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Leap, the luxury bus service that rolled out in March, has temporarily suspended its service today after facing a new regulatory challenge. The venture-backed private service had set out to improve San Francisco residents’ daily commute by offering an alternative to public transit. But regulators have stepped in to stop it.
“While we believe our service is in full compliance with all state and local laws, we have decided to halt operations until we clear this final hurdle,” the company said in a statement posted on Facebook today. When it first launched, Leap was widely criticized in the Bay Area for being an elitist transit alternative for rich commuters looking to sip third-wave coffee as they surfed the private WiFi network and snuggled into leather seats.
That didn't stop riders from hopping on board for $6 a ride. But, like many startups that have jumped into heavily regulated industries with the hope of improving a service that already exists, Leap has run headlong into authorities who by now are well-practiced at wrangling with "disruptive" startups. Unlike Uber and Airbnb in their early days, when defying regulators was seen as a badge of honor, Leap's action seems to show it believes the battle isn't worth it. And these days, a Silicon Valley chastened by years of butting heads with government might see cooperation as the smarter move.
Leap did not disclose today what specific regulatory concern marks its "final hurdle." But the company said it has received a cease and desist notice from the California Public Utilities Commission, which regulates all privately owned public utilities from water to transportation companies.
WIRED reached out to the PUC and received a copy of the notice, which claims Leap failed to provide some of the necessary safety and compliance paperwork needed to operate in the state. The regulatory agency says Leap neglected to meet safety and insurance requirements, including public liability, property damage, and workers' compensation insurance as well as compliance with drug and alcohol testing rules.
The cease and desist demands Leap halt operations or face fines of up to $5,000 or a year in prison per day. This is similar to the crackdown that Uber, Lyft, and Sidecar faced when the PUC sought to shut them down in 2012. Unlike those companies, however, Leap has actually suspended its service. And it looks like it's willing to work with the PUC to comply before starting back up.
While Uber is well-known for bucking local laws and continuing to operate despite regulators' demands, Leap appears to be opting out of confrontation. The hurdle for Leap isn't whether privatized transit services can exist as it was for Uber, Lyft, and Sidecar. Those companies have already paved that path. But since compliance ultimately seems unavoidable, Leap may be asking, why not do it now? The startup seems to have learned from its predecessors' legal troubles that sometimes defiance not worth the fight---stop the service, fix the problems, and then continue without the hassle (or bad publicity).
Regulators may be savvier about startups, but Silicon Valley has gotten smarter about dealing with regulators, too. Leap is backed in part by top venture capital firm Andreessen Horowitz, which launched a new policy and regulatory affairs unit last month with the goal of ensuring that startups in the company's portfolio are prepared to deal with regulatory demands---in other words, to get along with government, not defy it.
Leap, for its part, said in its Facebook post that the finalization of its "permitting process has been held up due to various clerical issues,” though it did not elaborate what permits were not complete. (Leap did not immediately respond to WIRED’s request for comment.) But the fact that it's bothering to get them at all feels like a stepping away from the "move fast and break things" attitude that has generated so much Silicon Valley success but also earned it so much ire.
To be sure, the seemingly endless legal challenges faced by Uber, Airbnb, and their competitors haven’t ultimately undermined their businesses. Arguably, they are more powerful today than ever before. And Leap would not doubt like to find the kind of success those more senior startups are enjoying. “We hope to be back on the road in no time,” Leap said in its post. Just not, apparently, by taking the same route.
