Lyft-Off: Car-Sharing Start-Up Raises $60 Million Led by Andreessen Horowitz

Popular car-sharing start-up Lyft has raised $60 million in a major new round of funding led by Andreessen Horowitz, the influential Silicon Valley venture-capital firm started by Netscape co-founder Marc Andreessen. The new funding comes as the ride-sharing market is exploding, with upstart firms like Lyft, Uber and SideCar leveraging smartphone technology to provide alternatives to traditional transportation options like taxicabs and rental cars. These services are examples of the emerging “peer to peer” economy — including Airbnb for lodging and TaskRabbit for everyday chores — in which people connect online to exchange services and get things done.

Andreessen Horowitz’s investment in Lyft is a major boost for the fast-growing San Francisco–based start-up. “Andreessen Horowitz is ideal for us because they’ve built big businesses,” Lyft co-founder John Zimmer told TIME in an interview. “They’re very accomplished operators and they understand how to scale a business.” Founded in 2007, Andreessen Horowitz has quickly become a Silicon Valley powerhouse with $2.7 billion under management. The firm has invested in Facebook, Twitter, Groupon and Instagram, among dozens of other start-ups.

Since its launch last summer, Lyft has exploded in popularity. The company now facilitates over 30,000 rides per week in the four cities where it operates: San Francisco, Los Angeles, Seattle and Chicago. The company has hundreds of drivers, and in San Francisco alone, it has doubled the number of drivers over the past few months to keep up with demand. Lyft says that in each new city, the service has grown faster than the previous launch. In other words, Lyft is poised for liftoff.
Lyft is a mobile-phone application — available on Apple’s iPhone and Google’s Android devices — that allows riders to “order” a driver to their location in minutes. Lyft makes money by taking a cut of the “fare” (technically a donation). Lyft’s drivers are regular people with cars who want to make a few bucks by giving someone a ride. All drivers are subjected to DMV and criminal-background checks and are required to undergo in-person interviews, vehicle inspections and a two-hour training session.
Lyft is a quintessential example of Silicon Valley innovation: using smartphones and social networking, the company is attacking structural inefficiencies in the existing market for automobile transportation. Today, millions of people are driving around in cars with empty seats while millions of others lack affordable auto transportation options. Lyft aims to bridge that gap.

“We’re trying to make transportation more affordable, social and efficient,” Zimmer told TIME. “We really believe in the power of community, and we want to put drivers and passengers first.” He said the infusion of funds will help the company hire new employees and grow the business domestically and internationally, but he declined to say where the company will launch its service next.
As part of the investment, Andreessen Horowitz partner Scott Weiss will join Lyft’s board. “Lyft is a real community — with both the drivers and riders being inherently social — making real friendships and saving money,” Weiss wrote in a blog post. “I am honored to be joining the board of directors and excited to help the founders realize their dream of filling all of those empty seats!”
Prior to co-founding Lyft, Zimmer worked in New York for the now failed investment bank Lehman Brothers. By the summer of 2008, he had grown disillusioned with Wall Street, as he told TIME when we profiled his company last fall. Zimmer left Lehman three months before it went bankrupt as the financial crisis rocked the U.S. economy, triggering the worst recession in decades. He drove across the country to California and settled in Palo Alto, the center of Silicon Valley, to work on Lyft’s predecessor, Zimride. (Zimride’s name was inspired not by Zimmer’s name, but by an experience co-founder Logan Green had visiting Zimbabwe and learning about its transportation systems.)

The key to Lyft’s success thus far has been establishing trust among its users. After all, getting into a stranger’s car is one of the first things children learn not to do. Lyft requires all drivers and passengers to connect through Facebook, and drivers and passengers rate each other after each ride in order to establish their reputations throughout the network. In this way, unsafe, unreliable or downright sketchy drivers and riders are quickly pushed down in the system. Many of Lyft’s 55 employees started out as drivers or riders using the service, Zimmer told me.
Like many upstart peer-to-peer service companies, Lyft continues to face legal and regulatory headaches, driven in part by the entrenched commercial industries these start-ups are aiming to disrupt. Lyft, Uber and SideCar were each fined $20,000 last fall by California authorities for operating taxi services without the proper permit, as my colleague Brad Tuttle recently reported. And Uber, which unlike Lyft operates in New York, continues to tangle with Big Apple courts over its plan to extend its smartphone service from black livery cars to yellow taxicabs.
Last fall, Andreessen Horowitz hired former Washington, D.C., mayor Adrian Fenty as a special adviser to help start-ups with transportation-policy issues, so it’s likely that he’ll be involved with Lyft. “He’s uniquely qualified to help companies understand everything from striking effective city partnerships to navigating regulatory issues,” Andreessen Horowitz partner Margit Wennmachers wrote. “With more technology companies disrupting traditional businesses, they will benefit from leaning on someone who’s well-versed in how local governments operate.”

Source : TIME, by Sam Gustin, May 23, 2013