January 14, 2020

Breakingviews: Silicon Valley wakes up to financial independence

by Breakingviews.

It’s not only British royals Prince Harry and his wife Meghan seeking “financial independence” from erstwhile supporters. After office-space innovator WeWork’s nightmarish failure to go public last fall, scooter-sharing outfit Lime is the latest startup whose vision now includes making a profit.

Lime co-founder and boss Brad Bao said on Thursday that the company would exit 12 cities, about 10% of its markets. He said micromobility, the on-message term for scooters and such, had evolved too slowly. Jobs will also be lost. It’s a marked shift from the try-everything approach that has characterized startups across the shared economy and led Lime to raise $765 million in capital so far, according to Crunchbase.

It’s a timely move. WeWork is having a hard time drumming up funding, according to Reuters, even after being rescued by SoftBank Group. An Austin-based scooter-related startup optimistically named Unicorn went bust last month. Bird, a Lime rival and recipient of over $500 million in funding per Crunchbase, has gone through layoffs, according to news reports.

Excessive competition doesn’t help, nor do slow uptake and safety concerns. But the economics of micromobility are also challenging. Scooter operators need to make rides cheap enough to be appealing while dealing with wear and tear, damage, theft, the complexity of recharging hardware and, increasingly, demands from cities to contribute to infrastructure.

A shift in Lime’s “primary focus” to profitability echoes the course-correction espoused by Masayoshi Son, the founder of SoftBank and the affiliated $100 billion Vision Fund, in the wake of the WeWork fiasco. Most other business people already knew that they need to produce profit rather than relying indefinitely on deep-pocketed investors. In Silicon Valley, this old notion is becoming new again.

Like WeWork and car-hailing services Uber Technologies and Lyft, scooter firms such as Bird and Lime have pursued growth at pretty much any cost. The drive to start funding themselves through self-made profit could prove freeing – the impetus, essentially, behind Harry and Meghan’s decision to undertake their own partial Brexit. It will also separate the sustainable business models from the precarious ones that are based only on breakneck expansion.

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