Investors Cool As Bird's Shared Scooters Hit Speedbumps

2018 was the year of the scooter. 2019 is looking like the year of the speedbump.

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I stopped by the Segway Ninebot stand at this year's Consumer Electronics Show to see what the company that made 1.5 million electric scooters last year has for 2019, and what I found was a bunch of cool consumer mobility products (including a pair of "self balancing" electric skates that gave me a good core workout before almost killing me) and one new e-scooter model designed for the shared fleets operated by companies like Bird, Lime and Lyft. The first thing you notice about this new e-scoot, called the Model Max, is that it is a lot heftier than Segway Ninebot's Xiaomi M365 that flooded city streets during the "year of the scooter." The manufacturer says that feedback from its shared fleet partners led to this redesign, and that the heavier frame and bigger wheels and tires offer a steadier ride than the model it's replacing... but according to two sources, the beefed-up Model Max may actually be the result of a durability problem that is haunting at least one major shared scooter company.

One of these sources says investor communications from the shared scooter company Bird, states that the company's unit economics have been stressed because "losses due to damage, theft and vandalism were underestimated by a serious multiple." According to another source familiar with Bird's business, the company's scooters stay in operation for fewer than 30 days on average. This brutal rate of fleet turnover, and the fact that the company failed either to anticipate it or communicate its full extent to investors, has some investors in the company turning cool say these sources. In early January Axios reported that Bird was raising another $300 million led by Fidelity, but that the company's valuation would stay flat at $2 billion and the round would be structured as an extension of its Series C. 

That's a remarkable reversal of fortune for the high-flying mobility unicorn considering the company's valuation doubled from $1 billion to $2 billion during that $300 million Series C, in which CEO Travis VanderZanden bragged that he had to sell off his personal shares just to get a mentor he wanted into the round. Though Bird's rider metric growth was torrid throughout 2018, hitting a staggering 10 million rides less than two years after the company was founded, its business remains deeply challenged by an unanticipated mix of regulatory and fleet turnover costs. Having achieved a billion-dollar valuation faster than any company in venture capital history, the growing impact of these unforeseen costs raises the prospect of runaway hype and appears to be cooling investor enthusiasm for a company that was recently talking about raising new money at a $4 billion to $5 billion valuation.

According to Bird's Series C investor pitch, obtained by The Information

Bird projected much better economics in the “near term,” allowing it to generate a 33% gross profit margin. That assumed a “reduction in charger fraud, restructuring of mechanic program, and batching credit card charges.” With that margin from each ride, it may still take Bird about three months to make enough money from each vehicle to offset the vehicle’s costs. 

That three-month payback period, based on Bird's projection of improved unit economics during 2018, is a far cry from the less than one month of in-fleet operation that Bird's scooters have been averaging according to our source. At the time Bird told investors that repairs cost the company 14% of gross revenue, or about 51 cents per ride. Since then widespread reports of "scooter vandalism" have raised fresh questions about the repair and replacement costs that shared scooter companies are facing. 

By now, educated investors probably should have already spotted the possibility of trouble. Back in October, The Information editorialized on Bird's three-month payback period, noting "[scooters] typically don’t last three months, according to executives of rival firms." In July, the scooter sharing company Spin told Reuters that its payback time was just two to three weeks. After Scoot won the right to launch a fleet of shared e-scooters in San Francisco, a new segment for the company whose experience was all with shared moped-style scooters, CEO Michael Keating told the Wall Street Journal that 

“Part of our assumption was that if the theft rate is really, really high and the vandalism rate is really, really high, there is no way these other companies would be in the business. That ended up being an underestimate.”

In the absence of detailed disclosures from private scooter-sharing companies, more qualitative indicators give a sense of how impactful some of these growing pains have been. One such indicator was Bird's recent decision to send a take-down notice under the Digital Millennium Copyright Act to Cory Doctorow of BoingBoing for a post about kits that allow people to hack and steal Bird's shared scooters. Pressing a DMCA takedown claim against a writer who has been involved with the Electronic Frontier Foundation and reported on the DMCA suggests that Bird is desperate to do something about scooter theft. After Doctorow tapped in his pals at EFF who wrote a blog post calling Bird's claim "meritless," the scooter sharing company backed down saying

"In the quest for curbing illegal activities related to our vehicles, our legal team overstretched and sent a takedown request related to the issue to a member of the media. This was our mistake and we apologise to Cory Doctorow."

Meanwhile, investors aren't the only stakeholders who are growing concerned by Bird's operational challenges. In multiple posts made at the subreddit r/birdchargers in the last week "Bird hunters" who charge the company's scooters have wondered if the company is "going out of business" and "about to collapse." The picture that emerges from the subreddit is of chaos: chargers report receiving messages from the company accusing them of "hoarding" scooters in order to game charging bounties (the longer a scooter remains uncharged, the more a charger makes from the company when it charges it) even when they aren't hoarding, don't have any scooters or are storing scooters during bad weather (in some cases without being paid for storage). These issues seem to be tied to a combination of seasonal issues that the Southern California-based company doesn't seem well-prepared for, a shortage of full-time staff, falling charging bounties, and what appears to be a rampant hoarding problem. There's even evidence that Bird and other scooter companies are being targeted by startup impound companies who want their slice of those millions in venture capital.

This flood of operational issues doesn't even begin to address the new regulatory challenges facing Bird and other scooter companies from cities who have become more hands-on with dockless scooter sharing companies. Hiring political consultants and regulatory specialists to work with these cities creates yet another unanticipated cost for companies like Bird who pitched investors on a rapid scale-up with a light footprint. A new lawsuit in San Diego alleging that dockless scooter companies violate the Americans with Disabilities Act by blocking access to sidewalks and ramps is yet another example of the kinds of unanticipated and expensive challenges stacking up for companies like Bird.

None of this suggests that scooters are a fundamentally unworkable business, or anything less than a valuable addition to the growing menu of mobility options. Rather, it is the toxic aspects of Silicon Valley startup and venture capital culture that appears to be the problem with companies pushing unrealistically low-cost hypergrowth and underestimating the messy realities of operating shared mobility devices in public spaces and investors buying the hype without doing due diligence. One of Bird's biggest investors, Sequoia Capital, famously missed out on early opportunities to invest in Uber and now seems to be trying to replicate that company's runaway growth with Bird. But given that Uber's meteoric rise has given way to a host of previously-unanticipated operational, regulatory, strategic and public relations challenges, many not unlike some of the challenges that Bird now seems to be struggling with, perhaps there were lessons to be learned from Uber's experience that get lost when venture capitalists are in the grips of Fear Of Missing Out.