In the bitter battle for ride-hailing supremacy, Lyft has always played the nice guy: and, until recently, it seemed destined to finish last. How times change. Yesterday, Lyft announced a $1 billion funding round, led by CapitalG, the investment arm of Alphabet, Google’s parent company. “Thanks to our drivers, our passengers, and our team members for making this possible,” its founders beamed from the company website. All hail Lyft, freeing the world from the tyranny of traditional transport!
But, when it comes to ride-hailing, astronomical funding rounds are never far away. This time next week, we may well be hearing the same expressions of humble gratitude from Uber, which is telling journalists at conferences that is on the brink of finalising a $10bn round from Japanese investment giant Softbank. That’s to add to the $12bn plus it’s already raised – cash in the bank, mind you, not airy paper valuations (although, if you’re interested, Uber is now valued at $62.5bn, with Lyft at $10bn.) Praise to Uber, lord and master of the taxi world!
From a selfish short-term perspective, there’s something to be gained in these duelling announcements. The more money Lyft has, the faster it on grows: CEO Logan Green said it would expand outside the US “very soon,” with Toronto, Mexico City and London as the possible first destinations.
Ride-hailing competition would be good news for London – a city, where, as the reaction to Transport for London’s decision to strip Uber of its licence showed, many think the word for calling a cab with an app is "Uber." Flush with cash, the rivals are also likely to subsidise fares, which means cheap rides and better pay for drivers.
Read more: TfL is right. Now's our chance to make an employee-owned Uber
But then there’s the nagging question: where is this money coming from? And here the picture gets more complicated. Although, in its own mythos, venture capital is a way for successful entrepreneurs to “give back to the ecosystem,” in reality the VC boom is a reaction to the low interest rates that have prevailed across the world since the financial crisis. Quite simply, investors are desperate for places to put their money: surplus capital that finds a welcome home in Silicon Valley.
Even traditional investors are joining the rush. Take, for instance, this week’s other big funding round: the $502 million investment into secretive augmented reality startup Magic Leap, a firm which has yet to release even a development kit, and may be many years from making something for consumers. This didn’t come from Sequoia or Andreessen Horowitz (who got in much earlier), but instead from Singaporean state investment fund Temasek, which is wholly-owned by the government of Singapore.
Other sovereign wealth funds are just as eager: in 2016, for instance, Abu Dhabi’s fund ploughed $15bn directly into tech startups. So are pension funds. Since 2012, Canadian pension funds have invested over $19bn in 88 companies. Which brings us back to the ride-hailing funding wars.
On the side of Uber, we have Softbank’s backer Saudi Arabia. Lining up opposite is Canada’s Public Sector Pension Investment Board, which in April contributed to a $500m funding round in Lyft. The grand rivalry between tech entrepreneurs is a face-off between Canadian teachers and Saudi princes.
These investments come with plenty of risk. In 2016, wearable tech company Jawbone took $165m from Kuwait’s sovereign wealth fund, before promptly going bust eighteen months later. But in a world of rock bottom interest rates, the large funds have few alternatives.
All the same, knowing where the money comes from puts a different spin on the admittedly engrossing rivalry between Lyft and Uber, two firms that have never proven they can make a profit. If they battle it out in London, then we will simply be seeing the next stage of the venture-backed race for dominance. How can truly sustainable alternatives ever hope to compete?
This article was originally published by WIRED UK
