Lyft has just proved it’s not going anywhere for awhile by closing a $250 million Series D round, bringing its total funding up to $332 million. This puts it neck-and-neck with Uber which has raised $307 million to date (Note: Consensus reports indicate that Uber has raised $307 million but a few reports have quoted that figure anywhere between $361 million and $405 million). It also puts it on par with other sharing economy behemoth Airbnb, which has $326 million under its belt.
Coatue Management, a hedge fund, led the round with investment from Alibaba, Third Point, and existing investors Andreessen Horowitz*, Founders Fund*, and Mayfield. If you’re scratching your head at a hedge fund leading the round, don’t be surprised. Coatue has a $300 million fund for the express purpose of investing in pre-IPO startups. In the past it both led a round in Snapchat and participated in a round for Box.
In the blog post announcing the news, COO John Zimmer didn’t disclose the company’s valuation. He said the money would be used for domestic and international expansion, but didn’t put a timeline on when Lyft could be expected to move into other countries. All of Lyft’s current job openings are in San Francisco, so Lyft Abroad doesn’t appear to be happening anytime soon.
The money is a substantial infusion for the company, and it’s more than double what Lyft (and its original parent company Zimride) had raised to date. It’s a war-chest that will be crucial the company enters the next phase of its growth. Lyft may have gone from two cities to thirty in the past year alone on roughly $80 million in venture, but to tackle the challenges ahead — battling government regulators, offering enough drivers to meet customer demand, competing with its aggressive older brother Uber, and then doing these things all over again to take Lyft to other countries — it’s going to need as much capital as it can get.
The round will help Lyft pony up funds to build out its safety and security infrastructure. The company has already taken steps to expand its insurance policy to cover drivers when they’re between rides but logged into the app. Lyft has largely avoided disastrous accidents, personal injuries, assaults, or death incidents involving any of its drivers, but those moments will inevitably come for the company. That’s what happens when you put strangers and high-powered moving metal objects together.
When Lyft’s reckoning moment arrives, the company could end up using its cash stock to strike more extensive insurance deals, change its background check procedure, or simply fight lawsuits in court. That’s certainly been Uber’s playbook.
As we discussed yesterday in light of Airbnb paying the SF hotel tax, the disruption marketing meme only takes startups so far. At some point — usually when they’re heading towards an exit — it’s time to buckle down and embrace the status quo, if only to endear oneself to a more mainstream audience, which is necessary to win over for the final stages of growth. When that moment comes, piles and piles of money can help the spoonful of medicine goes down. Just like Airbnb is now imploring governments to legalize and tax it — because with $326 million in venture funding it can now afford it — ridesharing companies are growing their insurance policies and offering increased protection for drivers and the public because they too can finally afford it.
It would have been hard for Lyft to continue taking on Uber with such expanded safety infrastructure if it didn’t have the money to pay for it. Not to mention the fact that Uber is aggressively recruiting Lyft drivers with bonuses and perks, Lyft users with smear-tactic marketing campaigns, and Lyft markets with free rides for passengers. To fight back, albeit in a quirkier Lyft-style, the company needs cash flow.
From a business standpoint, the money will also be crucial for expansion. Uber has already moved into 35 other countries, including parts of China and India, with its black car service.
Lyft will need to get there sooner rather than later if it doesn’t want the market to be dominated by its biggest competitor.
*Andreessen Horowitz partners Marc Andreessen, Jeff Jordan, and Chris Dixon are individual investors in Pando.
*Founders Fund is an investor in Pando