Take our 2022 Survey. You could win AirPods Pro 2's! >>

The Uber IPO

Season 4, Episode 6

ACQ2 Episode

May 10, 2019
May 10, 2019

The Complete History and Strategy of Uber

Welcome to the big one. On the day of its IPO, we tell the story of Uber. It’s a story whose roots stretch back 130 years, but whose impact reverberates perhaps more powerfully on our current world than any other. A story that, in all of its greatness and in all of its ugliness, may just be the story of our time.




We finally did it. After five years and over 100 episodes, we decided to formalize the answer to Acquired’s most frequently asked question: “what are the best acquisitions of all time?” Here it is: The Acquired Top Ten. You can listen to the full episode (above, which includes honorable mentions), or read our quick blog post below.

Note: we ranked the list by our estimate of absolute dollar return to the acquirer. We could have used ROI multiple or annualized return, but we decided the ultimate yardstick of success should be the absolute dollar amount added to the parent company’s enterprise value. Afterall, you can’t eat IRR! For more on our methodology, please see the notes at the end of this post. And for all our trademark Acquired editorial and discussion tune in to the full episode above!

10. Marvel

Purchase Price: $4.2 billion, 2009

Estimated Current Contribution to Market Cap: $20.5 billion

Absolute Dollar Return: $16.3 billion

Back in 2009, Marvel Studios was recently formed, most of its movie rights were leased out, and the prevailing wisdom was that Marvel was just some old comic book IP company that only nerds cared about. Since then, Marvel Cinematic Universe films have grossed $22.5b in total box office receipts (including the single biggest movie of all-time), for an average of $2.2b annually. Disney earns about two dollars in parks and merchandise revenue for every one dollar earned from films (discussed on our Disney, Plus episode). Therefore we estimate Marvel generates about $6.75b in annual revenue for Disney, or nearly 10% of all the company’s revenue. Not bad for a set of nerdy comic book franchises…

Season 1, Episode 26
LP Show
May 10, 2019

9. Google Maps (Where2, Keyhole, ZipDash)

Total Purchase Price: $70 million (estimated), 2004

Estimated Current Contribution to Market Cap: $16.9 billion

Absolute Dollar Return: $16.8 billion

Morgan Stanley estimated that Google Maps generated $2.95b in revenue in 2019. Although that’s small compared to Google’s overall revenue of $160b+, it still accounts for over $16b in market cap by our calculations. Ironically the majority of Maps’ usage (and presumably revenue) comes from mobile, which grew out of by far the smallest of the 3 acquisitions, ZipDash. Tiny yet mighty!

Google Maps
Season 5, Episode 3
LP Show
May 10, 2019


Total Purchase Price: $188 million (by ABC), 1984

Estimated Current Contribution to Market Cap: $31.2 billion

Absolute Dollar Return: $31.0 billion

ABC’s 1984 acquisition of ESPN is heavyweight champion and still undisputed G.O.A.T. of media acquisitions.With an estimated $10.3B in 2018 revenue, ESPN’s value has compounded annually within ABC/Disney at >15% for an astounding THIRTY-FIVE YEARS. Single-handedly responsible for one of the greatest business model innovations in history with the advent of cable carriage fees, ESPN proves Albert Einstein’s famous statement that “Compound interest is the eighth wonder of the world.”

Season 4, Episode 1
LP Show
May 10, 2019

7. PayPal

Total Purchase Price: $1.5 billion, 2002

Value Realized at Spinoff: $47.1 billion

Absolute Dollar Return: $45.6 billion

Who would have thought facilitating payments for Beanie Baby trades could be so lucrative? The only acquisition on our list whose value we can precisely measure, eBay spun off PayPal into a stand-alone public company in July 2015. Its value at the time? A cool 31x what eBay paid in 2002.

Season 1, Episode 11
LP Show
May 10, 2019

6. Booking.com

Total Purchase Price: $135 million, 2005

Estimated Current Contribution to Market Cap: $49.9 billion

Absolute Dollar Return: $49.8 billion

Remember the Priceline Negotiator? Boy did he get himself a screaming deal on this one. This purchase might have ranked even higher if Booking Holdings’ stock (Priceline even renamed the whole company after this acquisition!) weren’t down ~20% due to COVID-19 fears when we did the analysis. We also took a conservative approach, using only the (massive) $10.8b in annual revenue from the company’s “Agency Revenues” segment as Booking.com’s contribution — there is likely more revenue in other segments that’s also attributable to Booking.com, though we can’t be sure how much.

Booking.com (with Jetsetter & Room 77 CEO Drew Patterson)
Season 1, Episode 41
LP Show
May 10, 2019

5. NeXT

Total Purchase Price: $429 million, 1997

Estimated Current Contribution to Market Cap: $63.0 billion

Absolute Dollar Return: $62.6 billion

How do you put a value on Steve Jobs? Turns out we didn’t have to! NeXTSTEP, NeXT’s operating system, underpins all of Apple’s modern operating systems today: MacOS, iOS, WatchOS, and beyond. Literally every dollar of Apple’s $260b in annual revenue comes from NeXT roots, and from Steve wiping the product slate clean upon his return. With the acquisition being necessary but not sufficient to create Apple’s $1.4 trillion market cap today, we conservatively attributed 5% of Apple to this purchase.

Season 1, Episode 23
LP Show
May 10, 2019

4. Android

Total Purchase Price: $50 million, 2005

Estimated Current Contribution to Market Cap: $72 billion

Absolute Dollar Return: $72 billion

Speaking of operating system acquisitions, NeXT was great, but on a pure value basis Android beats it. We took Google Play Store revenues (where Google’s 30% cut is worth about $7.7b) and added the dollar amount we estimate Google saves in Traffic Acquisition Costs by owning default search on Android ($4.8b), to reach an estimated annual revenue contribution to Google of $12.5b from the diminutive robot OS. Android also takes the award for largest ROI multiple: >1400x. Yep, you can’t eat IRR, but that’s a figure VCs only dream of.

Season 1, Episode 20
LP Show
May 10, 2019

3. YouTube

Total Purchase Price: $1.65 billion, 2006

Estimated Current Contribution to Market Cap: $86.2 billion

Absolute Dollar Return: $84.5 billion

We admit it, we screwed up on our first episode covering YouTube: there’s no way this deal was a “C”.  With Google recently reporting YouTube revenues for the first time ($15b — almost 10% of Google’s revenue!), it’s clear this acquisition was a juggernaut. It’s past-time for an Acquired revisit.

That said, while YouTube as the world’s second-highest-traffic search engine (second-only to their parent company!) grosses $15b, much of that revenue (over 50%?) gets paid out to creators, and YouTube’s hosting and bandwidth costs are significant. But we’ll leave the debate over the division’s profitability to the podcast.

Season 1, Episode 7
LP Show
May 10, 2019

2. DoubleClick

Total Purchase Price: $3.1 billion, 2007

Estimated Current Contribution to Market Cap: $126.4 billion

Absolute Dollar Return: $123.3 billion

A dark horse rides into second place! The only acquisition on this list not-yet covered on Acquired (to be remedied very soon), this deal was far, far more important than most people realize. Effectively extending Google’s advertising reach from just its own properties to the entire internet, DoubleClick and its associated products generated over $20b in revenue within Google last year. Given what we now know about the nature of competition in internet advertising services, it’s unlikely governments and antitrust authorities would allow another deal like this again, much like #1 on our list...

1. Instagram

Purchase Price: $1 billion, 2012

Estimated Current Contribution to Market Cap: $153 billion

Absolute Dollar Return: $152 billion

Source: SportsNation

When it comes to G.O.A.T. status, if ESPN is M&A’s Lebron, Insta is its MJ. No offense to ESPN/Lebron, but we’ll probably never see another acquisition that’s so unquestionably dominant across every dimension of the M&A game as Facebook’s 2012 purchase of Instagram. Reported by Bloomberg to be doing $20B of revenue annually now within Facebook (up from ~$0 just eight years ago), Instagram takes the Acquired crown by a mile. And unlike YouTube, Facebook keeps nearly all of that $20b for itself! At risk of stretching the MJ analogy too far, given the circumstances at the time of the deal — Facebook’s “missing” of mobile and existential questions surrounding its ill-fated IPO — buying Instagram was Facebook’s equivalent of Jordan’s Game 6. Whether this deal was ultimately good or bad for the world at-large is another question, but there’s no doubt Instagram goes down in history as the greatest acquisition of all-time.

Season 1, Episode 2
LP Show
May 10, 2019

The Acquired Top Ten data, in full.

Methodology and Notes:

  • In order to count for our list, acquisitions must be at least a majority stake in the target company (otherwise it’s just an investment). Naspers’ investment in Tencent and Softbank/Yahoo’s investment in Alibaba are disqualified for this reason.
  • We considered all historical acquisitions — not just technology companies — but may have overlooked some in areas that we know less well. If you have any examples you think we missed ping us on Slack or email at: acquiredfm@gmail.com
  • We used revenue multiples to estimate the current value of the acquired company, multiplying its current estimated revenue by the market cap-to-revenue multiple of the parent company’s stock. We recognize this analysis is flawed (cashflow/profit multiples are better, at least for mature companies), but given the opacity of most companies’ business unit reporting, this was the only way to apply a consistent and straightforward approach to each deal.
  • All underlying assumptions are based on public financial disclosures unless stated otherwise. If we made an assumption not disclosed by the parent company, we linked to the source of the reported assumption.
  • This ranking represents a point in time in history, March 2, 2020. It is obviously subject to change going forward from both future and past acquisition performance, as well as fluctuating stock prices.
  • We have five honorable mentions that didn’t make our Top Ten list. Tune into the full episode to hear them!


  • Thanks to Silicon Valley Bank for being our banner sponsor for Acquired Season 6. You can learn more about SVB here: https://www.svb.com/next
  • Thank you as well to Wilson Sonsini - You can learn more about WSGR at: https://www.wsgr.com/

Join the Slack
Get Email Updates
Become a Limited PartnerJoin the Slack

Get New Episodes:

Thank you! You're now subscribed to our email list, and will get new episodes when they drop.

Oops! Something went wrong while submitting the form

Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)

Ben: Welcome to season four, episode six of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert.

David: I'm David Rosenthal.

Ben: We are your hosts. We sit here today on the day of Uber's long awaited IPO. David, let me tell you, I am super pumped to be here today.

David: Me as well, Ben.

Ben: Here was my alternate intro, and frankly, I have a few here. We covered Pinterest and Lyft recently, both valued at about $15 billion. Today, we are covering a company who has raised over $20 billion dollars in Uber. Perhaps this third, Uber just raised $8 billion, 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 only by its epic operating losses with over 3 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, driver assets, and an international ride sharing holding company with enormous chunks of DiDi, Yandex Taxi, Grab, and a trucking shipping marketplace called Uber Freight to top it all off. Holy God, David, there's a lot to cover here.

David: I thought we were doing an Uber episode, not a Softbank episode.

Ben: At this point, what's the difference?

David: What is the difference?

Ben: All right. Listeners. before we dive in, I want to 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 Tolkin. Brian was one of Uber’s first 100 employees, helped start the product operations group, and eventually ran Uber pool when it was first getting off the ground. Brian had some really practical insights on how Uber developed their infamous playbooks and launched cities in the early years.

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 10 seconds, and you can listen right here and your favorite podcast player.

Aside from great interviews like Brian, you can also get David in my walkthrough of a term sheet, how VC firms really work, and some of our personal investment theses. You can click the link in the show notes, join, or go to glow.fm/acquired or click the link right in the show notes from this episode. Everyone gets a one week trial, so feel free to check it out.

David: Man, so professional. We've come so far, it's great.

Ben: It's funny, we're finding fit and how to actually describe that thing. I think when we first got started, we were a little all over the place in describing the LP Show.

David: It's all about [...].

Ben: It is. Oh, David.

David: Yeah, there we go.

Ben: All right, listeners, we have a fun message for you with the sponsorship. Our friends at Modern Treasury are throwing their first ever big event. It is called Transfer, their inaugural conference. It'll be a single day focused on the future of money movement with leading companies and special guests. And some of those special guests include David and I.

We are emceeing the event. We are also going to interview Brad Gerstner on stage to close out the day. Listeners know Brad from our previous interviews with him. Brad, of course, founded Altimeter, which is itself a large investor in Modern Treasury, so it is all in the acquired cinematic universe here.

David: Yes, it will be June 1st, 2023, both in person here in lovely San Francisco and online. Amazingly, this is super cool. There's going to be someone from the Fed speaking there, the SVP of payments for the whole Federal Reserve System. Of course, this is very relevant because FedNow is going to be launching shortly after the event.

For those who haven't been watching the industry, FedNow is the first new payment rail in 40 years. Modern Treasury's timing couldn't be better as the whole world is going to enter this new era of payments since FedNow will make real time payments actually a reality in the US for the first time.

Modern Treasury and Acquired have been basically joined at the hip from the early days. The founders came to our very first Acquired live show just after they finished Y Combinator. Now, they're huge. They're working with nearly 200 customers and full support on the back end from partnerships with over 30 of the largest banks in the world.

Ben: Yup. If you want to register to watch the live stream online, or apply to attend in-person in San Francisco, you can go to moderntreasury.com/acquired or click the link in the show notes. We would love to see you there. Of course, if you run a business that involves money movement, be at a marketplace, fintech platform, real estate, lending, investing, really anyone who reconciles or moves money, you should check out Modern Treasury too.

David: Thanks, Modern Treasury.

Ben: Okay, David, that is all that I have, I promise before you take us back to sometime in the 1400s when we were just discovering transportation or something.

David: I wish I were.

Ben: Have I overshot?

David: You've overshot, but I'm trying to think if this is the farthest back we've ever gotten. I don't know. Listeners, if you remember going back further, let us know. Hit us up at Slack.

Ben: As if there's not enough to talk about in Uber. Let's extend history even further in the past.

David: All right, here we go. We're starting appropriately enough in downtown San Francisco in the year 1889. Ben's reaction on video was great there.

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 beautiful treasure of downtown San Francisco. It was built the year prior in 1888.

Chadbourne gets off of his ferry, and he hails 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. This horse-drawn carriage is driven by a man named James "Nosey" Brown. Why is he called nosey? We're about to find out.

Nosey drives Chadbourne 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, unconfirmed. Now, also sketchy, home to startups.

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 you're going to have to give me more money to take you where you want to go. Chadbourne jumps out of the cab, he runs away. But he's really pissed. He's not just anybody, he is a wealthy muckety muck. He has contacts in the city government.

He lobbies them to enact. This has been a totally unregulated industry. It was just happening, people who had these hacks, who had horse-drawn carriages. They would just line up, do whatever they pleased. He lobbies his friends in the government to enact very strict regulations and henceforth in what would come to be known as the Chadbourne—I don't know if it's an act or whatever regulations.

All drivers in San Francisco had to be licensed with a badge, and that badge number had to match the vehicle's number. I think it was in a city ordinance. It gets named after himself. We jump a couple of short years later to New York City. What most people in America think of the center of the cab industry and indeed would become fully 50% of the entire taxi industry in the US.

In 1907 were the first cars, the first motorized cabs arrived in New York City. A businessman named Harry Allen imports them from France. He starts the first cab company, the first network of drivers, a transportation network company, if you will. He hires a bunch of drivers. He has huge success. There are 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.

One year in, it becomes clear that not all is utopian in this new transportation model in cities. The drivers are unhappy, and they go on strike. They argue in their strike that Allen had promised them that they were going to be employees, they were going to get a pension plan, these were going to be good jobs. He was going to give all sorts of benefits.

Be: It is crazy. What a mirror this is.

David: History repeats itself over and over again. But the reality is, they were not employees. They were essentially independent contractors. By the day, they get charged 25¢ a day for a uniform rental fee. They got charged 10¢ a day for a "brass polishing fee," and then they also had to buy their own gasoline.

Ben: I think I've seen that brass polishing fee on my Uber receipts from time to time.

David: Totally, it's amazing. This is 1907. They strike, and this is the beginning of the illustrious history of labor issues in the taxi industry.

We fast forward a couple of decades, moving quickly here. Something else that is going to get mirrored again later on in the episode. In 1929, the stock market crash happens and the Great Depression begins. Now what happens when this happens? 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.

What is a relatively flexible, easy to start, low amount of training job that you can do especially in New York City? You can become a cab driver. This becomes the backup job for a lot of these people who lost their jobs on Wall Street or in other industries in the stock market crash in the Depression, so much so that car dealers can't sell cars to people who are buying 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.

Ben: Wow, there's like a reminiscent thing of Airbnb here, too, where it's the very same issue that cities are having with people taking houses out of the supply market to be rented is happening with cars at this point.

David: It's happening with cars. What is this resulted? This resulted in a huge oversupply of taxi cabs on the streets of New York because a demand for taxi rides is down because everybody's losing their jobs. Supply is through the roof because everybody who just lost their jobs is now trying to become a taxi cab driver.

It becomes a total race to the bottom. Fares plummet through the floor. Nobody can make any money, and it becomes a huge problem. The streets are congested with cabs. What does New York City respond with and other cities around the country? They respond with basically creating the medallion system and a bunch of other regulations around it, which limits the number of licensed taxis that can operate in cities, especially in New York City, but also San Francisco and other big cities at any given point in time. That continues to this day, that is the taxi industry.

What happened to all of these other people who had gone out and bought cars, and now they were no longer able to operate? They don't just go away. This weird, interesting shadow market develops in cities, where these people are no longer regulated, taxi cab drivers approved by the city, but the regulations for taxis centered around meters. 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 go.

There was nothing that stopped people on their own from offering flat rate services. If you pre negotiate a rate of where the ride is going and paid up front, then you can do that outside of the existing system. This is the beginning of what was first called sedan service, then becomes the limo industry.

Ben: This is for-hire?

David: This is the for-hire industry. Sedan, limo, black car, is eventually what it mostly becomes known as. As we will see, there are some sketchiness that develops in this industry. It becomes a derogatory term known as the gypsy cab industry.

These two markets, the official regulated taxi market in cities in the US, and then the black car market, the for-hire market, develop in tandem over the next 100 years. The taxicab industry is highly regulated, and the for-hire market is relatively less regulated.

There are some sustaining innovations in Clay Christensen terms, but nothing disruptive. This sustaining innovation in the 1940s, radio dispatch was introduced. There's no coordination system. In the early days, you just hail a cab on the street. Finally, radio dispatch was invented in the 40s.

Ben: Which for anybody who's ever tried to hail a cab through the radio dispatch system, you know exactly how well that works.

David: Exactly, and then computerized dispatch in the 80s. But the problem is the taxi drivers are still independent contractors, so it's like a suggestion. If 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 look at them. If you see a fare on the street along the way, you can just pull over and pick them up instead.

A San Francisco taxi driver named John Han wrote a blog post in 2011 right after Uber, Taxi Magic, Cabulous, and all the other companies will get into his lunch. He 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 an "information referral 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 it, 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.

You can service radio orders if you'd like. 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 fare on the street that could be better anyway. He's like, I don't actually do this, but in theory, I could. I'm just making a point.

Anybody who is old enough to remember the world before Uber, Lyft, Sidecar, DiDi, and everybody else, that really was how it worked. It was awful. New York was probably the best American city and the most efficient cab market, but any other city and particularly San Francisco, it was impossible to get a ride as a passenger.

Drivers do okay here. The cab companies and the drivers are the ones who are always lobbying to sustain the regulation that keeps the industry dynamics like this, but it's not like the drivers are doing great either. There are strikes all the time. There are tons of labor unrest. The industry kind of tiktoks between drivers doing okay to drivers doing really poorly. The industry is completely broken. That goes on for a century.

We fast forward to 2008. Two super critical things happened in 2008 that completely changed 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. We're going to come back to that, but the dynamics of what happened here totally mirror what happened 70 years prior in the stock market crash and the Great Recession.

Unlike then, there is another thing that happens. In 2008, Apple introduces third-party apps for the iPhone with iPhone OS 2.0. That definitely did not exist in 1929, iPhone 3g and iPhone OS. It was not iOS yet. There's no iPad, iPhone OS 2.0.

Right around this time, a Virginia-based entrepreneur named Tom de Pasquale, 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 iPhone OS 2.0, and says, this is the wedge to finally bring some modern customer-centric innovation to the city transportation and taxi industry.

Tom had previously started a software company that was a travel booking tool, and it was acquired by Concur, a Seattle company and a great technology company. He had left Concur, and he starts this new company. He calls it Taxi Magic. His co-founder is a guy named George Harrison.

I know George. George, many years later, has become the CEO of Shift, the used car marketplace here in San Francisco. It's amazing. It's amazing how small all of these little sub worlds in technology are.

Ben: In Taxi Magic, they're doing a logical thing of saying, gosh, there are all these taxis. There should be a better interface to hail them.

David: There should be a better interface to hail them. The other thing that consumers hated—I remember this, you could do it in New York, but not anywhere else—is pay for the rides with credit cards. You needed to have cash to pay for your taxi rides in every city and in plenty of cabs in New York, too.

Tom and Taxi Magic, they're like, okay, with this computer in your pocket, you can have a better interface for ordering and dispatching the cabs. You can also take payment via credit cards that are built into this computer in your pocket and pay for them. It worked great. People loved it.

I remember using Taxi Magic around this time. It was fantastic. In every city except New York and America, it was a huge revolution, especially in LA, where Jenny was doing her PhD at UCLA at the time. We used it all the time there.

Just like so many companies that start at the very beginning of a wave, they got one big thing wrong, and that was that they worked within the existing system. Taxi Magic, of course, worked with taxi. Taxis worked with the cab companies. That meant a couple of things that were just big problems.

What that blog post described about how dispatching worked 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. The ride wouldn't get assigned to whoever had first dibs on it, it was not who was closest to the customer. It was the driver that had been waiting the longest in the queue.

If you think about any city, but even Los Angeles where Taxi Magic was most popular, LA is a huge city. You can take two hours to get across the city with traffic. 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, that was progress. Of course, the problem still existed that 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.

Ben: It really shows how much power is on the supply side and how little power is on the demand side, where even with 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 fair.

David: You deserve fair. Yup, absolutely. Nonetheless, like I said, this was like a drop of water in the desert. Consumers loved it. Concur ended up investing in the company. It's still based in Virginia. It quickly expands to 25 cities around the country.

The next year in 2009, a certain venture capitalist who is going to come to play a very large role in this story had been thinking for quite a while about the taxi in the transportation space. He had invested in some other companies that had taken a marketplace approach to disrupting things like restaurant reservations and reviews online. He'd been thinking about this time might be right for an online marketplace for taxis. It was, of course, Bill Gurley at Benchmark.

Bill heard about Taxi Magic and Tom. Tom, of course, was a known entrepreneur. 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. I want Benchmark to lead your Series A. Concur had invested a little bit of money before. I'm going to invest $8 million at a $32 million valuation for the company.

He says, but I think we need to think about expanding out of that taxi market and into the black car market, bring them on as well because all the things I was describing about the taxi market are limiting, and you might be able to solve that in the black car market. We can just have a new version of the product, we can keep Taxi Magic. Let's create a new version of the product also called Limo Magic.

Ben: You can see how if you're the founder of a company, and you have a pretty dead set vision of exactly how you think you're going to run your playbook, how this could be a little jarring.

David: We have to say, huge thank you to a friend of the show, Brad Stone and his book, The Upstarts, where he chronicles all of this. We're going to refer to Brad many times on this episode. Tom, exactly Ben, as you say, he says, okay, I appreciate the offer, but this is my company. I'm a second time entrepreneur, I know what I'm doing here. Thank you, Bill, you're great. Benchmark is great, I'm not going to take your money.

He declines the investment. That obviously turns out to be the wrong decision 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, and it would get sold to Verifone, which is the company that provides the credit card payment terminals to the back of cabs in a fire sale, so not the trajectory of what would become Uber.

There's another company that gets started right around this time, sees the same vision. This one is an even better story.

Ben: I'm guessing this is not Uber.

David: I'll start telling the story, and I'll let you and listeners judge whether it is or isn't.

Ben: All right.

David: Back in 2008, in Los Angeles, if you know the history of Uber, you might know a little bit about Los Angeles, one of the great American corporations, the Best Buy company, the Best Buy Corporation, had set up an in-house incubator in LA. I think Best Buy is based in Utah. I believe that's where their headquarters is.

They'd set up an innovation incubator in Los Angeles. 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. If they got selected to join the incubator, BestBuy would pay for them to move to LA for two months and work on their idea in LA for two months, and then they'd go back to working on the retail floor.

Ben: Two months?

David: I know, this is completely nutty. A Geek Squad technician named Daniel Garcia 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 third-party applications for iPhone, they could build a Geek Squad app that would allow consumers to know, see, interact when their Geek Squad service was arriving.

He goes, he applies the incubator, he gets in. The head of the incubator was a guy named John Wolpert. John and Daniel realized partway through that this is okay. It 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. They refer on what they could call it, and it's super fabulous, this idea. They decided, great, we're going to call it Cabulous. Fabulous Cabulous.

Wolpert, the head of the incubator, he was a former IBM guy. He starts to realize as they're digging into this, like, oh, wow, this is big, and the time is now. Of course, it's 2008. Things are starting to go south in the economy, and Best Buy is hurt more than anybody. Not more than the banks, but second to the banks are the car companies and the retailers.

Ben: Particularly, large consumer electronics retailers.

David: Exactly. Wolpert goes to the corporate execs at BestBuy, and he says, hey, you don't want to be supporting this incubator anymore. You need to cut costs. I want to work on this. Can I just take this idea of Cabulous out of the incubator, move to San Francisco, and start building it and working on it? They're like, yeah, sure. Take it, spin it out. They don't even take any equity.

Ben: I don't even have time for this meeting right now.

David: Exactly. My hair's on fire. They let it go. I believe Daniel Garcia moved to San Francisco, and they built the company, they start working on Cabulous. They raised a small angel round, and they get a call. Wolpert gets a call one day.

Knowing Bill, I know this is exactly how he operates. He just gets a call. Wolpert's never talked to Bill Gurley before. He picks up the phone, and it's Bill Gurley. Wolpert and Gurley says, hey, I heard about what you're doing. I'm very interested. I hear you are fundraising right now. I would like to talk to you about it.

Wolpert says, we're only raising a very small Angel amount. I don't know if Gurley or Wolpert says this. Benchmark doesn't do seed. They invest in a Series A firm, they invest larger checks. Unlike most other Series A firms, they basically really mean it when they don't do seed investing. Wolpert says, yeah, we'll talk later. I really think I just want to raise a small amount right now. Gurley says, okay, I'll talk to you later.

Ben: What is with these people turning down Bill Gurley? What are you doing?

David: I don't know. It was debatable as we go on through the story. For several years, it was probably the best thing and still to this day, the best thing for Bill and Benchmark that all these people did turn them down. They raise a small Angel round. We'll come back to all the history behind this meeting.

Eventually, while they're up in San Francisco, they get another call from two guys that want to meet that are also working in the transportation industry, two guys named Ryan Graves and Travis Kalanick, that want to go take them out to lunch, meet with them, understand what their roadmap is, and where they're planning to go with this Cabulous thing.

Those three men sit down to lunch, and Ryan says, hey, so are you going to stay in the taxi industry, or are you thinking about the black car industry? Wolpert says, oh, no, no, no, we're going to stay in the taxi industry. We're going to do this with the existing system. We're going to work with the taxi companies. This is a highly regulated industry. This is the only way to go. Ryan and Travis say, thank you very much. They pay for lunch, and they walk out.

We'll put a pin in that and come back to it later. The Cabulous would eventually be rebrand as Flywheel. 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. It is an ordering and dispatch system for taxis.

Ben: It's one of the best ways to order an actual taxi.

David: 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? Let's come back to the black car industry.

Okay, it seems obvious. We've just told you this whole history. So many people, so many entrepreneurs, so many venture capitalists, had been wanting to disrupt and innovate in transportation. Everybody knew this was broken. This was obvious.

Why hadn't people looked at the black car industry before? Way less regulation in many states including California. It was regulated at the state level, not at the city level. If you think you did have to deal with regulation, it was a far easier path. What were the barriers? It seems like way lower barriers to entry.

Here's why. Because every time somebody did try to go innovate in the black car industry, this is what would happen. People might know about a company named SeamlessWeb. There was a young corporate lawyer in New York in the late 90s named Jason Finger. This will also come back.

He was, 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. The ordering system for ordering food and having food delivery delivered was nuts. He came up with this idea of how to organize and deliver food in cities, started SeamlessWeb. It became huge. I used it every night when I was in banking in New York.

It eventually merged with GrubHub. It's now part of GrubHub, one of the largest food delivery services in the US. While he was a couple of years into working on Seamless, he thought, the other thing that lawyers and bankers do in New York is they ordered black cars. When there was this opportunity to use the Internet to make meal delivery much better, I could do the same thing with all the black cars that people use, so he actually started working on it.

His idea was that there was going to be Seamless. The meal delivery product was going to become Seamless Meals, and then he was also going to build Seamless Wheels. He talked to a couple of black car companies, he get some supply on board, he is talking to banks and law firms about using them. One day he comes into work, and there's a voicemail on his phone in the morning.

Ben: David, I'll stop you here for a moment and say, gosh, food delivery and ride coordinating on a platform, that sounds like a really good idea to combine those two.

David: Yeah, man. Why wouldn't you do both of those on the same platform? He gets into the office, and he's got the flashing light on his phone. This is the early 2000s. He plays the voicemail, and it's from a blocked number, so you can't tell what the number's from.

The voicemail says, and he tells this to Brad Stone in The Upstarts, Jason, 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? You've got such a good thing going with your food business. Why would you want to broaden into other areas?

As you can imagine, and if you hadn't put two and two together, lightly regulated industry. Growing up in New York City over the past century, companies are fragmented and not super visible array of companies that operate in them, it's run by the mafia. 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.

Ben: Did Seamless bail on the idea after that?

David: They immediately bailed on the idea. The meal delivery was working great. As the voicemail said, Jason had a young family. I would do the exact same thing if I were in his position. That was the end of Seamless Wheels. Of course, everything ended up great. Seamless Meals, like we said, ended up merging with GrubHub and is doing great today.

Sometimes when you have a situation like that, the only way to break the logjam is just with somebody who doesn't know any better. He doesn't know or he doesn't care. We've got two people, one who doesn't know and one who doesn't care.

In the middle of 2008, a Canadian entrepreneur who is in Silicon Valley by this point, had started a company back in Canada called StumbleUpon. This is, of course, Garrett Camp.

Ben: Of course, mark time, we are 22 minutes into this episode, and now discussing somebody involved in the founding of Uber.

David: Apologies for all this backstory, but I think it's super important. As we've seen, all of the history that's played out over 100 years and then over 10 years is going to play out again. Garrett had still sold StumbleUpon. He had started StumbleUpon back in Canada. He'd sold it to eBay. StumbleUpon was content discovery on the Internet. He had sold it to eBay the past summer in 2007 for $75 million.

By the way, we covered this in our Skype episode, but eBay went through this drunken binge of buying all of these companies that did not make sense. Of course, who was the largest venture capital backer of eBay? It was Benchmark. As chronicled in the great book eBoys, which we've recommended many times on this show, eBay drunk on their market cap, acquired Skype.

Ben: And their insane business model of never holding any inventory on anything. It's still to this day mind blowing that Amazon beat them.

David: Yes, different. The power of marketplace business models. eBay acquires StumbleUpon for $75 million. Garrett is nominally working at eBay, hands up just leaving eBay. He's moved to San Francisco. He's young, he's single.

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 to night clubs and partying all night. Why not?

Ben: He's 26–27, or something like that.

David: Yeah, mid 20s. He'd been working really hard on StumbleUpon for a little while and come into this money. He wanted to enjoy the fruits of his labor. I wouldn't blame him. I probably wouldn't make the same decision myself, but that's what he did. I don't know. Maybe when I was that age. No, Jenny and I have been together since I was 20. 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 1500 taxi medallions for all of San Francisco, which is a major city.

He couldn't get around. During the day, he talks about this. He was watching James Bond movies, and he's watching Casino Royale. There's this scene in Casino Royale, where Bond summons his car with his phone. 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. Garrett's like, whoa, that's super cool.

Ben: At this point, he had already flipped the switch in his head to screw this taxi thing, I have a good amount of money, I'm just going to hire a black car whenever I want to go anywhere. I'm done with this taxi crap.

David: Yes, he was done with the taxi crap. It is hard to remember now, but if you were living in cities in this time, the stigma of the black car industry, the "gypsy cab industry" was super strong. Everybody knew, don't talk to them. These were guys who would be driving cars, they'd roll down their windows as you're on the street. If you're trying to hail 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.

Garrett was like, you know what, how bad can these guys be? He starts using it a little bit, and he finds they're actually not that bad. These black car drivers, what they're trying to do, they have their scheduled rides that they're doing for the banks in the law firms that they're getting through limo companies, prom nights for high schoolers, or whatnot. But in between those scheduled rides, they're just trying to make some extra money. By and large, they're pretty good people. They're entrepreneurs.

He gets 15 of these guys' numbers on his phone, and he stops using the taxi industry. He just goes through the list when he's out at night, calls one. Then the next is, hey, you free, can you come get me? And he starts building relationships with them.

This is all going through his head. He has the black cars, he sees the gym, and he sees Casino Royale. He says, why don't I just put two and two together and build what I saw in the James Bond movie, marry it up with my friends who were the black car drivers, and have a private driver service on my phone?

Ben: It is amazing that both pieces of that puzzle, both going to nightclubs and watching James Bond movies all day, were both requirements in discovering the idea in being able to do it.

David: I know. He's very, very excited about this. At the time, he's dating a woman named Melody McCloskey, who would go on to become the founder and CEO of StyleSeat. He's talking to Melody and trying to figure out what to call it. Garrett had this turn of phrase. I don't know if this is from being Canadian or just whipped. But when things were really great, and he really thought it was awesome, he would call it Uber.

He would say if he had a really great coffee at Sightglass or whatever, man, that was an uber coffee. He and Melody were talking and he said, and this is a quote in The Upstarts, in Brad's book, he says, Uber, it means great things, it means greatness. That's what he decides to call this service, Uber. He calls it Uber cab, and he registered the domain name in August of 2008.

Ben: So funny that in this A-plus era that we're in and all these big IPOs that Uber or the most, the greatest, the top, or the biggest, is exactly that. It's a very aptly named company.

David: Very, very aptly named. His initial idea, though, he's got this network of drivers. He uses this. He has lots of other friends who are part of the new Web 2.0-era entrepreneurs in San Francisco. He thinks they would like to use this too, this private driver network.

His idea is he's going to go to sign up these sedan drivers that he knows, and then he's going to buy a fleet of cars. He's going to have basically his own black car company. He wants to buy a fleet of Mercedes S Class cars, then lease a garage in San Francisco, and keep them as his private network that he and his friends would use.

This is great. He's friends with Tim Ferriss, the angel investor and now big podcaster. He asked Tim Ferriss' assistant to help him research the industry and figure out, can he do this? It turns out he can.

This is now at the end of 2008. All of these ideas are spinning in his head. Garrett goes off with a bunch of his friends to Paris at the end of 2018 to the big LeWeb Conference. He's going there because he wants to go to the conference, but also his good buddy, fellow entrepreneur who has recently sold his company, 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.

Ben: Which should surprise no one. The very first thing we learn about Travis in this story is that he has a swanky apartment for a bunch of his wealthy friends coming in from another city to have this unique experience. You can already get a picture.

David: The super amazing thing about this is, he was doing this because (a) that fits with his personality, but (b) he was thinking about his next startup idea. Unclear if he had heard about Airbnb, but he thought that a network of luxury residences around the world that people might have access to, like the private homes versus the private driver, might be a pretty good idea. He was traveling around the world and looking for any excuse to go to tech conferences around the world and rent out the fanciest places he could find on Vrbo because he was trying to figure out if he wanted to start a company doing that.

Ben: Of course, very unlikely he had heard of Airbnb because these companies were started within three months of each other. Of course, Airbnb at this time was very far from anything luxury.

David: Brian, Nathan, and Joe, were not hanging out with the crowd that Garrett and Travis were running in. That is for sure.

Okay, 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 talk on YouTube that we'll link to, and actually a couple of listeners sent to us, which was really great. He introduced himself in the talk, as he says, I like to think of myself as the wolf in Pulp Fiction. He is an interesting, interesting character.

I would say, after having now done many, many hours of research on Travis, I think that is a very accurate characterization. He has all of the good and bad qualities of the wolf in Pulp Fiction. If you haven't seen Pulp Fiction, it's an amazing movie. I would assume most listeners have. But go see it and you'll know what we're talking about.

Travis grew up in LA, hence the LA connections for Uber. He was born in 1976 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. Some maybe DNA in the family of thinking about city infrastructure. His mother, Bonnie, sold ads for the newspaper, the Los Angeles Daily News.

Travis was super smart. This is something that comes through that I think has gotten lost in the story of Uber and Travis over the last two years. He is incredibly smart and very much a human, as we will see, and very fallible, but very smart. The lore is, when he was growing up, in middle school, he got extremely good grades. He was top of his class and everything. In middle school, he was bullied because of that.

Apparently, he made a decision one day in middle school to stand up to the bullies that he wasn't going to take it anymore. The way he was going to deal with the bullies is he was going to become hyper aggressive and give it right back to them. That is how things go. He also was naturally quite athletic. He played 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 and turn off his brain. While he was still in high school, when he took the SATs, he got a 1580 on the SATs, he aced the math section. He got an 800 on math and a 780 on verbal.

Ben: I can't imagine, this also says something about the guy that we know these numbers.

David: He's very vocal about the numbers. On the back of this, he started an SAT prep company to help other kids in the area make some end profit off of this. I believe, not the name of the company, but the class he taught was something like above 1500 or something like that. This is great, what he's giving in an interview later.

He talked about this. He said, it would be a 30-minute math section, I would be done in eight minutes. 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 develop systems to make it work.

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 he persevered, and he managed to do it. He taught systems to his students to do the same.

On the back of that score, he goes to UCLA, incredible school. He becomes a CS major. This is in the late 90s. He drops out in 1998 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.

This is super important. This is like the Tesla episode, the equivalent of where you start learning about what it is that made Elon, Elon. This is what makes Travis, Travis. He’s much like Elon's first company. [inaudible 00:45:12] this company started. It was called Scour. It was a rip off of Napster, but there were a couple of particulars about it.

Ben: Can we talk about how the roots of Facebook and Uber both have a P2P file music sharing thing with Wirehog and Scour at their earliest days?

David: Absolutely.

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

David: Absolutely. I think, probably much like, not Uber specifically in the early days, but then the peer to peer, true ride sharing industry that becomes the big industry that we talked about on the Lyft IPO episode, it's not entirely clear that it's wrong to do this. There would be no Spotify if there were no Napster.

Ben: Hundred percent, and it could be sharing anything on there too. It's not necessarily explicitly designed to rip off music.

David: Yeah. Okay. You nailed one of the key things that is different about Scour versus Napster. There are two. One is that, Scour whereas Napster was architected, it's peer to peer file sharing is architected specifically for music. Scour was meant to scour your hard drive and be for anything, any file. What would people want to share besides music? They might want to share videos and movies.

The other thing that was very different about Scour was it was based in Los Angeles. What is the big industry in Los Angeles? It's the movie industry. Like I said, the dot-com days, the go go go, who hears about Scour? Michael Ovitz.

This might ring some bells for listeners. I don't think we've talked about this too much on the show before, but Michael Ovitz was the famed super agent who started Creative Artists Agency, CAA. He then went on and became the president of Disney for two years or co-running Disney with Michael Eisner who was CEO. They fought, and Michael Eisner ended up ousting him after two years.

Ovitz and CAA became the inspiration for Andreessen Horowitz. 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 blueprint for how Mark and Ben envisioned Andreessen Horowitz when they started and really what that's become.

Ovitz has just been ousted from Disney, by Eisner. He's looking around making some investments, trying to decide what he's going to do next. He hears about Scour.

Ben: These hyper successful people looking around for the next thing sure are dangerous for the story.

David: Sure are dangerous. He hears about Scour. He, along with his buddy, fellow LA billionaire, Ron Burkle. They meet with the Scour team of these dropouts from UCLA, computer science department, who fit the mold to a tee.

They say, all right, guys, we want to invest in your company. We're going to give you $4 million, which was a lot back then, even in the go go days. We're going to give you $4 million, but we're going to do it. We're going to buy 51% of the company for $4 million.

Ben: This is like an ESPN style first investment.

David: Totally. Travis and his co-founders, they're pretty naive. They're like, well, this is cool. Michael Ovitz and Ron Burkle want to invest in our company? Like, yeah, let's do this. They signed a term sheet, but Ovitz was also known for playing hardball. What happens next?

It is amazing how much this foreshadows what is going to come with Uber. They sign the term sheet. After they sign the term sheet, Ovitz delays funding the company. Travis and his co-founders are like, what's up? We signed the term sheet, we're ready to go, wire the money, we'll give you 51% of the company. Ovitz starts trying to retrade on the deal.

He was famous for being a tough negotiator, so he locked up Scour with the term sheet signed. He wanted to get even more of the company. Months go by, they're deadlocked in negotiations, Travis in what will become a Travis signature here, he's not going to budge. Ultimately, after a bunch of months go by, and the exclusivity period on the term sheet had expired, Travis and his co-founders go on and they start talking to other people about investing in the company.

Ben: I just want to pause and say, that is exactly the wrong mindset for early stage. Companies are so fragile at that point that zero people should be in value capture mode because there's nothing to capture. You have to be in value creation mode.

David: A hundred percent. This would not apply today. I completely agree, this is absolutely wrong. We're talking about Michael Ovitz here. He just left Disney. He's accustomed to negotiations at a different stage. This is like bringing a bazooka to a sandbox, a shovel fight, a sandbox plastic shovel fight.

Ovitz flips out. He does his nuclear negotiations. He sues the company. Here we have Travis in his very first company. He sues the company to consummate the deal and be able to invest in the company. Travis is talking and he's like, what investor sues the company so that they can invest in the company?

Ben: Foreshadowing.

David: Indeed. This is Travis' first not only CEO experience, but experience with investors and "venture capital". After this lawsuit, again, these are kids who just dropped out of UCLA, they capitulate. They signed the deal. I don't know what terms it actually ended up getting done at, but it is done, and Ovitz and Burkle invest. They control the company, they control the board, but Travis and his co founders are actually building the thing.

As we said earlier, the other thing different about Scour versus Napster is you can share anything and you can share movie files. They're in LA, and Michael Ovitz 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 RIAA, I believe already sued Napster at this point.

They see Scour right in their backyard with Michael Ovitz involved, and they're like, oh, no, we're not going to go through the same thing that the music industry is going to go through. They turn around, they sue Scour. I believe it got to this hate because of a per instance violation. They sued Scour for $250 billion. That is one quarter of a trillion dollars. Travis has got to be 21, maybe 22.

Ben: That is like three Ubers.

David: Yeah, exactly like three Ubers today that the MPAA sue Scour for. Obviously, they knew they weren't going to pay $250 billion, but they were like, we're going to sue you into oblivion. 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 you just funded a piracy company.

Ovitz, as you would imagine, gets the message. He, all of a sudden, wants nothing to do with Scour. This is according to Travis. Travis has talked about this in an interview. Supposedly, what happens next, and Ovits denies this, is that Travis is scheduled to speak at a private entrepreneurs conference that Jason Calacanis is putting on in LA.

He's going to go on stage and speak. Before he goes onstage, he's seated at a table, and somebody comes up to him and suggests to him that if he's going to go up and talk about everything that's going on, and he's going to get asked about the lawsuit, he might not want to mention Ovitz's name. There might be consequences if he does.

Ben: What is with these veiled threats throughout this episode?

David: I know. This is the backdrop to Uber. Of course, this scares even Travis. He goes up, he behaves, and doesn't talk about Ovitz. This is in an interview Jason Calacanis does with Travis after he starts Uber. Travis is like, oh, yeah, I thought I played it cool. Jason was like, oh, man, you were sweating bullets up there.

That happens. The company ends up filing Chapter 11 bankruptcy to get rid of the lawsuit, and then the assets of the company gets sold out of bankruptcy. The company is torched. Here's Travis. He just had this wild experience. The company was completely torched. He walks away, thankfully, with no personal liability, but it's over.

What does he do next? He and one of his co-founders from Scour, they go and they say, you know, this technology is pretty interesting as a technology, and this mirror other episodes we've had here on Acquired. What if rather than using it 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?

Who would want to move content around on the Internet? Maybe it's those guys who just sued us, the movie studios. Online movie distribution isn't there yet, but people are moving content around. There are clips that are being played online. Maybe we can help them with their bandwidth by using peer to peer hosting to enable better bandwidth management for these movie companies.

Ben: We should, on a technical note, just make a point to folks listening that 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, in the early days of the Internet, it had to go literally all the way to the one server where the website was hosted. Now, things happen much faster because these things are cached all over the place. They're much closer to you, not really fully developed at this time.

David: Nope. Akamai existed, but was just starting to get going. Travis takes this as great, I'm going to start my next company. He calls it Red Swoosh, and it does this. It's a competitor to Akamai focused specifically on the movie industry. It is also a wild journey. He ends up running it for, I believe, six or seven years, raises a very, very small amount of money, including from Mark Cuban as an angel.

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. Eventually, we mentioned Akamai. Akamai ends up acquiring the company and consolidating it into Akamai for $19 million dollars.

Finally, at the end of this, it's now 10 full years that Travis has been on this grind, starting with dropping out at UCLA. He's lived with his parents for a long time. He's had his safety threatened. He's been sued for a quarter of a trillion dollars. And he finally has an exit. I wasn't able to get the exact figure, but several million dollars because he hadn't raised too much money out of that $19 million acquisition.

Ben: Yeah, the money is one thing that has happened, but the mold has been cast for Travis going forward based on just some traumatic experiences.

David: Incredibly, incredibly traumatic experiences. He moves to San Francisco at this point. I don't know if he'd already moved to San Francisco as part of the sale to Akamai. He did, but this is the backdrop that he's operating in now coming into 2008, where he's angel investing, he's having fun, he's going out with Garrett, also in San Francisco.

Ben: Is he looking for his next thing?

David: He's looking for his next thing. He's thinking about this Airbnb idea, 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. Garrett on his James Bond Uber idea and Travis on his luxury apartments around the world idea.

Throughout the week that they're there in Paris, they start spending more and more time on the Uber idea. Apparently, according to Melody, all three of them go out to dinner one night at a fancy French restaurant in typical French bistro style, they have paper tablecloth on the table. 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.

Ben: I want to make some crack here that maybe they should have sketched the unit economics for Uber on something a little bit more high fidelity than a napkin.

David: No. They're actually great, and this gets back to Travis being really smart. I don't know if it was specifically from that dinner, but the outcome of that week is Garrett was thinking about buying these Mercedes and renting a garage and storing them themselves. Travis, based on looking at the economics, he's like, 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 going to be so much better.

By the end of the week, he's convinced Garrett not to take the Mercedes approach. Travis is intrigued enough by what's going on. He says, all right, I'm in. I'm not going to join. I'm still thinking about other things that I might want to do in my other Angel investments, but I'll Angel invest in this, and I'll be a super advisor to the company.

Ben: This is my favorite part of this story that he's committing, but to what? It's like, I want to be active. I'm not joining, but I'm in.

David: Yup. I believe the idea is that Garrett is really going to run with this. They get back to San Francisco. This is now January 2009. 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 post stock market crash and the recession. They're like, why do we own StumbleUpon? They decided to spin StumbleUpon back out. Garrett's like, great, I'm going to come back and be the CEO of StumbleUpon again.

Uber basically gets put on pause, but Travis is still pretty interested in it. He's still saying to Garrett, hey, let's keep working on this. They make a little progress. They go out, they talk to the black car drivers that Garrett already knows. They give them phones, they tried out. They'd contracted with a developer who Garrett knew based in New York City, a guy named Oscar Salazar, who is originally from Mexico.

Oscar built the app in New York City with two contract developers back in Mexico. They had this rudimentary app, they try it out, and it works. They do that over the next year in 2009, and then in January 2010, the two of them decide, hey, there's enough here to actually start a company. We don't really want to run it. We're still enjoying our lifestyles. But what if we recruited somebody to come in and run this company?

On January 5th, 2010, Travis tweets one of the most infamous tweets, famous and infamous tweets in Twitter and all of internet history. He tweets, "Looking 4 entrepreneurial product mgr/biz-dev killer for a location based service... pre-launch, BIG equity, big peeps involved--ANY TIPS??"

Ben: Before getting into where this leads, can we just talk about how broad of a description that is? It's a product? What biz-dev killer?

David: Right. Also, people in Silicon Valley circles and entrepreneurial circles, knew Travis at this point, but the broader Twitter's like, who is Travis? What is this tweet? What is going on here? It's big.

Nonetheless, in the most fateful Twitter reply to this point in Twitter history. In Chicago, a 27-year-old GE employee who's in the GE management development rotational program, which is a fantastic program, a really smart young guy named Ryan Graves sees the tweet on Twitter.

Ben: And Miami and Ohio graduate.

David: Indeed, Ohio Midwester on. He sees the tweet, and he replies, "here's a tip. email me :) graves.ryan@gmail.com" With those two fateful tweets, a couple of weeks later...

Ben: Can we say email address like that on the show?

David: It's on Twitter. It may or may not be his email address anymore. Ryan, of course, now has a family office, Saltwater Capital, which we're great investors. We're co-investors with him and a few companies here at Wave. Big fans of them.

He moves out to San Francisco from Chicago. Now Ryan's married. His wife is a school teacher in Chicago, but he sees this as the opportunity, this is his shot. He moves out to San Francisco, and he becomes Uber's first CEO. Travis and Garrett bring him on.

Ben: That's apparently what the definition of a biz-dev killer prompt whatever it is, CEO. That's actually it.

David: I would love to ask them. How did that tweet turn into CEO? We may never know, but he becomes the first CEO of what is at this point, Uber cab. He and Travis start going around the city. They're signing up more black cab companies and drivers.

In June 2010, they officially launched the non beta consumer facing rider app to riders. They have about 10 cars on the platforms. The app is live in the iOS App Store. There are 10 black cars on the platform in San Francisco, and they go out to raise a seed round on AngelList, which had just gotten started as well.

The email blast gets sent out on AngelList. The description is that Garrett, Travis, and Tim Ferriss are investors and advisors. Ryan Graves is the CEO and only employee of the company. It gets blasted out to I think something like 170-175 investors. Lots of people see it, most people don't respond.

Some people respond and want to invest, including First Round Capital, Rob Hayes which who leads the round, writes a $600,000 check. Chris Sacca invested $300,000. Mitch Kapor invest, Jason Calacanis who we talked about invest. A friend of the show, Alfred Lin, who was still at Zappos had not joined Sequoia yet, he invests in the round. Once again, they get another call. I think this was probably a response.

Ben: By the way, this is like a crazy superstar party round. It's the who's who on the advisory founding-ish team and who's who in this initial angel round.

David: Yup, totally. You've got two proven entrepreneurs who are not running the company. But as an investor, you're like, maybe they might run the company. We'll see. They get another response to the email, though. It is, once again, Bill Gurley.

He sees or hears about 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? They say, we're raising a seed round, but we have big ambitions here. Bill says, okay, Benchmark doesn't do seed, do your seed round, but let's stay in touch. I'm very interested in this space.

The seed round ends up getting done. They raised $1.3 million in total at a $5.3 million post money valuation. Even despite trading today in the IPO, that is a long distance, many, many thousands of percent return from that valuation.

On July 5th, the day after July 4th, 2010, TechCrunch writes an article announcing the launch of Uber cab in San Francisco. As Brian Tolkin on our latest LP Show talked about, it was basically instant product market fit.

Everything we talked about with Taxi Magic and Cabulous, despite all of those problems and how much demand there was for that, finally, a service that is actually going to address riders and solve all of these problems, and in a city that is such a big city like San Francisco and has only 1500 taxi cabs, demand is off the charts.

Ben: They are 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 figure out what your strategy is to go get the other side built up just in time for you to overbuild and then need to switch back.

David: Yup, totally. They had hired a driver operations manager to start trying to onboard drivers and get things going in San Francisco. It was not working out. It was not going too well. This is where one more amazing story happens.

I believe also on Twitter, Jason Calacanis, who obviously Angel invested in the round, posted a tweet about the launch of Uber. I believe that they were looking for an intern. Somebody sees that tweet again. Doesn't reply to the tweet but 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.

The person who does that is Austin Geidt, who rang the bell on the New York Stock Exchange this morning in the middle of a big group of people. She is now, I'm pretty sure, the longest serving employee at Uber. She joins that summer as an intern.

Ben: Ryan Graves is on the board, but no longer an employee.

David: Yup, no longer an employee. Travis. obviously. is no longer there. I believe all two other people who were there before Austin are gone. She becomes the fourth employee of the company. Her story is just amazing. It's been told. but we're going to tell it again here because this is an incredible story.

Austin grew up in Marin County, just north of San Francisco in the suburbs. She went to Berkeley for undergrad. A short time into her time at Berkeley, into her college career, she developed a pretty serious drug addiction. She's very open. Honestly, she’s given many interviews about this and a great talk at Fortune about this. It basically ruined her life.

She dropped out of college, took several years off of college, worked with her family, and got completely sober. Then she returned to college in her mid 20s, ended up graduating from Berkeley at age 25. It was that summer of 2010 when she graduated, and she saw that tweet.

I believe the story, she had applied to be a barista either at Pete's or Starbucks, and gotten rejected to even go be a barista at I believe it was Pete's, but ended up getting this internship at Uber.

She says in this Fortune interview. I think this is just amazing. She says, 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. Being able to share that with my family means a whole lot more. It's incredible.

Austin would join as an intern. We mentioned 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 the first successful driver operations manager in San Francisco, and then would go on to lead and run the launch team for Uber. She launched I believe just about every city that Uber operates in around the world. Incredible.

Okay, things start getting going on the driver onboarding front in San Francisco. By the fall in October of 2010, people are starting to notice this is a big thing in San Francisco. Other people, in particular, people who are starting to notice, is the taxi industry. Taxi cabs show up at the city regulators office, and they start having a say, you got to shut these guys down, they're taking away our business, and what they're doing is illegal.

In October 2010, while there is a board meeting for Uber going on, and Ryan Graves, Travis, and everybody are at First Round Capital's office in the middle of the board meeting, the Uber office gets raided. Regulators show up, and they issue a cease and desist order. I believe they have a headshot of Ryan Graves there, and they're like, this is a wanted man. They say that Uber has to shut down and stop operating because they are "not following the rules".

To the company and to Travis's credit, again given all of his background, they say, what rules aren't we following? Travis would talk about this in an interview later. He says, this feels like a "homecoming" for him, you know after his experience at Scour. They had been really careful.

This is another point that has been completely lost in the last couple of 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 that was certainly not envisioned by current regulations, but it was not against the rules. They fight this, and they end up winning because like I said, the city had no jurisdiction over what they were doing. They're using black cars.

Ben: That's amazing. Given the narrative around this company, that is a completely lost fact to history.

David: Yup, completely lost fact to history, but super important for two reasons. One, because they win. They do not get shut down. The state of California allows them to continue operating.

The other outcome of this is 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 going to be huge. I am born to do this. I need to come in and be the CEO of this company.

Ben: The company got raided. Officials were there, there was a headshot. They were looking for the CEO, he was a wanted man, I want to be that guy. That's it, this is the company for me.

David: Like he said, it was a homecoming because he was in the meetings with the regulators, and he thought, I can do this. He comes in very amicably with Ryan. He'd hired Ryan. Ryan becomes, I believe, SVP of operations. Travis comes in, becomes the CEO.

He already had a 12% stake in the company from his advising as an angel investment. He negotiates. He gets a 23% stake in the company. This is post-seed round as CEO. He basically says he's going to devote his entire life to making Uber as big as it possibly can be.

Actually, he writes about this in the book. He broke up with his longtime girlfriend, and he explained. 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." No slight meant to his girlfriend, but this is the mindset he's in. He said, this is his life now. His mission in life is to build Uber as big as it can possibly be.

Ben: You're getting a lot of color on this guy here.

David: Totally. The growth continues. They go out in the beginning of 2011 to raise a Series A. Based on reputation and on his dinner with him early in the year, Travis's goal is Bill Gurley. He wants to Benchmark to lead the Series A.

He meets with other firms. Travis also talks about in interviews about the importance of running a process, but he always wants to build a lead. Bill and Benchmark do end up leading. Travis is asked later, why did you pick Benchmark? Jason asked him in this interview. His answer is because they're the best. It's not even a close call.

Benchmark ends up investing $11 million at a $60 million post. This is in the beginning of 2011 for an 18.3% stake in the company. That was almost unheard of in those days. A Series A at a $60 million post. I was at Madrona at the time. We were doing series As at 12 post.

Ben: And then they were $3 million or $4 million investments.

David: Indeed. This was a huge laying of cards on the table.

Ben: Bill had found his company. I remember when I first read Brad's book, The Upstarts, and realized all the work that Bill had done for five to 10 years before making this investment on the industry. 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 create that future.

Obviously, there are lots of ways to be a great investor. But learning that that is the approach that Bill took here and the traction they had, of course, but it's no surprise at all that it's a big check at a healthy valuation because it's the consummation of this year's long search.

David: Yeah, he was ready to go all in. I remember, New York was the second city that when there is the Series A, 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.

Ben: We need Brian Tolkin.

David: Yeah, exactly. They already fortunately had Austin Geidt, who had led the launch team. They go to New York next, the third city is Seattle. I remember so vividly, Bill sending an email to Tom Alberg at Madrona who we had on the show for the Amazon IPO, founder of Madrona. Bill and Tom knew each other from Amazon and from several investments over the years.

Bill emailing Tom, when Uber was launching in Seattle and saying, I think this is going to be a company that is going to be as big as Amazon. It's coming to Seattle, it's going to be the third city. I would love anything you can do to help, at Madrona, with Amazon, everybody to help bring Uber to Seattle. It is just incredible.

Tom forwarded the email to everybody at Madrona. I remember seeing it. I'd heard of Uber at that time, of course, and I was like, wow, that is a really ballsy and involved move for a board member to do and to try and drum up support. Obviously, Bill was right.

In February 2011, I believe right after this round was closing, there's an amazing video we'll link to in the show notes, that Austin Geidt took on her phone. They do an Uber happy hour in San Francisco. Travis is giving the welcoming 10-minute talk 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. At the end of it, he says, we're here in San Francisco, this is great. We're going to be very soon in 15-20 cities. Not only in the US, but we're going to be all around the world.

We'd asked Brian Tolkin on the LP Show. Was there a moment where it was never a debate at Uber that they would go global or not? Because obviously no other ride sharing company really did. He said, if there was, it was before I got here. There never was. Travis' goal from the beginning was this is working, this is global. We're going to go everywhere.

Ben: What was Brian's quote? The culture was, if it's a city and it's big, we need to be there yesterday.

David: Yup. That is exactly what happens. First New York, then Seattle, then Chicago, Boston, and then Paris I guess would be the sixth city. That was a huge moment for the company.

Travis was insistent that they go to Paris, and they go to Paris then, and they go international. Everybody else in the company was saying, this is crazy. We can't go international. We can't go to Paris. We're barely live in the US. He said, no, we have to do this. We have to do it now.

I believe the directive was we're launching in three weeks. I think it was for LeWeb, in 2011 LeWeb, that they had the launch for the LeWeb Conference there, and they did it. That was the beginning of Uber being an international company.

By that time, this is now the end of 2011. Uber is already doing $9 million a month in bookings and almost $2 million a month in net revenue for a company that is essentially one year old. The traction is just incredible. They're launching cities all over the world.

This is actually the moment where Travis starts thinking, you know what, we're going all in pedal to the floor on ride sharing around the world, but this can be bigger than ride sharing. He gives a quote in the Jason Calacanis interview. He says, we're a logistics company. He says, obviously there's ride sharing, but he says, I want stuff brought to me.

Maybe there's one that's even more focused. They were talking about examples of stuff that can be brought to, 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, delivery of food as an example. You like to eat at a restaurant, they don't do delivery, we have liquidity and cars, so we can make that really interesting. This is the end of 2011. That was the beginning of what would become Uber Eats.

Ben: It's so interesting too. It's comments like this that 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. The whole tech world would get up into a tizzy of like, Uber is going to launch like Last Mile , UPS and deliver. It's going to be a courier service that moves anything around the city.

That went away with the transition from Travis 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. That was always the like, what if they expand into everything?

David: Yeah. Maybe, eventually they will do everything, but Uber Eats is a monster of a business that we'll get into, and is a huge part, if not all of Uber's growth at this point. It's just amazingly prescient that he went that early. One year into the company, they were already thinking about it and starting to work on it.

At the end of the year, they end up raising again. The Series A was a landmark Series A. The Series B was almost as much of a landmark. They sell 10% of the company in around $32 million of the $322 million post money valuation. It's led by Shervin Pishevar at Menlo Ventures.

They only sold 10% of the company in the Series B, which was crazy back in the day. They now have this huge war chest, and then they just keep going city, by city, by city. They launched LA after that. As we've talked about in other episodes, Uber completely transformed LA.

Ben: Before we move on from that, is the Series B the one with the crazy last minute change on who the investor was?

David: Yes. I was going to get into this. It was going to be Andreessen Horowitz.

Ben: Yeah. I think this is worth telling.

David: I was going to tell it a little later, but we'll jump ahead now. Yeah, Travis wanted Andreessen to lead the Series B. As the story goes, Andreessen was in to do it at roughly $300 million valuation, but there was a dinner supposedly between Marc Andreessen and Travis.

After that, Andreessen Horowitz decided to lower the offer into a valuation in the low $200 millions, and also wanted to include a much larger option pool in the company. Travis would have none of it, and that was the end. Of course, and then as we're about to see Andreessen Horowitz.

Ben: Sure, they had planted the seed with Travis before like, well, if anything weird happens, you know where to come.

David: You know where to find me. Travis called them up, and they did the deal. Andreessen, of course, then would regret that decision, but not for too long because shortly thereafter, they would invest in Lyft. They would lead Lyft's first round after pivoting into peer to peer car sharing and are still one of the largest shareholders of Lyft today.

Back to Uber, this is, I would say, the apex of the original Uber. They're at an unprecedented revenue growth rate, the GMV and revenue growth rate. They're raising unprecedented venture rounds. They're global. They're on the path to world domination. They're, at this point, I believe at about $100 million net revenue run rate. They could go public at this point in time by the old set of rules.

Ben: If this were a different point in history, they would have.

David: They would have, and maybe they were even thinking about it, but then history turns on a knife point once again. We will refer listeners to our episode about a month or so ago on the Lyft IPO. But this is now early 2012, and Homobiles has ceded the concept of peer to peer car sharing with Sidecar. Sidecar has ceded the concept of peer to peer ridesharing with Lyft.

Ben: Which feels a lot less legal than what Uber is doing.

David: It sure does feel a lot less legal. Yes. But nonetheless, Sidecar and Lyft launched in San Francisco in the spring and summer of 2012. We spent all that time describing the regulations in the taxi industry and in the black car industry earlier in the episode. Peer to peer ride sharing is completely ignoring these regulations and definitely illegal.

You could argue whether Uber was in a gray area, it was not regulated, but it was not clearly illegal. What Sidecar and Lyft are doing is clearly illegal. Nonetheless though, Uber and Travis, because of their personality, there are a lot of people in certainly the taxi industry, but especially in regulators and city governments who don't really like them.

They're, I wouldn't say, happy to see something illegal happening, but they're happy to see competition arising and legitimate threatening competition to Uber. What happens next for the next six months or so, Uber and Travis fight really hard to get Lyft and Sidecar shut down. They are lobbying with regulators on the side of regulators for protectionism.

Ben: It's crazy. The history is glossed way over this, like Uber and the regulators trying to shut down Lyft.

David: Yes, totally. It makes total sense from Ubers perspective. According to Brad, Bill Gurley drove a lot of this thinking on the board. They were terrified of anybody undercutting them on price. With peer to peer ride sharing enabled was an undercutting of price. This was a huge, huge threat.

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 10% take rate and trying to undercut on price. In response to that, Uber had rolled out what was then UberX. UberX was cheaper cars, Toyota Priuses, still with licensed drivers, but to compete at a lower take rate margin with Halo.

Ben: I don't think I knew that UberX was licensed drivers when it first launched.

David: UberX was licensed drivers, it was not peer to peer. The original purpose of it was to compete with Halo.

Ben: This massive fear of undercutting on price is such an incredible foreshadow for the financial position that the companies are in today because ride sharing, as it turns out, is an incredibly price sensitive market. If you open both apps, once a buck cheaper, and it's relatively the same distance away, you just do it. There's 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. You can see it all the way back in this era.

David: Totally. This is the moment where everything changes. Ben, we joked about unit economics and the table napkins to Paris earlier. Before this happened, the trajectory that Uber was on was the beautiful typical Silicon Valley story from up until that point in history. They had a beautiful marketplace based business model. They were not taking inventory.

They were pushing the edges of regulation, but they were working within regulation. The unit economics were incredible. Uber was on a $100 million plus revenue runway. I assume it was not profitable because they were investing so much in growing cities, but they probably could have been. I remember people talking about cities being wildly LTV profitable. I forget numbers that were thrown around that I'd heard, but 9, 10 plus LTV to CAC for riders and drivers in San Francisco.

Ben: For folks on the fringe of the biz here, that's Lifetime Customer Value to cost to acquire a customer. If your customer lifetime is 10 times the cost to acquire, that's a great business you got there.

David: An incredible business. It was also an incredible business for drivers. They 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. Uber talked about this, and Travis talked about this, becoming their own little mini entrepreneurs on the platform. To Airbnb chagrin, like property managers and 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.

When peer to peer launched, it completely shifted the dynamics of the industry. One, by changing the unit economics, but even more so, it opened the floodgates of supply. A listener 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 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. Because of that, there was also the competition for the demand side between Uber, Lyft, Sidecar, DiDi, and everybody internationally. The companies have spent so much on subsidies to bring in riders on the demand side, and it completely changed the unit economics. What happens?

Ben: They don't IPO.

David: They don't IPO, no. For a while, for a number of years, the wisdom becomes certain at Uber and to a certain extent, at other companies too, certainly at Uber, certainly at DiDi. The way we can win this as this is a war of attrition, we will raise so much money.

This is what we talked about on the Lyft episode, 16 times the amount of capital that Uber raised versus Lyft at one point in time, something like that. We can just blow away our competitors and crush them into oblivion. Once we've crushed them, then the unit economics will become more stable, and we can return to profitability on these platforms. It shouldn't be long.

In August of 2013, Lyft raised the $60 million from Andreessen in May of 2013. In August of 2013, Uber raises $258 million led by Google Ventures with TPG coming in the private equity firm. This is the start of this. Instead of just investing those $260 million in the US and competing with Lyft, remember, Uber is now international, and DiDi and China starts raising huge amounts of capital. Uber is now spreading this capital fighting land wars all around the globe.

Ben: Yeah, Uber's doing a multifront war. They have to capitalize wars on all these different borders. We should say too, they are maintaining a very strong leverage position in this negotiation. They raised that $260 million on a $3.7 billion post money. They just got a 10x from that previous round, where they were valued at $350 million.

David: Totally, which was 5x, 6x from the Series A. I think people thought about at the time like, oh, wow, if they had gone public, maybe they would have gone in public at a relative market cap like this. I guess this was just a private IPO type thing. It turns out that was far from the end of the capital raising.

We'll skip over a lot of this here in the interest of time, but go listen to our Lyft episode. Go listen to way back our DiDi episode that we did with Brad Stone. Brad really was the foremost reporter in talking about the dynamics between Uber and DiDi.

The amount of capital that they were raising from sovereign wealth funds, from hedge funds, from huge entities, pumped the valuations of these companies so much over the next couple of years. Uber ends up raising $20 billion in total. Ben, as you alluded to at the top of the show, the valuation peaks at $72 billion on the private markets, but all of this capital is going into fighting these wars.

Ben: These are the folks that start coming in here. We were talking about this is an era where you would go public. GV made a crazy bet putting an abnormally huge amount of their fund, if not all of the remaining. There's something wild that happens in ventures.

David: I believe GV operates on an annual budget cycle. But yes, they put in a lot of money.

Ben: Yeah, and then you start to see in June of 2014, Fidelity comes in. This changes everything for startups. We talk about the era of staying private longer and why all these companies are IPO-ing now and why haven't they IPO'd yet, the next set of investors would be Fidelity, T. Rowe Price, Goldman Sachs. Then you start getting into international, you get Times Internet, Tata Capital, Tiger, SoftBank, the list goes on and on from not raising from venture capitalists.

David: The Saudi Arabia Public Investment Fund comes in and puts a lot of money into one of these Uber rounds while they're filing with DiDi. That was before the Softbank Vision Fund. Of course, who is the anchor investor in the Softbank Vision Fund? It's the Saudi Arabia Public Investment Fund.

Ben: Yup. I think this is an interesting point. A few people have asked David and I. I think there are a lot of good answers floating around, but why is this happening now? Why is this whole A-plus saga happening in this four to six-month period at the beginning of 2019? I think there are a few reasons.

One, it's been this bull run for over a decade. People want to get out before the music stops. Companies used to IPO after three or four years, after being founded. You look at Amazon, it was ‘94 to ’97 or something like that. Now they're a decade or more. They've taken private funding for a long time.

There is a time limit to the amount of time that private investors are willing to wait before getting liquidity. We're learning that time is about 10-12 years after a company has been founded. A lot of these companies all were started right around the same time in this two-year window following the 2008 recession. A lot of them stayed private longer, took private capital longer.

They're facing pressure from their board, many companies in a less documented 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 convertible bond that they took carries a coupon that will increase over time. I think that that clock started in January.

They've been racking up fees and debt if they didn't go public. That's another big trigger of this whole thing. Look, if Uber had to go, it then lines up the timing for a lot of these other companies to go too.

David: Yeah. To me, the most interesting takeaway from doing 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, it was opened up really by Uber and by everything we're talking about here. It had been happening slowly before then, but this opens the floodgates.

It opened the floodgates because peer to peer ride sharing launched. It changed the economics, and Uber now needed to raise all this money. It's just so interesting that the narrative has been these sources of capital came in because they couldn't find growth in the public markets. That's absolutely true. It's 100% 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 going to do that instead of going public. They had to, they couldn't go public. They needed all this money to fight these wars.

That trend is now extended to plenty of companies, Airbnb being a great example. They also fought a war, which we will cover when we cover them, but it was a much more contained war that they definitively won. They didn't have the same dynamics.

Ben: With Uber for a long time, until very recently, where Uber cut these deals to merge or take large owners to ship stakes in some of their competitors internationally instead of competing, the thought was, oh, my God, the global ride sharing market is one of the biggest markets in history. It is a single market, it's going to be a winner take all, and it is worth just go go go, put as much money into this company as you can, because they're going to take it all. From there, we will get to do all interesting things and margin expansion over time and whatever else. It turned out that that wasn't true. It's not actually a global market.

David: It's global market, but it's not a global network effect.

Ben: I would say it's a series of markets. In a way, 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 open each market differently and have completely different products and marketplace dynamics. Ride sharing turns out to be a nationally fragmented market in a way that it's not accessible by one company leveraging their asset to just scale perfectly. That's what I'm getting at here.

There had to be this pivot later on, where this company had this huge valuation, had been massively capitalized. If they're just going to 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 going to dominate the other parts of global ride sharing. We saw a pretty definitive shift in strategy when it became clear that it is not one singular large market that they can win.

David: Yup. Both on the capital raising and then on the mergers, acquisitions, and divestitures front.

Ben: Alright listeners, we have a fun message for you with the sponsorship. Our friends at Modern Treasury are throwing their first ever big event. It is called Transfer, their inagural conference. It’ll be a single day focused on the future of money movement with leading companies and special guests. Some of those special guests include David and I. We are MC-ing the event. We are also going to interview Brad Gerstner on stage to close out the day. Listeners know Brad from our previous interviews with him. Brad,  of course, founded Altimeter which is itself a large investor in Modern Treasury. It is all in the Acquired cinematic universe here.

David: It will be June 1st, 2023. Both here in person in lovely San Francisco and online. Amazingly, there’s  going to be someone in the Fed speaking there. The SVP of payments for the whole federal reserve system. Of course this is very relevant because FedNow is going to be launching shortly after the event. For those who haven't been watching the industry, FedNow is the first new payment rail in 40 years. Modern Treasury's timing couldn’t be better as the whole world is going to enter this new era of payments since FedNow will make real time payments actually a reality in the US for the first time. Modern Treasury and Acquired have been basically joined at the hip from the early days. The founders came to our very first Acquired live show just after they finished Y Combinator. Now they’re huge. They’re working with nearly 200 customers and full support on the back end from partnerships with over 30 of the largest banks in the world.

Ben: If you want to register to watch the livestream online or apply to attend in person in San Francisco, you can go to moderntreasury.com/acquired or click the link in the show notes. We would love to see you there. Of course, if you run a business that involves money movement be it a marketplace, fintech platform, real estate, lending, investing, really anyone who reconciles and or moves money, you should check out Modern Treasury too.

David: 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 happened after this. Unfortunately, we don't have that luxury because today is the IPO day. We’ve got to get this out.

All right, 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 2017. The annus horribilis for Uber and Travis Kalanick. I think it means it's really bad. I think it's Latin for a terrible year, a horrible year.

Everybody knows what happens in 2017 to Uber. I think having told this whole story, the story of Travis's background, and what we were just talking about of this new environment that the company suddenly found, they thought they were going to be the next Google. They thought they were going to be the next eBay or Amazon, but it turned out the dynamics changed.

Now they are in this incredibly huge market. 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. Just like 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. I think 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 a party to at Uber.

Ben: At this point, I think we've played the narrative of 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 say that he had a clean slate. Lots of people made really bad decisions and did really bad stuff. I think we should just make sure we're super clear on that.

David: Totally. At the end of the day, everybody's a human, including and especially founders. Humans are capable of being very fallible.

Ben: Listeners, you should know that the header in David's notes for this section is chapter four, the system's broken.

David: Yes. It was actually inspired by Kanye West lyric there, but that's another human for another day. Okay, January 2017, Donald Trump has just been inaugurated as the President of the United States. I'm living in Paris. We're recording 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, DiDi, and the Uber-DiDi merger. What is the first thing Donald Trump does in his first week in office? He enacts the travel ban. A terrible, terrible thing, in my view, not that this is a political show, but I will 100% stand by that statement forever.

What happens because of the travel ban? People are stranded at airports, and particularly, people who are stranded at JFK in New York. People who have been flying to and from countries, predominantly Muslim countries where the travel ban has been enacted, demand for Uber and Lyft spikes off the charts, 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 surged. Surge is how they respond to imbalances in supply and demand. They're trying to do the right thing. The drivers are getting screwed here, and the drivers are putting so much pressure on Uber. They geofence the JFK Airport in New York and enact surge pricing for JFK. The reaction to this among the public is not good.

This is a super interesting story. Lyft, of course, does not go into primetime. It's Lyft's version of surge in JFK. Apparently, at the time, I don't know if it still is, Lyft's technical infrastructure was not architected to be able to turn on and off surge like draw arbitrary geofences. Their options were either turn on surge on all of New York, or don't turn on surge. That was one of the inputs into how they made their decision not to turn on primetime when this happened.

Uber does, Lyft doesn't. You can imagine how this looks. The public excoriates Uber for what happens here. They're taking advantage of the travel ban, they're gouging people. Immigrants who have been stranded, they're charging them hundreds of dollars to get where they're going.

People also realize, hey, wait, Trump has enacted this Technology Advisory Council. Travis is on Trump's Advisory Council. Is he in league with Trump? Is he trying to profit? Is Uber trying to profit on this travel ban? Definitely was not the intention or the case.

Travis puts out a statement that 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 immigration, but staying on the council was going to get in the way of that. He resigned from the council immediately, but the damage is done. What emerges out of this is #deleteUber.

Ben: David, this geofencing thing, I think that's a pretty underreported little tidbit. I also think, people still, when they hear the delete Uber, they link it to all the events that would follow here. They remember something happened at the airport, but I think there was a massive misconception and misunderstanding between the company of what they were able to do, what they were trying to do, and then what they got roasted for.

David: Yup, totally. I genuinely think they were trying to do the right thing. 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. This was also not a Travis decision. This was way farther down in the company, I think they're trying to do the right thing.

Ben: However, the company deserved everything that was coming next. On this initial spark, you can't start a fire, unless there's a bunch of fuel around the spark to catch. They had included a whole bunch of non goodwill from the public, from drivers, from all sorts of people. It could have been any number of sparks, but it was latent bad will.

David: And worst, inside the company. Very shortly after this, within a couple of weeks, a female Uber engineer named Susan Fowler, I believe was Time's Person of the Year in 2017 because of this, publishes a blog post announcing that 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, her boss at Uber in the engineering organization, tried to propositioned 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.

What followed is all too common in many industries and especially the tech industry. Nothing happened to him, and she was punished. HR gave her the choice according to her. 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 our 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, probably because she wouldn't have sex with him.

Ben: It's just horrifying.

David: Totally, totally horrifying. There's literally nothing else that can be said. What's even worse, things got even worse from there. She continued interacting with HR. She did end up eventually transferring to other parts of the company.

This continued to be a case, HR did not acknowledge it. It did everything wrong. It went up to senior levels of the company who continued to do everything wrong. She writes this blog post. If the spark was delete Uber at the airport, this is the bomb that goes off.

The next week, Travis meets with a group of female engineering leaders within the company. An audio recording of this meeting surfaces, and it's basically not particularly flattering. Travis doesn't say anything particularly bad, but he's also not really empathetic to what's going on here.

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 back to the Garrett and Travis days going out in San Francisco, that started the company. He referred to Uber by a homonym that implies that it allowed him 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 who had just left, who was in the Obama administration to come in and lead a thorough investigation into the company, into HR practices, harassment, and everything going on. Okay, that's bad.

Next thing that happens, we're now a week later in the end of February. Remember, Google is a major investor in Uber. They sued the company. They sued Uber because Uber had acquired a company called Otto, which was led by Anthony Levandowski, who was a former employee within Waymo, Google's self-driving car division. According to Google in the lawsuit, he took most or all of his intellectual property that he had developed at Uber, brought illegally into Otto. Uber acquired Otto, and now had illegally Google intellectual property around self-driving cars.

Ben: What was especially a bad look for Uber here was that Otto was bought for a good amount of money and hadn't built much. The question was like, why did they do that?

David: They basically spent $650 million to acquire Otto, Uber did. It looked and probably, essentially was that they spent that money to acquire Google trade secrets. Not good. Okay, things keep getting worse.

In February 28th, Bloomberg publishes a video that has been leaked, a dashcam video from an Uber driver, of Travis in this Uber, probably intoxicated on a night out on the town. 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. Travis just starts berating him and yelling at him. It's terrible. That comes out. That's the next body blow.

Several days later, it comes out that Uber sponsored a trip to an escort bar in Seoul, South Korea, with several senior Uber executives participating in this. This has come out as part of a Holder's investigation into the company. It gets leaked to the press. Executives start resigning immediately. They’re resigning for two reasons. One, Jeff Jones had just come in from Target to help clean up the image at Uber here as this was starting to happen.

Ben: Was he the COO?

David: He was, I believe, CMO or COO. He leaves immediately, he resigns, and he says, 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.

Other executives start resigning because they know that they did really bad things, and the investigation is coming for them. All told, six or seven senior executives leave Uber 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 they called internally Greyball to mask its activity. Uber was continuing to operate peer to peer in cities that shut down peer to peer ride sharing. Uber was continuing to operate and using this software to mask regulators and police from seeing that they're operating. That's pretty bad. An abrupt turnaround from several years earlier, the company was committed to pushing the rules but operating within the rules.

In late May, tragedy strikes. Travis's parents are involved in a terrible boating accident, and his mother is killed in this boating accident in California. His dad's severely injured. Again, you can imagine what's going on in his head through all this and the pressure he's dealing with.

In June, this is the next month, it comes to light that there was another terrible tragedy that had happened in India, where a woman was raped and assaulted by an Uber driver doing an Uber ride. The company in India investigated into it. As part of the company's investigation into what happened, they illegally access 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 what she was saying was true. Also totally terrible.

Ben: I had not thought about this in a while. It's uncomfortable to just hear it blow by blow by blow.

David: Totally. These are just facts. This is terrible. On June 11th, right after this, the Holder Report was issued to the Uber board. It's really bad. The very next day, a senior executive in the company named Emil Michael who was involved in many of these incidents and for a long time, had a reputation at Uber and within Silicon Valley as an effective operator, but it was no surprise that he was involved in these things. He had been involved in a confrontation with the journalist Sarah Lacy 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 13th, 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 (b) his mother was just killed. Tragically, his father is in critical condition. They asked him to leave the company, he agreed to a three month leave of absence.

On that same day–this is incredible. I remember when this happened. I was just watching a train wreck. The same day, there's an all hands meeting at the company led by several of the Uber board meetings. This is the worst. During this meeting, the purpose of which is to talk about all these problems stemming from the Susan Fowler, what she reported within the company, everything going on to talk about the outcome of the Holder Report.

David Bonderman, co-founder of TPG, who is on the board from TPG's investment in Uber, is onstage alongside other board members, including Arianna Huffington, who I believe is the only female board member at this point in time at the company. Arianna says to the company, "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."

Bonderman makes the most awful, awful, awful comment that he interjects here to what Arianna just said. He says, actually, what it shows is there's much more likely to be more talking. This is just the total sexist comment like, what? WTF.

Ben: This meeting was called to try and ease everyone's concerns that we are not a bunch of sexists. What on earth?

David: The worst. Thankfully, Bonderman immediately is kicked off the board that day. How could you even go there? It's just beyond the pale. He's kicked off the board that day.

Secondary to Travis. I think that's the last draw. Something very, very, very fundamentally needs to change in the company. The only thing that is going to do that is a new CEO and decapitation of old leadership and new leadership coming in at the top.

Ben: This whole thing started in January. It's now June, and we should take a quick moment and say, you recall from the Lyft episode, they were on the ropes, they were dead. Uber was beating them. They made so much money. Who would fund Lyft? They lost. And then this happened.

David: Lyft had tried to sell itself to Uber at least once, if not multiple times at this point. Uber and Travis believed that they would just crush them, they wouldn't have to buy them. They could continue operating, and all the problems will be solved, and then all this happens.

On June 20th, at this point in time, Benchmark and Bill Gurley's lead investors have been at their wit's end trying to deal with this, just this terrible situation. Bill had stepped off the board, fellow Benchmark partner Matt Kohler had taken his place on the board to try and broker some relationship moving forward here.

They decide they've had enough, so they organize a group of the core venture investors in the company, Benchmark, First Round, Menlo, Lowercase Capital, and then they get Fidelity involved too. They write a letter. They all signed a letter. Matt Kohler 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. 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 at his hotel, and they present him with this letter. The letter demands that he resign from the company.

There were several hours of negotiation. At the end of which, Travis signs the letter, and he does resign as CEO of the company on June 20th. Part of the 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 takes some responsibility, but he could say, this was my decision.

All of this gets leaked to the press in real time, and it becomes clear, this is not his decision. This was the investors led by Benchmark forcing this upon him. This is after he's signed that this becomes clear. As one might expect, knowing his history and mental state, he revolts. 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 in the press, great reporting by the New York Times, by Bloomberg, and by Brad and his team. He 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 because (a) I don't think there's any debate that this actually happened, and (b) this is part of the story. Benchmark in response files a lawsuit to Travis. Once again, you have investors suing a CEO of a company, suing Travis while they're investors in the company.

Ben: Again, unheard of for a firm like Benchmark to be suing a founder of a company that they have backed.

David: But this is what it had come to. Honestly, this is the end of the days of founder friendly, and I think that's a good thing. It's great to be friendly to founders, but there's certain behavior that just cannot be tolerated. Benchmark sues Travis for fraud and breach of fiduciary duty. The way that that all plays out is in negotiations over who is going to replace him as CEO.

Travis realizes he doesn't have the support to come in as CEO, but he thinks he can bring somebody in who's going to be supportive of him and his interest 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 GE. Benchmark's choice is Meg Whitman, who was CEO of eBay, one of their best investments, and that has played a big role in this story. There is a dark horse candidate, though.

Ben: I know Meg Whitman at least tweeted like, I don't know what you guys are talking about, I'm not taking this job. They both independently confirmed to the press, no, I will not be the CEO of Uber. Everyone's scratching their heads like, well, who's it going to be?

David: Who is going to be the CEO? It is amazing that this does not come out, does not get reported until the announcement is made on Sunday, August 27th, 2017, who the new CEO of Uber is, and it is Dara Khosrowshahi. He had been the CEO of Expedia since 2005, really has an incredible story and an incredible choice to come out of all of this, and lead the company through what was probably the most public mess of a venture-backed startup to play out in the press, probably ever.

Dara's story, like we said, is incredible. He was born initially in Iran. His family was a wealthy Iranian family in the pharmaceutical industry. In the late 70s, though, during the Iranian Revolution, the company got nationalized. They had to escape persecution. They moved. They emigrate to the US with nothing. They restart everything as a whole family. He grew up in the suburbs of New York.

When he's 13, in 1982, 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 excels in school, he ends up going to Brown. He then does banking after school at Allen & Company, his brother also worked at Allen & Company and now an MD at Allen & Company.

He joins IAC after Allen & Company. He becomes the CEO of IAC, of course Barry Diller's media and internet holding company. In 2001, IAC buys Expedia with a lot of Dara's work on that. Dara, a couple of years later, becomes the CEO of Expedia. He is the anti Travis. He is a super outspoken critic of Trump and the immigration policies that Trump was putting in place, obviously, because of his family history, and also because that's the right thing.

The board tasked him with basically three things to come in and do three easy tasks. (1) Fix the culture at Uber. (2) Stem the losses that we've been suffering in these wars all around the world and focus on core markets. (3) Take the company public and get this done. This is August 2017.

I think unquestionably, he has done about as good a job as you can imagine with part one, fixing the culture. I think there are still, of course, problems and things to be solved, but 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.

Again, there's still more work to be done. But certainly, compared to the trajectory that Uber and Uber's culture was on, an unquestionable turnaround. Also, on point three of taking the company public, they just went public today, but that really starts in January 2018, he orchestrates a deal. There's all this fighting on the board, with Travis, and everybody. He orchestrates a deal with Softbank to come in.

Softbank leading along with Dragon Air, Sequoia, and DiDi itself, they do an almost $9 billion transaction with Uber, same size as the IPO that just happened last night and this morning. $7.7 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 $48 billion valuation. Another one and a quarter billion dollars of primary equity from the company at a $70 billion valuation.

Ben: Some investment into the company to give them cash, but mostly taking money off the table and at what a discount. That previous round with the DiDi merger had been a $68 billion post, this is a $48 billion offer. Hey, take it or leave it, we'll buy your shares at this share price. It's a pretty wild way to buy up to 15% of a company.

David: Totally. Softbank gets 15%, but more importantly, this cleans up all the problems. Benchmark agrees to drop the lawsuit as part of this. Travis lays down his arms, and everybody unites behind Dara as the unquestionable leader of the company going forward.

Ben: Amazing peacemaker, given the circumstances coming into there.

David: Coming from his banking days in IAC, Barry Diller, and then Expedia, you can see how as great as Jeff Immelt and Meg Whitman are, very few other people could have executed this as well as Dara had.

Number two on his task list of stemming the losses, more questionable, and that takes us to today. Obviously, yesterday, Thursday, May 9th, Uber priced its IPO at $45 a share towards the bottom of the range, equal to an $82 billion market cap. Open trading today on Friday at $42 a share or a $76 billion market cap. As we speak, I believe they're trading at down to $41.76.

Ben: I just refreshed and saw that too.

David: Yeah. Slightly below that opening of $42 a share.

Ben: They're down 7% off the opening.

David: We'll see what happens in the coming days.

Ben: We should say, the first day of trading is a pretty terrible predictor of what's going to happen in a few weeks.

David: As we learned on the Lyft episode.

Ben: Yeah, or even the next year. We all saw Facebook's trough after IPO.

David: Yeah. There we have it, the history and facts. What a story. I don't think it's any exaggeration to say, certainly not the whole story of the time, but one of the biggest, if not the biggest stories of our time right now in the technology startup and venture capital world. This is unprecedented on almost every front.

Ben: Yup. David, now that we're done with the first section of the show...

David: I think we've probably covered the bull and bear case narratives pretty thoroughly here.

Ben: Let's nail them, though. Let's get crystal on what different folks would paint because I think we've alluded to a lot of things, but I think it's important to paint what different people were saying about the company going into the IPO.

The fascinating thing was in the Uber roadshow, they were comparing themselves to Amazon. One of the reasons was not only are we going to develop into this massive global market, but Amazon had this razor thin, they never really made any profit for the longest time. When they IPO'd, they were generating losses.

Now, of course, the fallacy there is they were not generating $3 billion of an operating loss, but that is the way that they were positioning it to IPO buyers. They've also shown incredible growth in Uber Eats. It's already more than 13% of Uber's revenue. 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 bright star there for Uber Eats.

I have massive personal gripes with the way this S1 was written because it made my job researching this episode just terrible. They intentionally did this. It feels not dishonest, but in a gray area. It is extremely difficult to figure out how the ride sharing business is doing because Uber has chosen to create a metric called monthly active core platform users. They group core platform as ride sharing, Uber Eats, and new methods of multi modality transport, so scooters, ebikes, and micro mobility.

The bull case is that their monthly active core platform users continue to rise. I think a lot of that growth is Uber Eats, but it's really hard to read into that. To the extent that that's the number you're looking at, users continue to rise.

David: I think the other part of the bull case here is that we're still less than two years into Dara being the CEO of Uber. His ability, both through his personality, but also through his background, to be a peacemaker and a dealmaker around the world, and return the unit economics and dynamics of Uber's core operations to something much more profitable and sustainable versus all out wars that they've been in.

Ben: Yeah. Globally, across all these fragmented markets that is ride sharing, it's one of the largest Uber markets of all time. They are really well-positioned to be the main player in the space and own big chunks of these companies in other markets. At some point, when they are able to ramp down marketing spend, they're going to generate a lot of money. The thing you have to ask yourself is, okay, well, when is the knife fight going to end? What will be the catalyzing event for all companies involved to start making money instead of spending the steal share?

David: Yup. With the Lyft IPO six weeks or so ago, and them now being a public company, I don't see that happening in most US markets anytime soon.

Ben: Yeah. Let's go into bears. This may take a little couple of minutes. Revenue growth has slowed pretty dramatically. If you look at the ride hailing business from 2016-2017, it grew 100%. From 2017-2018, it grew 42%. Then over the last two, maybe three quarters, it's been basically flat.

The growth is not coming from the ride hailing business. If you want to believe that this is a growth company, and it is because they're on a lot of vectors, it's not coming from ride sharing. You have to really be honest with yourself and acknowledge that.

David: A big problem there is that 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 Lyft over the last year. There's growth happening in some markets, but attrition happening in others.

Ben: Yes. This is something that was a little buried also in the S1, but you can find where they come out and say, in 2017, our ride sharing category position in the US and Canada was significantly impacted by adverse publicity events, which we covered. Although the rate of decline in our ride sharing category position has since "moderated", our ride sharing category position generally declined in 2018 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.

The takeaway here is, I think the important word there is moderated. They are still losing share in these core ride sharing markets. Anyone who wanted to blame delete Uber for Lyft's resurgence and say, but we're all good now, we're growing share again, it's just not the case.

That's looking at growth, and of course, the way that these IPOs tend to get valued as growth stocks were early in a company's life, there's lots of growth ahead, they're going to get more profitable over time. They're both going to get more profitable over time and continue to grow at these great rates that they've been growing, not like a little 10% public company growth rate, but these startups growing 30%-40% per year growth rates. I said, get more profitable.

Now let's dig into that and specifically into contribution margin. The contribution margin for the core platform business, which is of course, the ride sharing, and Uber Eats, which was 18% a year ago, was actually negative 3% in Q4 of last year. Really, a dangerous trend there, where we start to see them.

David: That's a direct reflection of the subsidies and competition.

Ben: Completely. It's that and it's because this is all lumped together into one category here. It's also very likely due to the aggressive marketing spend for the rapid expansion of Uber Eats. But nonetheless, you don't want to see a contribution margin shrinking as a company is getting more mature.

I think those are the two biggest things, the growth and the contribution margin, that are scary from a bear perspective. One thing to flag is that a lot of very high profile investors, including Founder Collective, and Softbank, are selling big chunks of their shares in the IPO. They sold them last night to new investors in a secondary transaction, rather than waiting for the lockup period.

I wouldn't read too much into this because the money's been tied up for a long time, they're trying to get liquidity. This is not unprecedented, but it's certainly not an encouraging sign if you're a potential buyer.

David: I agree not to read too much. These are shareholders that have been holding the shares for a very long time. I think the question is, a lot of the questions that emerged when the dynamic changed for Uber, both nationally in the US and globally with the emergence of peer to peer ride sharing, 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're still very much open questions.

It doesn't mean the market is still enormous, massive, and the potential is there. Relative to the way, way back in the beginning of this episode, where there were 1500 taxicab medallions in San Francisco, this market is so much bigger and open. But who will win, how it will play out, and the unit economic impact of that is still an open question.

Ben: Yup. The other thing is this isn't really a bull or bear, but it's interesting to just think about this, 20% of the value of this company is actually a holding company. They own 15% of DiDi in China, 38% of Yandex Taxi in Russia, 23% of Grab in Southeast Asia. That's $18 billion of equity that they own in these other companies.

If everyone remembers the Altaba episode with Yahoo and Alibaba, being a holding company that owns a bunch of other assets, you don't get to value the assets at exactly what they're trading for because there's inherent risk in, is this entity going to be able to get liquid on those assets if they ever needed to.? A good chunk of Uber's valuation is actually holding these foreign ride sharing companies.

All right, that's bull and bear. Let's go and grade this thing. I'll make a couple of points first before we paint what an A-plus would look like if we had 6-12 months to reflect back on this thing, and then of course, what an F would look like.

It's worth noting that every shareholder who bought shares since the end of 2015, including everyone who bought in the IPO last night, is now underwater. They had a pretty terrible narrative leading up to this thing that was really botched, where a year ago, investment fingers were rumoring that there would be a $120 billion dollar market cap for this company when it IPO'd. A couple of months ago, the rumor changed to $100 billion. Then they gave guidance that they were going to have an IPO range that went somewhere from mid 80s up to low 90s, and then they priced at the very bottom of that range.

Coming into this IPO, it already felt like it had been sliding. The public sentiment was, I'm buying something on the way down. It's not surprising that there wasn't a big pop on the first day. 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? One is that ride sharing will somehow get less competitive, marketing spend will decrease. The other is that they've built this incredible infrastructure. Now they can really light it up with Uber Eats and other things on their infrastructure that are great businesses. But of course, Uber Eats is also wildly competitive with DoorDash and Grubhub. That's also not a smooth sailing market.

What this section really tries to get after is, great, they just raised $9 billion. Are they going to be able to effectively use that? And what will it look like if they effectively use that? They needed to raise a bunch of money. 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. There's no pop, so people who bought the IPO, at least so far, did not see an immediate benefit, although, they should be holding for a long time anyway. We'll see what happens in a year.

Uber got basically the most money that they possibly could have out of this IPO if they're taking an operating loss of $3 billion a year. By the way, they said they think that will continue to increase this year. They need a lot of money in order to start to pull out of this thing. 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.

David: Yeah, it very much could happen. I think the question is, when will it turn? It's so funny. The scale is orders of magnitude larger than Amazon. I will say, this is the Amazon story and the Amazon history.

I think the A-plus case is exactly what Dara and the company had been saying on the roadshow and through the IPO process, which is, this is Amazon. We are bleeding tons of money, but we are building this infrastructure across multiple businesses that will be extremely defensible and profitable in the long term. I think that is an incredible story. It's a very incredible story. The question people are struggling with is how you price it right now.

Ben: It's an incredible story? This company has raised $20 billion, and they're 10 years old. Can we get more than a credible story?

David: I know. That's the A-plus. Yeah,  100%.

Ben: 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, Uber Eats continues this great growth rate that they're on, and also gets profitable.

David: 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 battleship, if you will, that will turn the tide in their fight with competitors that their economics will be fundamentally different than others.

Ben: Because they can afford to spend more on the infrastructure than Lyft or any of these players who don't have something like Uber Eats.

David: 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.

Ben: My other favorite structural advantage of that that I saw was somebody pointed out that if you can keep a driver busy 100% of the time between eats and the core ride sharing business, then they have less of an incentive to multihomed on other apps. If you reduce the supply on Lyft, then it's a worse user experience, et cetera.

David: And you can start to tip the field. As we talked about another company that Bill Gurley was intimately involved in on our Rover-DogVacay episode that I saw firsthand, that is absolutely true. If you can tip unit economics in a market in favor of one competitor over the other, they will tip. I think the A-plus scenario is this capital infusion gives them the resources to continue to be able to do that.

Ben: The F scenario is it just takes too long. They built for this. I think it's more likely that given an infinite timescale and dollars, they'll actually be able to do this. I think all the fundamentals hold. I think the F scenario is they're not able to access the capital that they need to. I think investors stopped signing up to put more cash in before the music stops. I think that could also happen.

I don't know what happens to Uber at that point, but that's definitely the downside scenario. They can't get it done in a short enough time frame to not need to go and access new capital in a really either dilutive or company challenging way.

David: If I'm in the shoes of Dara, the Uber board, and Softbank given their influence here, I think I would have imagined, the $9 billion that they just raised in the IPO, that's my time for input. I think you have to believe there is no more capital coming.

Ben: Yup, that's a great point.

David: All right. The F obviously doesn't work. I'm sure there will be some follow up episodes we do on this and various transactions along the way. Stay tuned to Acquired in the coming years.

Just to put a bow on this, and thank you listeners for bearing with us through this super extended piece, just like the Lyft IPO, we had to do this here. This is not the only, but this is one of the key stories of our time. We wanted to be as fair from all sides as I think we could. Hit us up with any feedback. We're super excited to see where things go from here.

Ben: Indeed.

David: Now, it is time to tell you about another one of our favorite Acquired companies, Vouch, the insurance of tech. Vouch is the fastest way to get business insurance for your startup when you're getting started and the right way to ensure your company as you scale. This season, we're doing something really fun with Vouch. We're doing actual client case studies with them.

Today, we're going to talk about Seek, which is a generative AI company founded by Sarah Nagy, an astrophysicist turned data scientist. One thing that always annoyed her when she was leading data teams was non data scientists colleagues would reach out to her team for a whole bunch of simple one-off reports that they needed, but would take focus away.

Then ChatGPT came out, and Sarah realized that it could write SQL and Python scripts on its own. Aha, she was like, generative AI can be my team member that answers all the one-off requests. She left and started Seek. After she raised an angel round, her first priority was enabling revenue. Of course she called another great friend of the show, Vanta, to get SOC 2 compliance certified.

Ben: This Acquired cinematic universe is blowing my mind.

David: I know, it's amazing. This is so great. Through working with Vanta, she realized she also needed business insurance. Vanta, of course, sent her over to Vouch. Vanta evaluated everyone in the insurance space, and only Vouch really can do the best job for startups and tech companies. Sarah clicked over from Vanta to Vouch, and had her basic business insurance done in minutes.

Fast forward, Seek is now scaling rapidly and has multiple Fortune 100 clients, Vouch is scaling right there with them. They added directors and officers insurance to protect her execs and board, then they added errors and omissions insurance coverage to protect Seek from mistakes and customer disputes, which guess what, in generative AI, that's a real risk, and it's different from other companies.

Vouch, being the insurance of tech, is the only business insurance provider that can really understand all of these new frontiers like generative AI that are happening in real time in our industry and put the right coverages in place. They anticipate risks and can underwrite effectively when nobody else can or will. Companies like Seek can get the insurance they need. Just like with Vanta, enable revenue with Vouch.

You can learn more about Seek at seek.ai. When it's time for your startup to get the best insurance that you need, you can save 10% on your first policy with Vouch just by going to vouch.us/acquired or telling them that Ben and David sent you.

Ben: Thanks, Vouch. 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. 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/acquired.

I promise you'll be overjoyed with how buttery smooth it is to get more Acquired right here on your favorite podcast player. Everyone gets a free trial, so don't be afraid to give it a shot. We've got some awesome, awesome episodes coming up. We'll see you next time.

David: We'll see you next time.

Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

More Episodes

All Episodes > 

Thank you! You're now subscribed to our email list, and will get new episodes when they drop.

Oops! Something went wrong while submitting the form