Ride sharing company Uber’s closing of a $1.2bn series D round that valued it at more than $18bn and wildly outstripped expectations about the size of the round made only last month, has helped to illustrate the explosive growth in the mobility market occurring right now.
Uber, which had raised $258m from Google Ventures, TPG and Benchmark at a $3.5bn valuation only last year, secured the cash from an undisclosed collection of institutional investors, mutual funds, private equity and venture capital partners.
CEO Travis Kalanick, who announced the deal four years to the week after Uber launched in San Francisco, added that the company intends to raise another $200m from strategic investors before it closes the round.
The size of the round is vast, particularly so for a company as young as Uber, but it is not the only large deal struck by a company in the mobility sector this year. Lyft, which like Sidecar works as a mobile device-based service that connects passengers with drivers, raised $250m in an Alibaba-backed series D round in April.
The starting gun for the huge deals being done in the sector was the acquisition of Zipcar, a third San Franciscan company, which operates a slightly different business model that enables passengers to share cars or vans that are parked locally, in January 2013 by Avis in a $500m deal.
These deals are part of a growing investment trend in the mobility sector, which also incorporates a wide range of smart car technology, the progress of which was indicated by Google’s recent demonstration of its driverless smart car and electric vehicle (EV) maker Tesla’s announcement yesterday that it would open up its patents to other businesses in order to drive growth.
Corporate venturers have also begun to take notice. Mobile device producer Nokia established a $100m connected car fund in May that will invest in intelligence technology for vehicles, following the lead of chipmaker Intel, which set up its own $100m fund in 2012 to invest in connected car technology.
The specific growth taking place in the car and ride sharing market is being fuelled by several factors, but chiefly revolve around the lifestyles of young adults in urban areas where it is not economic to own a car, but where smartphone ownership is ubiquitous.
With the finances of that demographic being squeezed and gasoline likely to only become more expensive, Uber, Lyft and Zipcar provide a more feasible alternative.
The streamlined approach is also beneficial for the ride sharing companies in particular because, unlike Zipcar, which has to spend money on inventory in order to run its service, and minicab companies that operate from city centre headquarters, Uber and Lyft require no such outlay.
Although one of them will need to go public in order for their finances to be properly analysed, it is likely that their operating costs are meagre in comparison to many other startups.
These low operating costs mean that the funds are likely to be spent on geographic expansion. Lyft’s tie-up with Alibaba brings the potential for growth into the Chinese market, while Uber is currently operating in 38 countries across six continents and increasing its reach quickly.
The business model, whereby Uber takes a cut of every fare charged by one of the drivers using its service, would appear to be infallible. However, the one warning sign is that many city authorities are hostile to the companies, partly because of a desire to protect their local taxi industries, but also because of several other issues including licensing, safety and insurance.
Uber and Lyft have so far maintained that they are communication apps rather than taxi companies, which has so far helped them to evade these issues, but Californian regulators’ ruling that their drivers are forbidden to work at airports, combined with controversy stirred up by events such as the London black cab protest this week, could potentially lead to further regulatory action across the world that could potentially slow growth.