Thanks to Uber’s IPO, we’ve been talking a lot about shared mobility. The debut of the ride-hail titan and its rival Lyft on public markets has overshadowed another momentous exit in the shared-mobility space. In late March, Uber announced a $3.1B acquisition of Dubai’s Careem. It’s the largest acquisition to date in ride-hail and in the Middle East. The acquisition also underlines the quick success of shared-mobility companies in emerging markets. Not to mention their ability to draw large amounts of capital from storied investors in old-school startup ecosystems. While shared-mobility companies in advanced economies are a hot sector to pour dollars into, in emerging markets they have been the tip of the spear for founders and investors. And that makes them a key channel for spreading tech wealth beyond traditional strongholds like Silicon Valley.
Brazil’s first unicorn. Indonesia’s first unicorn turned decacorn. Singapore’s first unicorn turned decacorn. Careem. One of India’s first unicorns. The list goes on.
Given there are now nearly as many unicorns globally as there are days in the year, the term has lost much of its original power in places like San Francisco. In emerging markets, however, the relative lack of unicorns speaks to the challenges companies face attracting capital and scaling quickly. The vast majority of valuable startups have arisen in developed markets, and the vast majority of venture capital is deployed in just a few walled-off ecosystems. Just the US and China account for three quarters of the world’s unicorns. Just 24 cities—representing 4% of the world’s population—accounted for the same proportion of global venture capital invested between 2015 and 2017.
But many of the few emerging-market unicorns have arrived in shared mobility. Startup theory explains why: there is a painful, widespread problem; a clear, demonstrated solution; a user base well-suited to taking up that solution; and investors willing to supply the purveyors of that solution with lots of capital, quickly.
Anyone who’s sweated through a long summer delay in the New York City subway or muddled through the Bay Area’s balkanized public transport system understands the appeal of a Lyft or Bird. But the infrastructure problems in countries like the US look trifling next to the traffic in cities like Sao Paulo, Bogota, and Jakarta. Those three rank in the top 15 most congested cities in the world. It’s true that LA and NYC also place in the top 15, but it’s also true that Brazil, Colombia, and Indonesia have 3x, 10x, and 15x fewer vehicles per capita than the US, respectively. It’s not hard to see why they’re so blocked up. Coupling high population growth with low infrastructure spending across emerging markets isn’t a recipe for a billion blissful commutes.
Enter shared mobility. More specifically, enter intuitive solutions that are proven in developed countries and can be rolled out without governmental supervision. Most mobility solutions deemphasize ownership, which is useful in countries where people have less money to spend on a car. They also tend to make use of existing vehicles over splurging on big new fleet inventory (though Bird and its Latin American cousin Grin / Yellow are exceptions here). Lastly, most mobility solutions are pretty simple to use. A lot of complex work happens on the backend to ensure that Car A grabs Passenger B at Place C and takes them to Place D, but the likes of Uber and Lyft have polished mobility’s general user design and it is now replicated across most apps and platforms.
People in emerging markets are increasingly able to benefit from these products—as both drivers and passengers. A lot of the part-time drivers that make mobility solutions roll do so as a side-gig, and people in developing countries are already accustomed to informal-economy work—meaning everything from contract or street vending to domestic work, everything that falls outside an official labor contract. In emerging markets, the informal economy accounts for anywhere from 30-80% of GDP. Working as a shared-mobility contractor slots seamlessly into this landscape. Tech adoption also plays a role: Smartphone ownership in many emerging markets is surging—passing 50% in Brazil, Colombia, Argentina, South Africa, and Turkey, among others. And the people in those countries with smartphones in their pockets are overwhelmingly the young people who struggle with congested cities. In Indonesia, for example, 66% of those aged 18-34 have smartphones, while only 13% of the 50+ crowd do. So it’s not a huge departure for people to become drivers, and the right consumers have the tech in their pockets to become passengers.
And then there are the investors. Since 2010, $70B has flooded into shared-mobility companies. A corollary of Careem and all those other emerging-market unicorns we talked about above is that investors were willing to invest a lot in them at high valuations. Some of the most well-known investors in the industry, no less—Latin American mobility startups alone have taken money from Sequoia, Andreessen Horowitz, Y-Combinator, Accel, and SoftBank’s Vision Fund. This enthusiasm has not been replicated across every industry. We have yet to see any blockchain unicorns come out of Indonesia or any billion-dollar enterprise-software exits in Colombia. So why are investors you’ve heard of so happy to cut checks for shared mobility abroad?
Despite their reputation as risk-takers, many VCs are actually fairly conservative. They want investments to be as “derisked” as possible before pulling the trigger. Shared mobility in emerging markets ticks a number of boxes that make deals in that field feel safer.
First, we’ve all seen shared-mobility plays work in established markets. Though doubts continue to swirl around the unit economics and profitability of the space, the excitement around Lyft’s IPO is just the latest supporting data point. Author and technerd-hero William Gibson once wrote that “the future is already here; it’s just not very evenly distributed.” That idea also supports investments in companies rolling out business models in Manila that have worked in Manhattan. Rocket Internet is one firm that has put that theory into practice, and been rewarded with stakes in Nigeria’s ecommerce unicorn Jumia and Germany’s meal-kit titan HelloFresh. What is more, shared-mobility companies tend to grow stratospherically fast. Investors like businesses that “scale” quickly. Lime and Bird had each provided 10 million rides within 15 months of launch. Lyft did 1 million in a year and crossed 1 billion almost exactly five years after. VCs get wide-eyed and weak-kneed at these kinds of numbers.
And after the sea has parted to allow these startups to “get to scale”, there are even bigger companies with their wallets outstretched ready to buy them. Some of those companies are the shared-mobility giants themselves—the Ubers, Lyfts, and Didis of the world. Careem is just the latest example of this dynamic at play. Others are old-school incumbents tripping over themselves to stay cool and stay viable—like Ford and Daimler. In other words, there are clear avenues for the investors’ stakes to transform from paper wealth into mountains of real cash.
In short, investors like shared mobility in emerging markets because they’ve seen it work elsewhere, know it grows quickly, and understand how their money and then some will come back to them at the end of the day. That knowledge—and the fact that shared mobility addresses a painful, widespread problem with a solution that lots of people can quickly make use of—has driven oceans of capital toward the space.
Understanding why this happens is more than a fun mental exercise. It’s important because cracking the code of venture-capital flows means figuring out how to entice venture capital to markets that really need it. Beyond the simple fact that funding allows companies in emerging markets to grow, provide jobs, and deliver services to people in those countries, that funding can set off a powerful virtuous cycle. Big exits make early employees wealthy. They also expose those employees to the guts of the journey from a startup with maybe dozens of employees to a company with thousands. Finally, big exits anoint their early employees with a brand halo that validates them in the eyes of others. In short, unicorn exits create a group of people who have some money to invest themselves, are familiar with the practice of building great companies, and can get other people to give them money or join them as employees.
We can see this dynamic at work in historic companies that have come out of Silicon Valley. Just look at PayPal. You’ve probably heard of it. Sold to eBay for $1.5B in 2002. Great exit. Except that number, vast though it is, is dwarfed by the value of companies the cofounders and early employees at PayPal have since gone on to create or fund. Youtube, Tesla, SpaceX, Palantir, LinkedIn, Yelp, and the nearly 700 other companies that the so-called “PayPal Mafia” have put time or money into account for hundreds of billions of dollars in value. To take another example, one analysis of unicorn founders determined that 14 former Googlers had created billion-dollar companies. Throw in Oracle, IBM, and Yahoo!, and it’s 45. It’s a small step to think that we might see a raft of great Middle Eastern ventures, from companies to investment firms, started by the early employees at Careem.
Some of the largest startups in emerging markets in recent years have been mobility companies. Grasping why certain mobility companies in emerging markets have been able to attract lots of capital makes it easier for future founders from those markets to make the case for funding. And setting that virtuous cycle in motion is critical to igniting new startup ecosystems and spreading the financial fruits of innovation beyond Beijing and the Bay Area.
