How top VCs view the new future of micromobility

Earlier this month, TechCrunch held its annual Mobility Sessions event, where leading mobility-focused auto companies, startups, executives and thought leaders joined us to discuss all things autonomous vehicle technology, micromobility and electric vehicles.

Extra Crunch is offering members access to full transcripts key panels and conversations from the event, including our panel on micromobility where TechCrunch VC reporter Kate Clark was joined by investors Sarah Smith of Bain Capital Ventures, Michael Granoff of Maniv Mobility, and Ted Serbinski of TechStars Detroit.

The panelists walk through their mobility investment theses and how they’ve changed over the last few years. The group also compares the business models of scooters, e-bikes, e-motorcycles, rideshare and more, while discussing Uber and Lyft’s role in tomorrow’s mobility ecosystem.

Sarah Smith: It was very clear last summer, that there was essentially a near-vertical demand curve developing with consumer adoption of scooters. E-bikes had been around, but scooters, for Lime just to give you perspective, had only hit the road in February. So by the time we were really looking at things, they only had really six months of data. But we could look at the traction and the adoption, and really just what this was doing for consumers.

At the time, consumers had learned through Uber and Lyft and others that you can just grab your cell phone and press a button, and that equates to transportation. And then we see through the sharing economy like Airbnb, people don’t necessarily expect to own every single asset that they use throughout the day. So there’s this confluence of a lot of different consumer trends that suggested that this wasn’t just a fad. This wasn’t something that was going to go away.

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Kate Clark: One of the first panels of the day, I think we should take a moment to define mobility. As VCs in this space, how do you define this always-evolving sector?

Michael Granoff: Well, the way I like to put it is that there have been four eras in mobility. The first was walking and we did that for thousands of years. Then we harnessed animal power for thousands of years.

And then there was a date — and I saw Ken Washington from Ford here — September 1st, 1908, which was when the Model T came out. And through the next 100 years, mobility is really defined as the personally owned and operated individual operated internal combustion engine car.

And what’s interesting is to go exactly 100 years later, September 2008, the financial crisis that affects the auto industry tremendously, but also a time where we had the first third-party apps, and you had Waze and you had Uber, and then you had Lime and Bird, and so forth. And really, I think what we’re in now is the age of digital mobility and I think that’s what defines what this day is about.

Ted Serbinski: Yeah, I think just to add to that, I think mobility is the movement of people and goods. But that last part of digital mobility, I really look at the intersection of the physical and digital worlds. And it’s really that intersection, which is enabling all these new ways to move around.

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Clark: So Ted you run TechStars Detroit, but it was once known as TechStars Mobility. So why did you decide to drop the mobility?

Serbinski: So I’m at a mobility conference, and we no longer call ourselves mobility. So five years ago, when we launched the mobility program at TechStars, we were working very closely with Ford’s group and at the time, five years ago, 2014, where it started with the connected car, auto and [people saying] “you should use the word mobility.”

And I was like “What does that mean?” And so when we launched TechStars Mobility, we got all this stuff but we were like “this isn’t what we’re looking for. What does this word mean?” And then Cruise gets acquired for a billion dollars. And everyone’s like “Mobility! This is the next big gold rush! Mobility, mobility, mobility!”

And because I invest early-stage companies anywhere in the world, what started to happen last year is we’d be going after a company and they’d say, “well, we’re not interested in your program. We’re not mobility.” And I’d be scratching my head like, “No, you are mobility. This is where the future is going. You’re this digital way of moving around. And no, we’re artificial intelligence, we’re robotics.”

And as we started talking to more and more entrepreneurs, and hundreds of startups around the world, it became pretty clear that the word mobility is actually becoming too limiting, depending on your vantage where you are in the world.

And so this year, we actually dropped the word mobility and we just call it TechStars Detroit, and it’s really just intersection of those physical and digital worlds. And so now we don’t have a word, but I think we found more mobility companies by dropping the word mobility.

Clark: And of course, Detroit has long been an epicenter for mobility, but does Detroit matter today for the mobility sector?

Serbinski: Five years ago, six years ago, as Detroit’s going through the bankruptcy, it was like  “Okay, Silicon Valley’s going to win. The Googles, the Apples, all the software engineers are out here, they’re going to create everything out here, 3d print their cars, and boom, Detroit’s going to be gone.”

And then all of a sudden, it’s like, “Wait, this is really hard. We’re really good at software but we don’t know how to take a piece of metal to turn into the nuts to actually fabricate this device at scale, and then also make a profit.”

Which is not all the startups in San Francisco make a profit. And so I think as we saw last year, that kind of the tide started to shift where Detroit does matter with the expertise how to actually build things.

And now Waymo is opening an office there and Apple and they’re thinking about how do we actually build our cars? It’s no longer an “either-or”, but I think it’s an “and”.

Clark: So Sarah, you are an investor in Lime. You invested before the company even experienced its first winter? Tell us why you decided to invest in Lime at that time before there was a lot of data and proof points that it would be successful.

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Sarah Smith: Yeah, so it definitely was an interesting time. I mean, “winter was coming” and so a lot of investors were holding out to decide where they were going to go with scooters. I think for us, we at Bain Capital Ventures invest in founders who are disrupting major industries.

And it was very clear last summer, that there was essentially a near-vertical demand curve developing with consumer adoption of scooters. E-bikes had been around, but scooters, for Lime just to give you perspective, had only hit the road in February.

So by the time we were really looking at things, they only had really six months of data. But when you looked at the traction and the adoption, and really just what this was doing for consumers.

At the time, consumers now have learned through Uber and Lyft and others that you can just grab your cell phone and press a button, and that equates to transportation. And then we see through the sharing economy like Airbnb, people don’t necessarily expect to own every single asset that they use throughout the day.

So there’s this confluence of a lot of different consumer trends that suggested that this wasn’t just a fad. This wasn’t something that was going to go away. There are certainly risks in the case of scooters where there’s literally a physical fleet on the street.

So if you don’t do a good job with government relations, the city can come through with a truck and just pick up all your assets and take them away. It’s very different from the rideshare economy. And certainly a lot of cities have been burned by that.

So a lot of our question marks around investing was “Are cities going to enable this? Are they even going to consider potentially, in the future, upgrading their infrastructure to enable micromobility?” And in our diligence, we found that actually, cities really wanted this because they’re facing so much congestion.

In fact, a lot of the congestion is driven by rideshare because it’s these last miles. How many of us have been stuck in a one mile Uber trip or Lyft trip and realized we could have walked faster than we were in our car?

And so micromobility really solves a lot of problems for cities, but it has to be done properly. And ultimately, we felt not only that but it’s an operationally intensive business and Lime had really proven that they were far ahead of others in terms of their operational excellence and the team and had formed relationships with cities so that’s why we decided to invest.

Clark: And we all know at this point, these scooter companies require a lot of cash to stay afloat. What’s next for Lime? Are they going to raise another couple hundred million? Will they sell to Uber?

Smith: I can’t tell you exactly what their plans are but certainly they’re capital intensive businesses and we knew that going in. I think it’s an interesting one because at Bain, we invest both at early and at growth-stage so we have some perspective of how those different classes of investors think.

And what’s interesting is that because it’s grown so fast, it’s a bit of an anomaly. Growth investors are usually used to seeing two, three, four years of data to do their analysis and underwrite an investment.

At the time we invested at a $2.4 billion post-money valuation, there was really seven or eight months of data. And so a lot of growth investors are sort of scratching their head trying to figure out “how do we even evaluate this with so little data?” Well, now we’re really 18 months in.

We’ve gone through winter and winter was not as bad as people expected. And growth has continued. And I think it’s become very clear that the scaled winner that has operational excellence can actually achieve positive unit economics. And so I actually anticipate they’ll be able to meet any capital needs that they have in the future.

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Clark: So Ted, Michael, have either of you invested in an e-scooter company and do you think those are viable businesses?

Granoff: We didn’t invest in a scooter company, but we did invest in a micromobility company, it’s called Revel. It’s based in Brooklyn, New York. And it uses the form factor of a moped, which is street legal, has a license plate, there’s no confusion about where it should be.

It’s certainly not going to be on the sidewalk, it’s going to be on the road with the cars. And what we liked about the company, aside from having a fantastic team, first we agreed with everything that you said that we have these really universal trends, we see it in China, and in the West, and even in Israel, where I live, everybody wants to live in Tel Aviv, everybody wants to live densely.

Urbanization is just is a very global, and I think persistent trend. And as a result, there’s no room on the streets for five-passenger vehicles for everybody to drive around. And while we can talk about autonomy, and that will have an impact for sure, I think getting to smaller form factors is something that is inevitable in this environment.

And one of the most interesting races, and you touched on it, I think is going to be not among the technology companies but among governments. And it’s a fascinating social experiment we have going on right now.

We’ve got scooters, and other micromobility vehicles in hundreds of cities around the world simultaneously, and they’re all having to face the same issues, and they’re all going to make their decisions. But out of a sample size like this, there’s going be some outliers.

I like to think about if Mike Bloomberg was still Mayor of New York, he’d pick one uptown avenue one downtown avenue and say it’s just for vehicles under 500 pounds. And that would be a fascinating experiment. But I think we’ll see things like that.

Serbinski: On our side, we haven’t made a direct investment in that. Because we invest only one month out of the year. We make our investments in May and June and then in an 18-month cycle we can miss an entire segment that popped up.

But this morning, we just announced our 2019 class, and we actually made an investment in a company out of Barcelona, Spain, that’s working on a more modular design for those electric power trains. And the company is called Unlimited Engineering.

And so as we see all these new micromobility solutions, whether they’re scooters or Segways, I think I saw a roller blade electric thing. Whatever it may be, it’s very clear that it’s some form of electric power and so our investment in this electric battery company is a more efficient battery power train designed to support whatever may be coming down the road. So we’re kind of looking more at the infrastructure side.

The "Fearless Girl" statue, by sculptor Kristen Visbal, stands outside the New York Stock Exchange (NYSE) ahead of Uber's IPO

(Photo: JOHANNES EISELE/AFP/Getty Images)

Clark: So Uber and Lyft have been trying their hand at micromobility. I’m curious how you think about their IPOs, which didn’t perform as everyone expected, particularly Uber’s. How do you think those IPOs impacted the mobility startup ecosystem?

Granoff: Well, we’re seed-stage investors and had we been a seed-stage investor in Uber I think we would have been quite pleased with the IPO, actually. It just depends on where you got in. But I think what they’re trying to do is to build platforms.

I was actually one of the first customers of Amazon when I accidentally discovered it when I was in Business School. And I bought a book there. Who could have imagined the platform that would become for retail. I think that with a lot of these companies, whether it’s Uber, Lyft, or Lime, they are looking at now this opportunity to be a platform for all sorts of mobility solutions that are just now being gestated.

Smith: I think in the short term, the performance of the IPOs probably is damping a little bit of interest from growth investors, mostly just because some I think frankly got a little bit burned. They were touted as potentially $120 billion valuation for Uber. And I think if you look, today, they’re sitting at around $75 billion. And look $75 billion is nothing to sneeze at.

They’ve built an incredible company over 10 years, but certainly there are some investors out there who are licking their wounds. In the long term, though, it’s actually going to be great because we now have a lot more information about how those companies are run and I think both investors are better equipped to evaluate the potential.

The thing that’s interesting about comparing Uber and Lyft to Lime, Bird or other scooter companies are that they are vastly different businesses. You’re running a very operationally intense company with a physical fleet, which is super different than trying to recruit and pay for drivers, which is quite expensive from an acquisition standpoint, and balance that type of market.

So there’s just a lot of things that are very different in the way the unit economics work about these businesses. And frankly that’s why I believe, ultimately, Uber and Lyft will think that they want to be more of a transportation destination, rather than owning every single part of your transportation journey.

And I think they’ll find that partnering with these companies globally is probably going to be their better path towards retaining market share, than trying to go head to head with all of these different partners.

Serbinski: And just to add to that I think regardless of the IPO and where Uber’s going, from a seed, pre-seed investment area, now it’s those early employees that helped scale those companies that leave and build the next wave of startups. And when you look at the Facebooks, the Googles the Apples, it’s those early employees that lead that next wave.

And so from my vantage, I’m excited that they went IPO, because at least those early employees are starting to get some liquidity and now they’re going to be out raising money building the next thing and they’ve learned all this great stuff. And so that cycle continues on.

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Clark: Sometimes IPOs aren’t successful. Sometimes startups are also not successful. Very recently, a company called Drive.ai shut down after raising a lot of venture capital. Now, Michael, you were an investor. So can you tell us what happened?

Granoff: We were a small investor in Drive.ai. We have a portfolio of 28 companies and a lot of people say shorthand that we invest in self-driving cars. What we really invest in is what we’ve been talking about here, which is the broad future of mobility, which includes autonomous cars, but also includes a whole lot else.

Drive.ai was the only company in our portfolio that was a full-stack autonomous company. We have a lot of companies, particularly based in Israel that do simulation for autonomy and teleoperation and sensors and software and cybersecurity and so forth.

In the case of full-stack level four, level five pursuing companies, I think we all know there’s a period of consolidation right now and it’s further out than some of us thought a few years ago, until we get into mainstream robotic taxi environments. But all these pieces of the puzzle are going to contribute to both the robotic taxi vision, but more importantly, to the broader vision of digital mobility.

Clark: So what went wrong in the case of Drive.ai? Did other acquisitions deals fall through where they were unable to raise more money?

Granoff: I was a small investor and wasn’t actually that close to the table to be able to tell you precisely even if I was able to, but I think they had some very, very talented engineers there who have found a good home and that we’ll continue to hear from in the future.

Clark: So Sarah, and Ted, do you suspect you’ll see a lot more of consolidation in the space? Startups shuttering?

Smith: I think we’re talking about a few different types of classes of companies. I think there’s autonomous driving, autonomous trucking, and mobility and rideshare. Four very different types of businesses.

So to speak to sort of the micromobility scooter e-bike side, yes, I definitely think we’ll see and we already have seen some consolidation in the US. If you look at Europe, there’s a lot of small regional players, some of them are doing well but I think ultimately, they’re going to find that it’s very, very hard to scale and continue to build this business. And so we expect to see consolidation.

Serbinski: Being a former web developer, just thinking about building websites in the 90s. Things would go down, it was hard to keep websites up. If it’s a case of nines, like 99.99% — how often is that website down and Twitter the early days, the fail whale.

And as reliability went up, the infrastructure got better and better. I think it’s very similar to the self-driving landscape in that 99% of it is good, But those nines, hours, days, that is life or death. And I think that’s the tricky part, that piece.

And as we looked at web hosting, and website building change, and the browser wars, I think it’s very similar to the transportation landscape. There’s going to be consolidation and then refactoring and then all of a sudden, a whole host of new problems are going to merge and so I think it’s just a very typical pattern of a new type of technology coming in the market and trying understand how to use it.

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Smith: I think one difference though in there is that I don’t think for in the case of search for example, Google really has pretty much a monopoly at this point, I think most cities are going to want to ensure that consumers have choice.

And so I think we will need to see that there’s at least two or three large companies providing the services just like we see in Telecom. We don’t want to have it just be one provider, it’s actually good for the ecosystem that there’s choice.

Granoff: The other big difference is that you can have a fail whale on the road. You really have to have to get it right.

Clark: It’s hard to get around that. I want to take a step back and talk about the global opportunity here. So you just raised your second $100 million fund with your global fund based in Israel, What emerging markets are you looking at? Are China and India particularly interesting for you in the mobility sector?

Granoff: Yeah, we do see things coming out of China and India. I’d say Europe now, we’re seeing a lot more than then we had recently. Even in Australia and Canada. It’s amazing how global our deal flow has become. And it’s fascinating to see the ideas and the creativity that’s going on in all parts of the world.

Clark: How much of that has changed in the last 5 to 10 years?

Serbinski: Yeah, so we’ve seen from our perspective, startups from probably over 60 different countries apply to our program over the last five years. And you get all the hotspots you would expect but then we start to see a lot from South America and Latin America and these new emerging markets where they have different mobility needs and getting around is just very different down there.

And we made an investment a company Voyhoy that was aggregating travel in South America. And that’s just one of those handshake type agreements, and just a piece of paper “is this going to work?”

And so they were trying to aggregate it from the long tail. And so as we think about mobility and applications worldwide, it just depends on where you are in the world, there’s a lot of different applications and opportunities there.

Smith: Yeah, I think for Lime and micromobility companies, actually, some of the most exciting opportunities are outside the US. Especially because if you think about the infrastructure of cities, and when they were built, and what they were built for, in many of them major roadways were laid long before cars are on the road.

And so if you can get them into Florence — I can remember being in Florence 20 years ago, it was all mopeds all the time. And so clearly, a lot of cities around the world have figured out that micromobility is the most efficient way to get around their cities.

So we see tremendous success in Europe, we just launched recently in Latin America, and we’re still having this opportunity in Asia. We’re already in New Zealand and Australia as well.

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Clark: Now imagine being a mobility VC, one of the largest challenges would be consumers want something that will help them with their commute today. Entrepreneurs are looking 10, 20, maybe even more years in the future. As a VC, how do you think about consumer adoption?

Granoff: Well, there’s a fascinating book that people may have read by an Israeli professor named Dan Ariely called “Predictably Irrational”. And I think there’s no consumer that’s more predictably irrational than the mobility consumer, actually.

I figured this out more than a decade ago, when I was first involved the EV space and realized that people’s senses of how much they drive were extremely exaggerated. And then there was no way to make them understand that they really only drive 20, 30 miles a day, and that if they had 100 miles of range that that would be okay for them 90 plus percent of the time.

But, I think we’ve seen as we talked about with micromobility, that sometimes consumer behavior can change very rapidly when they’re presented with the opportunity to very viscerally improve their commutes. And certainly, we’ve seen that in Tel Aviv in the last year, in just a radically quick format.

So it depends which technology and it’s often very, very unpredictable. But as with any business that’s ultimately going to serve consumers, you have to think about from the consumer perspective, what’s it going to take for them to change their behavior and adopt.

Smith: This is something I think about a lot. So I turned 42, this year. I was 31 when I started working at Facebook and Facebook had only been around for four years, so I grew up in an era, even before I had an email address in high school and I just think about — I could never have predicted that these would be hundreds of billion dollars in market cap companies.

So I actually really like to just look at what teenagers are doing. I just think those of us that are in our 30s, 40s, 50s have no idea what the world is going to be like, but they know and they have good ideas about how they want to spend their time.

And so for scooters that was an example of that, where I don’t think any of my partners had ridden a scooter when I proposed that we look at this type of company. But as soon as I took them on one they went “Oh, wow, I really get it.”

But I think it’s important that we look at sort of was the younger generation, what do they care about? It’s alarming to look at the percentage of kids graduating from high school now in the US that don’t have a driver’s license.

That is my freedom. I can’t imagine not getting a license the day I turned 16. But things are just changing. And so I think we have to really just watch what’s happening with really, kids and teenagers, and that’s what could happen in the future.

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Serbinski: Yeah, one thing to add to that, when Henry Ford was watching the Model T, it’s “What do people want, they say I want a faster horse.” I can’t imagine what a car is going to do. And when the iPhones coming out, it’s like, “Well, isn’t that like the Palm Pilot that doesn’t really work? How is this going to change my life?”

I think there’s a quote, and I’m not going to remember it exactly, but it’s like we overstate the value of something in the short term and we understate it in the long term. And so as we look at things like cryptocurrency and privacy, all kinds of new sensors, miniaturization of things, this intersection of everything, it’s going to be transformative. And the interesting thing this time is, you have this physical landscape, all of these cities and how things interact with the digital world.

Granoff: And Ted, you talked about the auto industry before and how much more respect I think people have for it than they did before. And you also touched on the changes that we’ve seen in valuations of companies, and [inaudible].

Clark: Well, before we wrap up, I’m curious, for the entrepreneurs in the audience, what mobility startup would you recommend they start today?

Smith: Not a scooter company. I really think there’s a big opportunity in the data infrastructure involved in micromobility. Cities are really struggling to figure out how to do this.

And I think good actors like Lime are trying to help them see the way but they’re going to need a lot of just, if you can imagine what it probably looks like in most city halls in terms of what their software looks like. It’s not cool stuff that we all use in Silicon Valley and so I do think things that help regulators successfully implement micromobility is an area I would look at.

Serbinski: I would look at something that can drive revenue. So these automotive companies, suppliers started to cool off with the AI and self-driving cars like, “Can we even make money doing this?” And the Ubers and Lyfts are still struggling as well.

So if I were to start something in this space, I would be thinking about how does the dollar flow and where can I build a business that’s closest to that transaction? If you really want to survive kind of the next 10 years.

Because It seems like that’s the talk. And in Detroit right now, all these automotive companies are “We need things that can help us make more money, not just drive the car itself?”

Granoff: I won’t give a specific answer but I’ll just say what I think is one of the truest cliches in this business is to fall in love with the problem and not the solution and think about what’s the problem for you in your own mobility life and your peers and figure out how you solve that.