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Before the present- day AI boom, there was no single right answer for Silicon Valley to throw money at. In the 2010s, venture capitalists had to make their own predictions of the future. They invested millions of dollars into any idea that incorporated software under the belief that so long as there were users and data, the business would solve itself. But it takes years for any business to achieve product market fit and many more to stabilize, even longer for startups pedalling new products and services. Yet, VCs want fast payouts. Their goal is to get startups to IPO or to acquisition as quickly as possible, even if that company has nothing of value. With so much cash at hand, VCs
drove enormous fundraising sprees, aggressive spending, broken unit economics, and manufactured hype for their startups in mainstream media. Under this playbook, every turd of a product was polished to look like an innovation. Every startup was high growth, every market was valuable, and every founder was sold as the next Steve Jobs. Of all the dumb startups of the last decade, there were few as ridiculous as scooters. Emboldened by the low interest rates and mainstream tech hype, VCs proclaimed that scooters would disrupt walking. In their crystal balls, humans would no longer need to use their two legs to walk a few blocks
when a scooter could do the same in a quarter of the time. The golden child of tech startups in this era were Uber and Airbnb, who had each surged to insane valuations. They burned millions of dollars and intentionally lost money on every transaction. This way, consumers would associate that Uber and Airbnb were cheaper than taxis and hotels. Both startups skirted regulation. They launched everywhere without notice, and they settled with governments only after public push back. Because they're now public companies, it's more expensive than ever to use Uber and Airbnb. And both companies rely on junk fees and price hikes to generate profits as regulation around the world has only
intensified. Scooter startups into the 2010s took a page right out of this playbook to move fast, break things, and ask for forgiveness, not permission. Just like how Uber and Airbnb did it, the fastest way to quote unquote disrupt walking was to make an electric scooter dirt cheap and absurdly convenient. There were no docks. As long as there was a scooter nearby, all you needed to do was to scan the QR code with your phone and then ditch it wherever you got to where you needed to go. If there was ever a problem with the scooter, you
could just swap it with another one without liability or consequence. Consumers had no responsibility before, after, or during the ride. And with the cost of a ride being a dollar and few cents, scooters were intentionally priced to be cheaper than the bus, the subway, or Uber. Overnight, scooters were dumped without warning onto the streets of every major city. They piled up on sidewalks, blocked traffic, and caused collision and deaths around the world as people flew down bike lanes, walkways, and roads at 20 mph without helmets or training. There was no moat in the software or hardware and scooter startups still raised massive amounts of funding to compete with each other for
market share. They all competed in a race to the bottom. They all bought more scooters from China than they ever needed. They dumped more of them into cities to drive convenience. They threw greater discounts at consumers to drive usage. And they paid gig workers generous bonuses to ensure that the scooters would be recharged and redistributed overnight so that consumers could use them again the next day. While municipalities all around the world were still trying to figure out regulation, venture capitalists had already come up with a grand name for this new market that they had created. Micromobility, they promised, would reshape cities where people would use these outrageously affordable, convenient, environmentally friendly
dockless scooters for trips under a mile, thus permanently solving urban congestion. As evidence for this future, Silicon Valley VCs pointed to China, where docless bikes had taken off. Hilariously, just a year later, most of these startups in China would collapse due to oversaturation and regulation. Literally, millions of bikes would be dumped into the junkyard. Still, heavyweights like Andre Horowitz and Sequoia plowed millions of dollars into Bird and Lime and various other startups to make sure the world knew of this brilliant future. The mainstream media, who are all in the pockets of these venture capitalists, were more than happy to pick up the torch and
to spread the narrative even further. Just one year later, Uber and Ford had each bought a scooter company for hundreds of millions of dollars each. Lyft had launched its own, and LinkedIn named these scooter startups as one of the hottest places to work in tech. Fast forward just 4 years, and this micromobility future has been completely forgotten. Most of these scooters have ended up in the landfill, and the few companies still operating remain under intense regulation. Riders these days are fine if they drive or park improperly. Companies must have permits to operate. Any scooter left on the sidewalk gets impounded and there's a
hard cap to the number of scooters that can be deployed in any given area. Beyond regulation, there are still glaring issues around the inherent hardware of scooters. They were never designed to be abused and rented out so aggressively, especially on the worn down cobblestone brick and pavement that make up most major cities in the West. At speed, running into a single bump is still enough to send someone flying head first into the concrete. And none of it makes sense in the winter, as the cold not only kills usage, but also battery life. Scooters have been disappearing not just in Silicon Valley and in the US, but also across Europe and Asia, where cities are cracking down harder than ever, and companies are going out
of business left and right. In this episode, we'll dive into the ridiculous business of micromobility through the finances of the now bankrupt market leader Bird and the now defunct Jump and Spin. Founded by a former Uber executive, Bird was the pioneer in micromobility. In late 2017, they launched by dumping scooters onto LA's pedestrian-heavy beach destination, Santa Monica. Ironically, 7 years later today, the same neighborhood that was the launch pad for micromobility is now currently voting to ban scooters outright from their borders. While it took the city of LA until January to figure out a plan of action, Bird had made enough of a splash with its cheap rates and unprecedented
convenience. Less than a year after launch, Bird had raised $300 million with its hockey stick growth in 2018 and became the fastest company in history to reach a1 billion dollar valuation. With product market fit proven in LA, the goal now was to scale to as many cities as quickly as possible. Yet, local backlash was so fierce that Bird walked back on its move fast and asked for forgiveness later approach as other cities were taking note of the public chaos that had ensued in LA. As more VCs jumped into micromobility and funded competitors, it became an arms race to see who could get the most scooters in as many cities as possible in the shortest period of time. Bird reinvented itself to city officials as a
champion of the environment, carbon emissions, pedestrians, and lowincome communities. Yet, the more startups that entered in this industry, the less special Bird became as a first mover. Their scooters fundamentally had the same performance, range, and design as everyone else. The only difference between all these startups was the branding, and the only real moat was in availability and pricing. Since no one could predict where these scooters would end up after a trip, and few people were going to travel out of their way to use a scooter, Bird needed hundreds of scooters in any given city to deliver on its promised ease of use. In 5 years, Bird had scaled its fleet from 250 in 2017 to over 98,000 scooters across 400 cities worldwide.
This means that each city has on average at least 200 Bird scooters on the streets at any given time. That number would be even higher if the company actually reported the reserves that they have in storage and repair. Bird grossed $79 million in revenue in 2018, making its $2 billion valuation that year at 25 times revenue. Just one year later in 2019, Bird had nearly doubled its revenue and was valued at $2.5 billion at 16 times revenue. These multiples ultimately were not that out of place in the fundraising landscape of the mid to late 2010s. Bird boasted that its customers were on average riding a scooter six times in a single day. Yet the official audited financials show a
very different reality. The average Bird scooter was only being used at most three times in a single day. And that number has been going down long before CO and now even after. It would be considered an outlier if any given Bird scooter got used more than twice in a single day these days, which is disturbingly low for a rental asset. When we combine that with the statistic that the average ride lasts just 12 minutes, this means that the average Bird scooter is only used 12 minutes in a single day and then sits idle for the other 23 hours. And since all these scooters are powered by lithium ion batteries, their charges naturally drain overnight, even when they're not used.
Thus, these same scooters have to keep getting charged just so one person can rent them out for 12 minutes the next day. The implied consumer behavior is equally worrying. If the average scooter is only getting used once a day, then people are only using them as a oneandone. Thus, it's not an issue of availability or regulation. Increasing fleet sizes won't drive greater usage if people are only treating these scooters as opportunistic one-ways rather than routine round trips. Bird's most impressive statistics was its rides, having grown from 24 million in 2018 to 47 million by 2022. But what was wacky was the unit economics. No matter how the company sliced and diced it, none of it looked viable. Even the company's own
non-GAAP cherrypicked adjusted Ebidot that it wanted investors to focus on as a quote unquote better measure of business health and future prospects were just as ugly. In 2018, the average bird ride cost $3.30. By 2022, the cost of a ride had grown 90% to $4.97 as the company was under pressure to demonstrate smaller losses. Bird had gone public in late 2021, having burned through most of its billion dollar war chest and had been prodded by its existing VCs to IPO while its shares were still worth something. Despite increasing the price of a ride by nearly 100% in 5 years, Bird was still just as unprofitable as ever with annual operating losses of $200 million. Then again, as a meaningless consolation
prize, most of the tech unicorns from that same era weren't fairing any better. But that $3.30 was not what customers actually paid in 2018. Bird, like all tech startups, including Open AI, artificially subsidized the costs to drive adoption. Leading up to IPO in 2018 and 2019, they had committed $20 million every year to discounts. So, the average customer really only paid $2 to $3 per trip. Bird has since tripled its subsidies in the hopes of kickstarting usage postco all while raising prices to reduce losses. Since the path to profitability is a matter of ride volume and ride price, raising prices in theory reduces usage but improves unit economics. Ultimately, a startup should bet on pricing or
volume and not both. That's what Uber, Airbnb, and Door Dash have done in recent years. They first bet on volume and now they're betting that their customers will stick around despite the price hikes, junk fees, and policy changes. Bird is in the strange position where they're too scared to commit to pricing or volume. They've raised prices to cut losses, but they're also too scared to remove the subsidies, discounts, and promotions out of fear of losing customers. Since 2018, customers have only really paid 80% of their quoted trips. And Bird proactively eats the other 20% so their customers feel like they're getting a deal. Yet, the company is still losing more money, not
less, year after year, despite raising prices to record highs. On a per scooter basis, Bird is making less money than ever. The average Bird scooter grossed $2,521 in sales in 2018, and that earnings efficiency has regressed over the past 5 years, even as prices have increased. This was perhaps the best part of Bird's business, that in 2018, they had taken a three-f figureure commodity and turned it into a 4-f figureure rental asset. But much of the $2,500 that each scooter grossed in sales was chewed up by maintenance as these generic scooters were only ever made for commuters and they required indoor storage with a high expectation of care.
Whether it's through unit economics, trip volume, or pricing, the core utility of these scooter services is ultimately too low to be a business. Hilariously, the three biggest startups in the scooter space in Lime, Bird and Spin had all launched using generics from the same Chinese manufacturer. As micromobility took off, each startup began designing its own scooters. Better hardware, like bigger batteries and heavier duty shock absorbers, would in theory translate to not just smoother rides, but also greater labor efficiency and higher margins. The cost of a Bird scooter spiked from $500 to over $2,000
on its first in-house iteration and then stabilized at $1,300 each. Yet, Bird could not go back to the Xiaomi generics. Any money that was saved on a perunit basis back then was ultimately still wasted on replacements as generics broke at higher rates from all the manhandling, cavalier maintenance, or simply being left out in the weather when they were meant to be stored indoors. The other angle was regulation. Cities had initially focused their efforts supply side in limiting volume, the number of companies, and areas of deployments, but as injuries and fatalities continued to pile up, municipalities shifted their focus to protecting the public from riders. To
secure the necessary permits, Bird and its rivals had to play ball and to demonstrate advancements in product safety. They built in sensors that detected sidewalks and limited speed based on location. All of which required being involved in the hardware. Yet, the convenience that customers loved about Bird and Lime and Spin were all manufactured illusions. Riders dumped their scooters wherever they wanted and woke up the next day to magically find three to five fully charged scooters ready to use within an arm's reach. Unlike Uber or Airbnb, Bird could never really be a hands-off platform. Someone still had to do the work regardless of if these scooters were generic or
custom. The maintenance cost at scale was expensive, no matter who was hired. While Bird initially handled everything in house, they started outsourcing more and more of this labor to save a buck in 2019. Gig workers drove around cities in the dead of night, picked up the scooters that had been dumped throughout the day, charged them at home using their own utilities, and dropped them off at the hot spots before the morning. Like early Uber drivers or Airbnb hosts, the first wave of gig chargers made easy money off of all the generous promotions. But as the pressure for profits grew and the cost of vehicles went up, these bonuses dried up and something had to give. Bird began
offloading not just the manual work, but also responsibility to squeeze better margins. In late 2019, Bird took a page straight out of McDonald's playbook with franchising. Freelancers would now be paid by performance rather than being paid by gig. Bird appointed quote unquote fleet managers in every city and supplied them with 100 scooters at no cost. Just like how McDonald's takes a royalty off of every item sold, Bird took 20% off every ride and the local operators got to pocket the other 80%. But in exchange for majority revenue share, fleet managers became financially liable for every aspect of availability. If these scooters weren't getting rented out, then no one made any money. But
since these vehicles were sunk cost for Bird, the only real sucker here were the fleet managers. Bird in effect was renting scooters in bulk to a designated few who would then rent it out one at a time to the general public. The 80% upside was enough to convince gig workers to become fleet managers, to work for longer hours unsaried, and to deliver higher availability without any direct cost to the company. Despite passing on costs to contractors, Bird's gross margins were hardstuck at 50%. If we calculate maintenance by unit economics, the math is equally appalling. A single bird scooter, as covered before, grosses roughly on average $2,000 a year. The cost of the scooter itself hovers around $1,300. The
cost of maintenance on a per vehicle basis hovers around $1,000. Meaning that even with outsourcing everything to gig workers, subsidizing rides by 20%, increasing fleet sizes, and improving the hardware, Bird still loses money on every vehicle. We can try to gauge what price customers would have to pay in order for the company to properly break even on a per vehicle basis. Because physical depreciation is such a big part of this business, whether through wear and tear, vandalism, theft, or abuse, we'll define break even as making enough gross profit to cover the cost of a replacement. Assuming that fleet sizes and usage remains identical at less than twice a day per scooter, customers would
need to pay $8 a trip, 60% more than what they pay now, and on par with a onemile Uber. In contrast to Uber or Airbnb, who were generating enough cash but not keeping enough of it, Bird's issue was twofold. They weren't creating enough value or capturing enough of it. Despite investing $40 million year after year into R&D, Bird's best and latest models could only boast a lifespan of 3 to 4 years, which after wear and tear is a lot closer to 1 to two. The company had been spending hund00 million every year on new scooters just to keep their fleets online, and the differences between models went largely unnoticed by the average consumer. To squeeze more
sales out of a sunk cost, they started selling new scooters for private use, but the gross margins were grotesque at 3 to 9%. Bird didn't dare to sell their own scooters at a premium because of how unfit they were for personal use. They couldn't be folded. There were no displays and they were absurdly heavy and engineered only to go fast in a straight line and could only work with the Bird app. At this point in 2022, the writing was clearly on the wall. There was no way for Bird to cut costs anymore than they already had and no way to make any more money from what they had built.
The Apple doesn't fall far from the tree. At the peak of the micromobility hype in 2018, Uber bought Jump for its electric bikes and scooters for $200 million. Despite the fact that Jump only generated $17 million in revenue that same year, after three years, Uber had seen everything it needed to. Jump lost twice as much money as it made every year, and there was no shot they would ever be profitable. Uber sold off Jump to Lime at a loss and dumped its thousands of red bikes and scooters into the landfill. Ford, on the other hand, had been desperate to reinvent itself in the eyes of Wall Street as a forward-thinking techfirst car manufacturer. Fooled by the VC hype, Ford bought Spin for hund00 million, and
the scooter startup lost millions of dollars year after year for four years straight alongside its autonomous division until new leadership finally decided to pull the plug in 2022. By late 2023, Bird had tumbled to penny stock, was delisted from the NASDAQ, and had declared bankruptcy. The company has since been taken over by Bird Canada, an independent partner who's insisted that they've cracked the code to profitability up north. They've since exited cities, leaned into bikes rather than scooters for Europe, stopped selling scooters for personal use, and concentrated its efforts on generating profits in American metros. The venture capitalist who sparked all this nonsense
in the first place had already cashed out long ago at IPO. What Bird or Lime is doing now is of no consequence to them. These same VCs are now too busy evangelizing AI to think of anything else. When we look at the former upper management of these scooter startups, these same founders and executives today are now also working at AI startups. They were never passionate about transit congestion or the environment. Just like the venture capitalists who funded them, micromobility was just the latest pump and dump. And they were smart enough to get out while their shares were still worth something. Humans without scooters remain just as competent as ever, using their two legs and feet to walk around.
And cities are functioning just fine as they've done for centuries before Silicon Valley.
