the Saudi Arabia public investment fund. Yep. Yep, yep. I think this is an interesting point. Um A few people have asked David and I, and I think um there's a lot of good answers floating around, but why is this happening now? Like why is this whole A plus saga?

1:34:55 you know, happening in this like four to six month period at the beginning of twenty nineteen. And I think th there's a few reasons. One, it's been this bull run for over a decade and you know, people want to get out before the that the music stops. Companies used to IPO you know, after three or four years after being founded, especially you look at like Amazon, it was ninety four to ninety seven or something like that. Now they're a decade or more. They've taken private funding for a long time, but the there is a there there is a uh time limit to the amount uh of time that private investors are willing to wait before getting liquidity and we're learning that time is about ten to twelve years after a company has been founded. So A lot of these companies all were started right around the same time in this two year window following the two thousand and eight recession, and a lot of them stayed private longer, took private capital longer and

1:35:48 You know, they're facing pressure from their board. Many companies in a less document way to get some liquidity. But Uber in fact signed an agreement with Goldman four years ago that they needed to go public within four years Otherwise, if they hadn't gone public, then the the convertible bond that they took carries a a coupon that will increase over time. And I think that that's that clock started in January. So they they have been sort of racking up uh uh fees and debt um if they if they didn't go public. And so that's another big trigger of this whole thing is Look, if uh if Uber had to go, then lines up the timing for a lot of these other companies to go too. Yeah.

1:36:28 There's there's that. To me the most interesting uh takeaway from doing this all this research and thinking about it is that this whole era we're in now of all these new sources of capital, late stage sources of capital coming into the private Venture back startup market.

1:36:44 Uh it had been happening Slowly before then, but this opens the floodgates. And Open the floodgates because Uber

1:36:56 Because peer to peer ride sharing launched and it changed the economics and Uber now needed to raise all this money. And It's just so interesting that like the narrative has been Uh, these sources of capital came in'cause they couldn't find growth in the public markets. And like, that's absolutely true. It's a hundred percent true. That is why all these other alternative sources of capital are now have been over the last decade interested in investing in private venture backed startups. But it wasn't like Uber saw this and was like, Oh Great source of capital. I'm gonna do that instead of going public. They had to, they couldn't go public. They needed all this money to fight these wars.

1:37:27 Mm-hmm. And really great movement. That trend is now extended to, you know Plenty of companies, even that uh Airbnb being a great example, they also fought a war, which we will cover when we cover them, but it it was a a much more contained war that they definitively won. Uh and so they didn't have these same dynamics. And with Uber for a long time until very recently where Uber sort of cut these deals to to

1:37:51 merge or or um um take large ownership ship stakes in some of their competitors in i internationally instead of competing. The thought was Oh my god, the global ride sharing market is one of the biggest markets in history, and it is a single market, and it's going to be winner take all. And is worth just

1:38:10 Go go go put as much money into this company as you can because they're gonna gonna take it all. And then from there we will get to do all sorts of interesting things in margin expansion over time and whatever else. It turned out that that wasn't true. Like it's not actually a global market. They are, you know. Well it's a global market, but it's not a global network effect. Wow. Yeah. I would say it's a series of markets. It th in in the way that sort of like

1:38:36 uh information on the internet is a global market where you can put something out there and it can be consumed everywhere. You don't need to sort of like go open each market differently and have completely different products and and marketplace uh dynamics and like ridesharing turns out to be a nationally fragmented market in a way that it's it's not accessible by one company leveraging their asset to just sort of scale perfectly. Yep. So I guess that's that's what I'm getting at here is so then then there there had to be this this sort of pivot later on where this company had had this huge valuation had been massively capitalized.

1:39:12 If they're just gonna be the North American winner in ride sharing, then they have to be the North American winner in other things, and they should own other companies that are gonna, you know, dominate the other parts of global ride sharing. And so I think, you know, we saw a pretty definitive s shift in strategy when it became clear that it is not one singular large market that they can win. Mm-hmm, mm-hmm. Yep. Uh both on the capital raising and then on the Mergers and acquisitions and to vestitures front. Yeah.

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1:41:24 Go check out service now dot com slash acquired and tell'em that Ben and David sent you. Okay. So on a normal acquired episode, I think we would Wrap things up here in this already extended extra long episode and say, Come back For part two. The next time where we tell everything that all of you know.

1:41:42 happened after this. Unfortunately we don't have that luxury because today is the IPO day and we're gonna get this out. We gotta get this out. All right. So here we go. Extra special. You thought you had enough drama, you didn't have enough drama. What happens next? We fast forward to January of twenty seventeen.

1:42:01 D Anis. Horabilis. For Uber. And Travis Kalanick. I'm like not. I think it means it's like a really bad it's it's a it's I think it's Latin for a a terrible year. Horrier.

1:42:13 Okay. I everybody knows what happens in twenty seventeen to Uber. I think having told this whole story and the the story of Travis's background And what we were just talking about of this new this new environment that the company suddenly found, they thought they were gonna be the next Google. Uh they thought they were gonna be the next eBay or Amazon.

1:42:32 Uh but it turned out the dynamics changed and now they are in this incredibly huge market, but that where the all the dynamics changed and they had to fight all these wars. I can only imagine the toll that that took. on the psyche of people at Uber and in particular on Travis. And

1:42:50 Just like I think we've seen with Elon leading up to the episode we did on Tesla and then after that with everything that's happened with Elon Musk over the last year. That's a lot of weight to carry, you know? And and so I think it's it's Important to Keep that in mind as we go through all of these horrible things that are about to happen. And honestly horrible things that Travis either did or was party two at Uber. Yeah, we should we should not'cause at this point I think we've we've played the narrative of

1:43:18 Um Everyone else has said terrible things about Uber and Travis and we want to talk about a lot of the amazing things that the company and he did and a lot of the redeeming qualities. We by no means want to uh say that he had a clean slate and like Lots of people made really bad decisions and and did really bad stuff and I think like we should Um We should just make sure we're super clear on that.

1:43:41 Totally, totally. At the end of the day. Everybody everybody's a human, uh, including and especially founders. Uh, and humans are Mm. Capable of being very fallible. Listeners, you should know that the uh header in David's notes for this section is chapter four, the systems broken.

1:43:58 Yes. I was actually inspired by a Kanye West lyric there, but that's another human for another day. Okay. January twenty seventeen. Donald Trump. Has just been inaugurated. as the president of the United States.

1:44:14 I'm living in Paris. We're recording uh acquired episodes remotely over the internet across continents. We have Brad Stone on the show to talk about everything we're just talking about with Uber and the the uh and Didi and the Uber D merger. What is the first thing Donald Trump does in his first week in office, he an acts The travel ban.

1:44:35 A terrible, terrible thing. Uh In my view, not that this is a political show, but I that's like I will a hundred percent stand by that statement forever. What happens because of the travel ban. People are stranded at airports, and particularly people are stranded at JFK in New York, people who have been flying to and from uh countries with a travel ban. uh prominently Muslim countries where the travel ban is enacted. Demand for Uber and Lyft spikes off the charts.

1:44:59 particularly at JFK because everybody's stranded there. They're trying to get home. They're trying to figure out what's going on. This completely throws off the market and Uber has, you know, surge. Surge is how they respond to to imbalances in supply and demand. They're trying to do the right thing. Like the drivers are getting screwed and the drivers are like putting so much pressure on Uber. They geofence The JFK Airport. In New York. and enact surge pricing for J.

1:45:24 The reaction to this among the public is not good. Now it's this is a super interesting story. Um the Lift, of course, does not uh go into Primetime is is Lift's version of Surge uh in JFK. Apparently at the time, I don't know if it still is lifts technical infrastructure was not architected to be able to turn on and off surge, like draw arbitrary geo fences. And so There are options where either turn on Surge on like all of New York or

1:45:51 Don't turn on Surge. And that was kinda how Uh a b one of the inputs into how they made their decision not to turn on Prime time, uh when this happened. But so Uber does, Lyft doesn't, you can imagine how this looks.

1:46:04 The public You know. excortiate Uber for for what happens here. Uh that they're gouging they're taking advantage of the travel ban. They're gouging people, immigrants who have been s been stranded. They're charging them hundreds of dollars to get where they're going. People also realize hey, we Trump has enacted this technology advisory council.

1:46:23 Travis is on Trump's advisory council. Is he in league? Is he in league with Trump? Is he like trying to profit? Is Uber trying to profit over this on this travel ban? Um Definitely was not. the intention or the case. Uh and Travis puts out a statement that like joining the group he says joining the group was not meant to be an endorsement of the president or his agenda, but unfortunately it has been misinterpreted to be exactly that. There are many ways in which we will continue to advocate for change on the immig on immigration, but staying on the council was going to get in the way of that and he resigns from the council immediately. But like the damage is done. And what emerges out of this is hashtag delete Uber. And and David, this geofencing thing, I think that's a pretty underreported little tidbit.

1:47:03 Um I also think like People still when they hear the delete Uber And they link it to all the events that would follow here and they remember something happened at the airport, but I think there was sort of a massive misconception um and misunderstanding between the company what they were able to do, what they were trying to do, and then what they got roasted for. Yep. Totally. I I I genuinely think they were they were trying to do the right thing and they were already under so much pressure from drivers about driver earnings massively declining in this new peer to peer world. They were trying to do the right thing for drivers. I really think that is the case. And this was also not like a Travis decision. This was, you know, this was

1:47:42 way farther down in the company than I think they were trying to do the right thing. However I was never the company deserved everything that was coming next and On this initial spark. You can't start a fire unless there's a bunch of fuel around the spark to catch. And so they had recruited a whole bunch of Mm mm.

1:48:02 non goodwill from the public, from drivers, from you know, all sorts of people that um You know, it it could have been any number of star of sparks, but they had uh there was it was latent bad will. Yeah. And Worst

1:48:15 Inside the company. So Very shortly after this, within a couple of weeks. A female Uber engineer named Susan Fowler, I believe was was Times Person of the Year in in twenty seventeen, I believe, because of this. Um Publishes a blog post.

1:48:31 Announcing that This is this is mid February, that this is her last day at Uber. She's leaving the company. And She Tells her story in this blog post about how from day one when she was hired.

1:48:42 uh her boss at Uber in the engineering organization tried to proposition her for sex. and tried to do it over text, over chat. in recordable ways within the company, within company systems. She reported it to the company, she reported it to HR. And what followed is

1:48:59 All too common in many industries and especially the tech industry. Nothing happened to him and she was punished. And HR gave her the choice, uh, according to her and she documented all of this to either switch teams and not work for this boss anymore, but he would be fine and she would have to change her career. Or she could stay and on the team, continue working for him, continue putting up with this, and probably be given a poor performance rating.

1:49:23 Probably because she wouldn't have sex with him. Just horrifying. Like at Totally, totally horrifying. There's literally nothing else that can be said. And what's even worse, things got even worse from there. She continued interacting with HR. She and did end up eventually transferring to other parts of the company. This continued to be a case. HR did not acknowledge it did everything wrong. uh and it went up to senior levels of the company who continued to do everything wrong.

1:49:47 She writes this blog post. It is That is the if if the spark uh was delete Uber at the airport, this is the the bomb that goes off. And The next week Travis meets with a group of female engineering leaders within the company. an audio recording of this meeting surfaces.

1:50:06 And it's basically not particularly flattering. Travis doesn't say anything like particularly bad, but he's also not like really empathetic to what's going on here. And it's not helped that Travis himself had made plenty of public comments over the past years about how his own sexual conquests, his own partying, you know, back to the Garrett and Travis days going out in San Francisco that started the company, and you know, he He referred to Uber by a homonym that uh implies that it it allowed him to uh to sleep with lots of women. Not good. On the back of this, the company and the board hires the former attorney general of the US Eric Holder to uh who had just left, who was in the Obama administration, to come in and lead a thorough in investigation into the company, into

1:50:47 HR practices, harassment, everything going on. Okay, that's bad. Next thing that happens, we're now like a week later in the end of February, Google Remember, Google is a major investor in Uber. They sue the company. they sue Uber because Uber had acquired a company called Auto, which was led by Anthony Lewandowski, who was a former employee within Waymo, Google's self driving car division. And

1:51:11 According to Google in the lawsuit, he took Most are all of his intellectual property that he had developed at Uber. brought it illegally into auto. Uber acquired auto and now head illegally. And what was especially a bad look for

1:51:28 for Uber here was that auto was bought for a good amount of money and hadn't built much. And so then the question was like what okay, w why'd they do that? They basically spent I think it was six hundred and fifty million dollars uh to acquire auto. Uber did, and uh it was it it looked And probably essentially was. Uh That they spent that money to acquire Google Trade Secrets. Not good. Okay. Things keep getting worse.

1:51:50 February twenty eighth, Bloomberg publishes a Video. that has been leaked, a dash cam video from an Uber driver. Of Travis in this Uber.

1:52:00 With uh probably intoxicated on a night out on the town. Um, getting into an argument with the Uber driver, the Uber driver realizes it's Travis in the back of the car and starts talking to Travis about how his earnings have gone way down on Uber, and Travis just starts berating him and yelling at him. It's terrible. That comes out. That's the next body blow. And Several days later, it comes out that Uber

1:52:26 sponsored a trip to Escort Bar in Seoul, South Korea, with several senior Uber executives participating in this. And this has come out as part of uh holders investigation into the company, it gets leaked to the press. Executives start resigning immediately. And they're resigning for two reasons. One, so Jeff Jones had just come in from Target to help kind of clean up the image at Uber here as this was starting to believe CMO or COO um he

1:52:54 Leaves immediately and he resigns and he says, I do not want to be this is not who I am. I do not want to be associated with this company. I do not want to be associated with this culture. I'm out of here. He doesn't even negotiate an exit package. He's like, I don't want any stock in this company. I'm gone. Uh Other executiv start resigning because they know that they did really bad things and the investigation is coming for them. All told something like six or seven senior executives leave Uber like within the month of March. Next thing that comes out in May is the New York Times reports that Uber has been using software that it called internally Grey Ball to mask its activity. Mask Uber was continuing to operate in cities with

1:53:29 peer to peer operate in cities that shut down peer to peer right sharing. Uh, Uber was continuing to operate and using this software to mask regulators and police from seeing that they were operating. That's pretty bad. turnaround from several years earlier, the company was committed to

1:53:49 Then in late May, tragedy strikes, Travis's parents are involved in a terrible boating accident and his mother is is killed in this boating accident in California. His dad's severely injured. Again, you know. You can imagine what's going on in his head through all this, uh and the pressure he's dealing with. In June, it comes to light that this is the next month, it comes to light that Uber there was a another terrible tragedy that had happened in India where a woman was raped and assaulted by an Uber driver during an Uber Uber ride. The company and India investigated into it and as part of

1:54:22 The company's investigation into what happened, they illegally accessed the woman's medical records, basically stole the woman's medical records, and they wanted to confirm that she was indeed raped because the implication was Uber didn't believe that sh that what she was saying was true. I had nothing to do with the totally terrible and I like I mean it's uh it's uncomfortable to just like hear it blow by blow by blow. Oh totally. Well then it's like these are just facts, you know? This is terrible. Uh on June eleventh, right after this. The holder report. is issued to the Uber board.

1:54:54 It's really bad. The very next day. a senior executive in the company named Emile Michael, who was involved in many of these incidents And who For a long time it had a reputation

1:55:05 At Uber and within Silicon Valley as an effective operator, but It was no surprise that he was involved in these things. He'd been involved in a confrontation with the journalist Sarah Lacey a few years. Earlier. He resigns the next day under pressure from the board based on what was in the Holder report. Two days later, on June thirteenth.

1:55:22 The board convinces Travis that he needs to take a three month leave of absence from the company. A because of everything that's going on and You know, be his own. mother was just killed. Tragically, his father's in critical condition. They ask him to leave the company, he agrees to a three month Leave of absence. On that same day. This is incredible. I remember when this happened. I was just like Watching a train wreck.

1:55:44 The same day there's an all hands meeting. at the company. led by several of the Uber board me board meetings. This is the worst. During this all humans meeting, the purpose of which is to talk about all these problems stemming from You know, the Susan Fowler, what she reported within the company, everything going on to talk about the outcome of the holder report.

1:56:04 David Banderman. uh co-founder of TPG, who was on the board from TPG's investment in Uber, is on stage alongside other board members, including Ariana Huffington, uh, who I believe is the only female board member at this point in time at the company. And Ariana says to the company, I quote, There's a lot of data that shows that when there's one woman on the board of a company, it's much more likely that there will be a second woman on the board. And Bonderman Makes Just like the most awful, awful, awful comment in

1:56:33 uh that he interjects here to what Ariana just said. He says actually what it shows is there's much more likely to be more talking. And this is just like like the total sexist comment. Like what does it meeting was called To try and ease everyone's concerns that we are not a bunch of sexist horrible like What are you doing? The worst. Thankfully, Bonnerman immediately is kicked off the board. Like that day. That I mean, how you could even

1:57:00 even go there is just beyond the pale. Uh he's kicked off the board that day and That is I think, you know, while secondary to Travis, I think that's kinda the last draw that like Something very, very, very fundamentally needs to change in the company, and the only thing that is gonna do that is a new CEO and completely new, you know, a a a decapitation of old leadership and new leadership coming in at the top. Yep.

1:57:25 And so this this whole thing started In January. It's now June. Mid June. And and we should like take a quick moment and say, You recall from the Lypisode, they were on the ropes. Like they were dead. Uber was beating them. They made so much money. Uber and Travis believed that they would just crush them. They wouldn't have to buy them.

1:57:53 they could continue uh operating. And all the problems will be solved and then all this happens. And so On June twentieth, at this point in time You know, Benchmark and Bill Gurley as kinda lead investors have been

1:58:07 at their wits end trying to deal with this and Just a this Terrible situation. Stepped off the board. fellow benchmark partner Matt Coller had taken his place on the board to try and

1:58:19 Broke or some kinda relationship. Moving forward here. they decide they've had enough. So they organize A group of of the core investors, core venture investors in the company, Benchmark, First Round, Menlo, Lowercase Capital, and then they get Fidelity involved too.

1:58:35 They write a letter, they all sign a letter, and Matt Coller and Fellow benchmark partner Peter Fenton, they fly to Chicago. Travis is in Chicago. Remember, he's supposed to be taking a leave of absence from the company. He's interviewing a COO candidate for the company, and supposedly behind the scenes he's agitating to try and come back as soon as possible and stay super involved. They fly to Chicago, they meet Travis as ho at his hotel and they present him with this letter. The letter demands that he resign from the company. And There's several hours of negotiation, at the end of which Travis signs the letter and he does resign as CO of the company on june twentieth. Part of the

1:59:08 discussion was that as part of him resigning, he would be able to say it was his decision, it was part of everything personally that was going on. He'd take some responsibility, but he could say, you know, this was my decision. All of this gets leaked to the press in real time and it becomes clear this is not his decision. Uh this was the investors led by benchmark forcing this upon him. This is after he's signed that this becomes clear. And uh so he as one might expect, knowing his history and mental state, he kinda revolts and he starts calling other shareholders within the company to see if he has their support for a vote. By the way, this is all reported uh in the press by great reporting by the New York Times and and by by Bloomberg and by Brad and his team. And uh he calls for starts drumming up support for a vote to come back as CEO of the company. It's just sad to talk about. But I think we have to talk about this. Uh uh A because it's it's

2:00:00 I don't think there's any debate that this actually happened and B this is part of the story. So Benchmark in response files a lawsuit to Travis. So once again you have investors suing a CEO of a company suing Travis uh while they're investors in the company. Again, unheard of for a c you know a firm like Benchmark to be suing a founder of a company that they have backed. But this is what it had come to. Uh and honestly, you know, these were this is the end of the days of of Founder Friendly, you know, and uh And I think that's a good thing. Like

2:00:29 It's great to be friendly with founders, but there's certain behavior that just cannot be tolerated. So benchmark excuses Travis for fraud and uh and breach of fiduciary duty. the way that that all plays out is in negotiations over who is going to replace him as CEO. So Travis realizes he doesn't have the support to come in as CEO, but he thinks Bring somebody in who's going to be supportive of him and his interests in the company as the CEO and he still has several seats on the board. His choice is Jeff Immelt, who until recently was CEO of of GE.

2:00:58 Benchmark's choice is Meg Whitman, who was CO of eBay and uh one of uh one of their, you know, best uh investments and that has played a big role in this story. There is a dark horse candidate, though. Uh and so everybody's them like I know way Meg Whitman at least like tweeted like yeah I I I'm not Like I don't know what you guys are talking about. I'm not taking this job. Right. Okay. They both independently confirm to the press like, No, I will not be the CEO of Uber and so everyone's sort of scratching their heads like, Well, who's he gonna be? Who who is gonna be the CEO? And it's amaz it is it is amazing, like, that this does not get not come out does not get reported until The announcement is made on Sunday, August twenty seventh, twenty seventeen, who

2:01:38 the new CEO of Uber is, and it is Dara Kazratah. He had been The CEO of Expedia since two thousand five. And really is an incredible story and and an incredible kinda choice to come out of all of this and and lead uh lead the company through um

2:01:56 What was probably the most Public Mess of a Venture back startup to play out uh in the press. Um Probably ever.

2:02:05 Yep. So Dara's story, like we said, is incredible. He grew up uh he was born initially in Iran. His family was a wealthy Iranian family in the pharmaceutical industry.

2:02:15 In the late seventies though, during the Iranian revolution the company got nationalized, they had to escape persecution. They move, they immigrate to the US with nothing. They restart Everything is the whole family. He grows up in the suburbs of New York. When he's thirteen in nineteen eighty two, his father has to go back to Iran to care for his grandfather. He didn't see his father again for six years. Incredible despite all this. He goes he s he excels in school. He ends up going to Brown. He then does banking uh after school at Allen and Company, uh where his brother also uh works at Allen Company, is now an M D at Allen Company. He joins IAC uh after Allen and Company. He becomes the CEO of IAC, of course Barry Diller's uh

2:02:56 uh media and internet holding company. In two thousand one, I see buys Expedia, with you know a lot of Dara's work on that. Dara A couple years later becomes the CEO of Expedia. And he is The anti Travis. Yeah. He is a super outspoken

2:03:08 critic of Trump and the immigration policies uh that Trump was putting in place Obviously because of his family history and and also because that's like the right thing. And The board tasks him with basically three things. Uh to come in and do. Three easy tasks. One

2:03:24 Fix the culture at Uber. Two, stem the losses that we've been suffering in these wars all around the world and focus on core markets. And three, take the company public and get this done. And so this is August twenty seventeen. I think unquestionably he has done About as good a job as you can imagine with part one of fixing the culture.

2:03:45 I think they're still of course. problems and things to be solved. But like he comes in and pretty immediately he revises the core values of the company, he settles the Google lawsuit, he retains employees, he makes great hires. And I think, you know, again Still more work to be done, but uh certainly compared to the trajectory that Uber and Uber's culture was on. An unquestionable turnaround.

2:04:05 Also on point three of taking the company public, they just went public today, but that really starts in January twenty eighteen. He orchestrates a deal. There's all this fighting on the board and with Travis and everybody. He orchestrates a deal with SoftBank to come in and so Softbank leading along with Dragon Ear, Sequoia, and Didi itself They do an almost nine billion dollar transaction with Uber, same size as the IPO that just happened last night and this morning. Seven point seven billion of secondary sales, much of which comes from Travis directly, but also from other existing shareholders, including the venture investors, that Softbank and others buy at a forty eight billion dollar valuation. Another one and a quarter billion dollars of primary equity from the company at a seventy billion dollar valuation. Yeah, so some of the days some investment into the company to give them cash, but mostly taking money off the table and at a what a discount. Like that previous round with uh with the D merger had been a sixty eight billion dollar post. This is a forty eight billion dollar offer

2:05:02 You know, hey, take it or leave it, we'll buy your shares at the at this share price. You know, it's it's a it's a pretty wild way to buy up to fifteen percent of a company. Totally. They get so South Bank gets fifteen percent, but more importantly, this cleans up all the problems. So benchmark agrees to drop the lawsuit as part of this. Travis lays down his arms and everybody unites behind Dara as the unquestionable kind of leader of the company going forward. Amazing peacemaker. I mean, given the circumstance he was coming into there. I mean kinda coming from, you know, his banking days and IAC and Barry Diller and then Expedia, like you can see how uh As great as Jeff Meld and Meg Whitman are, like Very few other people could have executed this, you know. Um as well as Dar had. Now number two on his task list of getting to, you know, stemming the losses. More questionable. Uh and that takes us to today. So

2:05:50 Obviously yesterday, uh Thursday, May ninth, Uber priced its IPO. at forty five dollars a share towards the bottom of the range, or equal to an eighty-two billion dollar market cap. Open trading today on Friday at forty two dollars a share or a seventy six billion dollar market cap. As we speak, I believe they are trading at Forty three eighty four. Oh wow, no, I have uh down to forty one seventy six. Oh wow, I just refreshed and saw that too.

2:06:18 Yeah. So um Still slightly below that opening of forty two dollars a share. Down seven percent off the opening. Yeah. We'll see what happens in the coming days. Um Yeah, th we we should say like the first day of trading is a pretty terrible predictor of As we learned on the lift episode. Yeah. Yeah.

2:06:37 So or even the next year, right? Like you mean we all saw sort of Facebook's trough after after IPO. Yeah. So there we have it. The the history and facts. Well. Oh man. What a story.

2:06:52 Oh man. I mean I don't think it's any exaggeration to say like the um Certainly not the whole story of the time, but like a Th one of the biggest, if not the biggest stories. of our time right now in

2:07:04 You know, the in the technology startup and venture capital world. Like this is Unprecedented on almost every front. Yep. Well, David, should we Now that we're done with the first section of the show. Yeah. I think we've probably covered uh

2:07:21 The narrative the Bull and Bear case narratives pretty pretty thoroughly here. Uh, let's let's nail them though,'cause I I feel like it's uh let's get crystal on on sort of what um what different folks would paint.'Cause I think we've alluded to a lot of things, but I think it's important to to Sort of. paint what different people uh um were saying about the company going into the IPO. Um So the fascinating thing was in the Uber uh Road Show, they were comparing themselves to Amazon. And one of the reasons was not only are we, you know, gonna develop into this massive global market, but Amazon famously didn't make a profit for you know, had this razor thin, um

2:08:00 Um, they never really made any profit for the longest time. And when they IPO'd, they were generating losses. Now, of course, the f the the fallacy there is they were not generating three billion dollars of an operat. Um but that is sort of the way that they were positioning it to IPO buyers. Um, they've also shown like incredible growth in Uber Eats. So it's already more than thirteen percent of Uber's revenue. Um it's only a few years old, but last year they did one and a half billion in revenue. The year before was only half a billion in revenue, so just wild, you know, bright star there for um um for Uber Eats. And

2:08:39 Uh I have massive personal gripes with the way this S one was written because it made my job researching this uh uh this episode just terrible, and they intentionally did this and um you know, it feels not dishonest, but in a gray area, it is extremely difficult to figure out how the ride sharing business is doing, um, because Uber has chosen to uh uh create a uh metric called monthly active core platform users and they group core platform as ride sharing Uber Eats and new methods of uh multi modality transport, so scooters and e bites and micromobility.

2:09:18 So the the bulk case is that their monthly active core platform users continues to uh uh to rise. I think a lot of that growth is Uber Eats, but really hard to to to read into that. Um but to the extent that that's the number you're looking at. Users continue to rise and uh I think the other part of the bull case here is that we're still less than two years into

2:09:40 Dara being the CEO of Uber and his ability both through his personality, but also through his background to be a a peacemaker and a deal maker around the world and Return. the dynamics, the unit economics and dynamics of Uber's core operations to something much more profitable and sustainable. Uh versus the all out wars that they've been in. So the yeah, the thing that you I think have to believe is well look

2:10:06 uh globally across all these fragmented markets that is ride sharing. Um it's one of the largest Uber markets of uh of all time. And uh, you know, they're really well positioned to be the main player in the space and own big chunks of these companies in in other other markets. And at some point when they are able to ramp down uh marketing spend. They're they're they're gonna generate, you know, a lot of money. the thing you have to sort of ask yourself is, Okay, well when is the knife fight gonna end? Like ha ha how

2:10:37 what will be the catalyzing event for all companies involved to start making money instead of spending to steal share? Yep. And uh with the lift IPO, you know, six weeks or so or so ago. And them now being a public company, I Don't see that. happening in most US markets any any time soon.

2:10:55 Yeah. Yeah, yeah. Okay, well let's go into bears. Um this may take a little So revenue growth has slowed.

2:11:05 Pretty dramatically. If you look at the ride hailing business from twenty sixteen to seventeen, it grew a hundred percent. From twenty seventeen to eighteen it grew forty two percent. And then over the last

2:11:18 two maybe three quarters it's been basically flat. So the growth is not coming from the ride hailing business. So if you want to believe that this is a growth company. Um Uh and it is, because you know, they're they're they're

2:11:32 On a lot of vectors. it's not coming from ride sharing and you have to really be honest with yourself and acknowledge that Um a big problem there is that um there probably is a lot of growth happening in ride sharing, but they've also been losing share in the US in their core markets to lift over the uh over the last year. So there's growth happening in some markets, but attrition happening in others. Yes. So this is something that was a little buried also in the S one, but you can find um where they come out and say in twenty seventeen our ride sharing category position in the US and Canada was significantly impacted by adverse publicity events, which we covered.

2:12:06 Although the rate of decline in our ridesharing category position has since quote unquote moderated, our ridesharing category position generally declined in twenty eighteen and in the substantial majority of the regions in which we operate, impacted in part by of course, heavy subsidies and discounts by our competitors in various markets that we felt compelled to match in order to remain competitive. And so Uh the the takeaway here is I think the the important word there is moderated. They are still losing share in the these these core ride sharing markets. So anyone who wanted to blame

2:12:42 delete Uber for Lyft's resurgence and say, but we're all good now, you know, we're growing share again. It's just not the case. Yep. Another thing so that's looking at growth and of course the way that these IPOs tend to get valued as gr as growth stocks. We're early in a company's life. There's lots of growth ahead. You know, they're gonna get more profitable over time. Um they're gonna both get more profitable over time and continue to grow at these great rates that they've been growing. Not like a little

2:13:10 ten percent public company growth rate, but like a you know, these These sort of start up. you know, growing thirty, forty percent per year growth rates. So I said get more profitable. Now let's dig into that.

2:13:23 and specifically into contribution margin. So the contribution margin for the core platform business, which is of course the ride sharing and Uber Eats, which was eighteen percent a year ago. was actually negative three percent in Q four of last year. So really sort of dangerous trend there where we start to see them um You know even of of the Subsidies and competition. Completely. It's that and it's because this is all lumped together into one

2:13:52 uh category here. It's also very likely due to the the aggressive marketing spend for the rapid expansion of Uber Eats. Yeah. But nonetheless it's it's a it's You know I don't you don't want to see a contribution margin sh shrinking as a company is getting more mature. Yep.

2:14:08 So Uh I think those are the two biggest things, the growth and the contribution margin that are are scary from a bear perspective. One thing to flag is that a lot of very high profile investors, uh, including Founder Collective and SoftBank are selling big chunks of their sharing in the IPO sort of but but uh they they sold them last night to new investors as in a secondary transaction rather than sort of waiting for the lock up period. This I wouldn't read too much into this because they're the the money's been tied up for a long time. They're trying to get liquidity, uh, and this is not unprecedented, but it's certainly not an encouraging sign if you're a sort of potential buyer. Mm-hmm. Yeah, I agree not to read too much. I mean

2:14:45 These are Shareholders that have been holding the shares for a very long time. Super fair. But no, I think the question is a lot of the questions that emerged when The dynamic changed for Uber.

2:14:58 both nationally in the US and globally with the emergence of peer to peer right sharing. Um You know, the hope was that the massive amounts of capital raised and the operational investments would have settled those questions over the last four or five years. They they're still very much open questions. Doesn't mean the market is still enormous and massive and the potential is there. And relative to the be way, way back in the beginning of this episode where there were fifteen hundred sixty uh taxicab medallions in San Francisco. This market is so much

2:15:28 Bigger and open. But who will win and how it will play out and the unit economic uh impact of that is is is still an open question. Yeah. The other thing is there's a this isn't really a bull or bear, but it's interesting to just think about this. Twenty percent of the value of this company is actually a holding company. They own f fifteen percent of DD in in China, thirty eight percent of Yandex Taxi in Russia, twenty-three percent of Grab in Southeast Asia.

2:15:53 And that's that's eighteen billion dollars of equity that they own in these other companies. And and if everyone remembers the Altaba uh episode with uh with Yahoo and Alibaba, being a holding company that owns a bunch of other assets, um, you don't get to value um the assets at exactly what they're trading for because there's sort of inherent risk in well, is the is this entity going to be able to get liquid on those assets if if they ever needed to. And so you know, a good chunk of of Uber's valuation is actually holding these these uh foreign right sharing companies. Yep. Alright, so That's bull and bear. Let's go and grade this thing.

2:16:30 I'll make a couple points first before we we paint sort of what an A plus would look like if you know we had Six to twelve months to reflect back on this thing and then of course what an F would look like. It's worth noting that uh Every Shareholder.

2:16:47 who who bought shares since Gosh, end of twenty fifteen. including everyone who bought in the IPO last night is now underwater. Mm-hmm. They

2:16:58 had a pretty terrible narrative leading up to this thing that was really botched where a year ago investment bankers were rumoring that there would be a a hundred and twenty billion dollar market cap for this company when it IPO'd. And a couple of months ago the rumor sort of changed to a hundred billion. And then they gave guidance that they were gonna have an IPO range that went somewhere from Um

2:17:24 You know, mid eighties up to low nineties. And then they Priced at the very bottom of that range. So coming into this IPO, it already felt like it had been sliding. I mean the pu the sort of public sentiment was I'm buying something on the way down. So it's not surprising that there wasn't a big Pop on the first day.

2:17:42 Uber to their credit was conservative on pricing, which I think was a good idea. But the question is, what do you have to believe to love this right now? And one is that ride sharing will somehow get less competitive, marketing spend will decrease, and you know The other is That Um, they've built this incredible infrastructure and now they can really light it up with Uber Eats and other things on their infrastructure that are great businesses, but of course um Uber Eats is also wildly competitive with DoorDash and Grubhub.

2:18:11 Um so that's also not a not a smooth sailing market. Th what this section really tries to get after is Great. They just raised nine billion dollars. Are they going to be able to effectively use that and what will it look like if they effectively use that? Well, they needed to raise a bunch of money.

2:18:30 Like I will say it went well by the criteria of Oh my God, they needed to raise a bunch of money and get it into the company's coffers, and they did. th there's no pop so people who bought the IPO, at least so far, uh did not see an immediate benefit, although, you know, they should be holding for a long time anyway, and we'll see what happens in a year. But Uh Uber got basically the most money that they possibly could have out of this IPO. Yeah, if they're taking an operating loss of three billion dollars a year. Oh, and by the way, they said they think that will

2:19:00 continue to increase this year. Like, they need a lot of money in order to start to pull out of this thing. And it wouldn't surprise me again if we saw a secondary offering at some point where when they felt good about their share price, they tried to sell more of the company. Yeah. And I think um

2:19:18 I think the question is, yeah, when will when will it turn. But you know, it's It's so fun. The scale is orders of magnitude larger than Amazon. But I will say This is the Amazon story and the Amazon history. And so I think yeah, the A plus case is Exactly what Uber, uh what what Dara and and the company have been saying on the road show, uh and through the IPO process, which is

2:19:41 This is Amazon. We are bleeding tons of money, but we are building this infrastructure across multiple uh businesses that will that will be extremely defensible and profitable in in the long term. And I think that is a credible story. It's a very credible story. It's a question people are struggling with is how you phrase it, twenty billion dollars and they're however ten years old. Like can we get more than a credible story? I know. I know. Um But that's the A plus. Yeah, a hundred percent. And uh And so let's get more specific on what that looks like. They are contribution margin positive on the ride sharing business some small number of years from now, and Uber Eats continues this grace great growth rate that they're on and also gets profitable. Well, and because they I I think the other part of the story is because they share the same infrastructure and supply side across both of those businesses and potentially other businesses in the future, that is going to be a very strong uh battleship, if you will, that will turn the tide in their fight with competitors that

2:20:43 Their economics will be fundamentally different. As they acquire the supply side that they're spending to acquire drivers, they're leveraging that spend across multiple businesses. Whereas competitors are only Leveraging it across one business. Yeah. My other favorite structural advantage of that that I saw was somebody pointed out that um If you can keep a rider a driver busy a hundred percent of the time between Eats and the core ride sharing business, then they have less of an incentive to multi home on on other apps. And then if you reduce the supply on Lyft, then it's a worse driver uh a worse user experience, et cetera. And you can start to tip the field. And uh as we talked about on you know, a another company that uh Bill Gurley was intimately involved in on our Rover Dog Vake episode and that I saw firsthand.

2:21:31 That is absolutely true. If you can tip unit economics in a market in favor of one competitor over the other, uh they will tip. So I think the yeah, the A plus the A plus scenario is this capital infusion gives them the resources to continue to be able to do that. And the F scenario is it just takes too long. They they they go for this and it it

2:21:51 And I I I think it's more likely that, like, given an infinite timescale and dollars, they'll actually be able to do this. I I think that all the fundamentals hold. I think the F scenario is they're not able to access the capital that they need to and I think investors Stop signing up to put more cash in before the the music stops.

2:22:09 And and I think that there's a very you know, that could also happen. I don't know what happens to Uber at that point. But Um You know, that that's definitely the downside scenario is they can't get it done in a short enough time frame to not need to go and and

2:22:23 access new capital in a really either Mm. delutive or um Or potentially. Yeah. Yeah. Yeah. Well I think that's the so yeah, if I'm uh If I'm in the shoes of uh of Dara and and the Uberboard and uh at Salt Bank given their influence here. I'm I I think I would imagine like the nine billion dollars that they just raised in the IPO, like that's my that's my time frame play. Yep. I I think you have to believe there is no more capital coming. Yep.

2:22:51 That's a great point. So all right. Well the F obviously is that doesn't work. Uh I'm sure there will be some follow up episodes we do on this at uh various transactions along the way. So stay tuned to acquire it in the coming years. But this is I just to just to put a bow on this, you know, and thank you listeners for for bearing with us through this super extended piece. Um just like the lift IPS oh we had to do this here. Like this is the you know, this is the uh not the only, but this is one of the key stories of our time. And uh We we wanted to do it as justice. Hm.

2:23:25 as be as fair from from all sides uh as as I think we could. So hit us up uh with any feedback, but We're uh We're super excited to see where things go from here. Indeed. All right listeners.

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2:24:37 Well if you aren't subscribed and you like what you hear, you should. We will be continuing to cover all of these big upcoming IPOs. And if you want to go deeper on what it's like to build a startup, get interviews with expert operators and VCs. And explore some of David and my personal beliefs, you should become a limited partner. You can click the link in the show notes or go to glow.fm slash acquired. And I promise you'll be overjoyed with how buttery smooth it is to get more acquired right here on your favorite podcast player.

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