Raising $22 billion in funding by reducing execution risk
In the 9 years since it was conceived, Uber has had $22,200,000,000 invested in it. That’s alotta dough… In that time, its core business has not made a cent of profit. Let’s break down how this scale of investment gets made.
If you find yourself looking at massive companies like Facebook, Uber or Airbnb and thinking ‘wow I wish I’d had an idea like that’, then you’re doing it wrong. 1000’s of people have had an idea like that – in fact these companies are not built on particularly innovative ideas.
- I want people to be able to get from a-b more easily and cheaply
- I want to bring real-world social connections online
- I want to help people make money from their unused homes
These are massive ideas it’s true, but not particularly innovative. What is innovative is the way that these teams managed to leverage technology, team skill and business or social dynamics to execute on them better.
I can give you a few more $100bn+ ideas for free.
- I want people to help people do chores around the house
- I want to help people educate themselves more quickly and efficiently
- I want to entertain people like they’ve never been entertained before
- I want to reverse climate change in a more economical way
‘Ideas are cheap. Ideas are easy. Ideas are common. Everybody has ideas. Ideas are highly, highly overvalued. Execution is all that matters’ – Casey Neistat
Uber, Facebook etc. did not immediately raise $Xbn. They slowly convinced forward-looking growth investors that the potential returns are greater than the risk of them trying and failing. Massive companies are usually built on simple ideas, executed to the next level.
So let’s look at Uber from the ground up. For the Uber team the main execution risks they had to tackle were:
- They could not build a compelling and simple app to hail cabs
- They could not scale riders (demand) cheaply enough
- They could not scale drivers (supply) cheaply enough
- They could not scale demand and supply at the right pace to deliver on the key value promise of improving a-b transport.
Damn, this is a tough list… where to start…
Uber founders Travis & Garrett put in $200k of their own money made from past ventures to get this thing going. They used that to
- Build a very simple iPhone app to call a car
- Hire a couple of chauffeured Mercedes waiting in the city around the clock with a driver version of the app.
- Shared the app details with a small elite group of friends in the city
By doing these things they had a lot of fun and reduced the execution risk. They approached this same group of elites that were given the app and raised $1.1m from them – probably at a ~$5-10m valuation. This money helped them expand the premium service to more people and more drivers
When it came to raising more money a few months later – they could prove to investors that they had
- Begun scaling in luxury hailing
- Proving the unit economics
- Built a small and effective team
- Were on the way to providing a 10x better service.
They raised $11m.
Over the next 7 years Uber continued to drop execution risk and prove the business model and therefore raised $22.2bn in 20 more investment rounds – launching as fast as possible in 737 cities across 84 countries, delivering over 5 billion rides. As of this writing – they have still not made a profit.
My point with this post – is that we should not focus on where these mammoth companies are now, it only makes it look like replication as an impossible task. We should focus on how they made their first moves to drop risk; Thinking about the humble beginnings of these companies is a liberating worldview.
I think you’ll agree with me that you can achieve a lot with $22,200,000,000…
Toby is a product leader with experience managing products at all stages of the lifecycle. Currently he is focussing on four dating apps Bumble, Badoo, Chappy and Lumen - with millions in DAU and revenues. Before this Toby spent time in strategy consulting at Deloitte, where he advised companies across industries on their digital strategy.