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Mobility investors talk profitability, public-private partnerships and why the NYC subway could use an innovation platform

Concerns about profitability in the ride-sharing sector are overblown, public-private partnerships are on the rise and transit and commuting platforms are the future, said several investors in a wide-ranging discussion about urban mobility.

“The fundamental question is ‘do the underlying unit economics make sense,’” said Paul Asel, managing director, NGP Capital, in a reference to Uber and Lyft, the ride-sharing giants that have raised billions of dollars but have yet to turn a profit. “And in the long-term in my view they are going to do very well.”

Unit economics refers to the revenues and costs associated with a company’s core business model.

If investors so demanded, Lyft could become cash-flow positive today, said Asel, one of several investors who spoke to FreightWaves about transportation platforms and investing trends. “The gross margins are there – in the 40 percent range, and if you take sales and marketing out of the equation, they about break even.” Uber is a more complicated case, he agreed, with its broader geographical footprint and diverse business units.

“But what you have to believe with Uber is they are playing on much grander stage,” said Asel, noting that Amazon today looks nothing like the company that went public in 1997. “My supposition is that Uber and Lyft are going to look very different than they do today.”

Hardly a week goes by without a news article raising red flags about Lyft and Uber, both of which continue burning through cash even as the companies go public.

Another set of critics has raised alarms about the relationship between mobility services and public transportation. The concern is that ride-sharing services erode public transit usage, contribute to traffic congestion and are inaccessible to low-income users.

Daniel Hoffer, managing partner with Autotech Ventures, said a new generation of multimodal services and business models should alleviate these concerns.

“The more progressive cities are embracing public-private partnerships and integrations in order to serve their constituents in the mobility space,” said Hoffer, whose shared transport investments include SpotHero, a parking platform, and Outdoorsy, an Airbnb model for RVs. “Consumers will end up transitioning between public and private transportation options, using multiple modes of transportation in a single journey.”

Uber and Lyft for example, are growing partnerships with transit agencies to develop platforms that encourage bus ridership. NGP is invested in Moovit, a service that offers a real-time journey planner and web app to navigate public transit networks.

In a couple of months, NGP will announce an investment in another commuting company, said Asel. “If we were to start today and architect a transportation system,” he added, “it would be nothing like it is today.”

Americans are spending thousands of dollars per year on cars that sit idle most of the time, and the average commute is almost an hour a day. “Spending that time behind the wheel is not an effective use of time,” he said. “You will see a lot of innovation in this space. We aim to be at the forefront.”

Dabo Horsfall, founder of Tensile Investments and a resident of New York City, noted that “the subway is the best means of transportation – it’s the biggest electric vehicle, quick and fast.”

But the New York City subway suffers from a well-publicized and crippling lack of public and private investment. Technology solutions exist to modernize the subway and put it on the level of sleek efficient systems in Europe and South America, said Horsfall, whose firm invests in EV infrastructure.  

Horsfall said he “looked deeply” at a company that has developed wireless technology to upgrade subway signaling systems but that the scope of the problem reaches beyond tech, and government needs to leverage partnerships to bring antiquated systems up to date.

On the subject of profitability in the ride-sharing space, Hoffer is unconcerned. “Profit is revenue minus cost, and the premise of the sharing economy is that by increasing utilization of expensive fixed assets you can increase revenue,” he said. “Companies that manage to increase the utilization of expensive fixed assets can do extremely well.”

Hoffer said sharing economy businesses are generally marketplaces, and “marketplaces punch above their weight class when it comes to value creation for shareholders. Marketplaces are hard to build but much more defensible than other types of companies and are therefore more valuable as a result.”

Of the top potential initial public offerings in the next couple of years, according to Hoffer, marketplaces represent 53 percent of the companies but 86 percent of the total equity value.

Autonomy is the wild card. Lyft and Uber are currently marketplace businesses that connect drivers with riders, but the arrival of autonomy has the potential to convert ride-hailing into a services model where the drivers are electronic in nature, Hoffer said.

“Currently it’s a marketplace because you’ve got a bunch of people on either side, but if and when autonomy comes, and there are no longer drivers on the supply side, then you’re basically a company offering a service in the form of rides in their cars. It’s a fundamentally different structure.”

That services-based model requires much more capital, Hoffer said, “but is easier to build assuming you have access to that capital because there is only one group you need to acquire.”

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Linda Baker, Staff Writer

Linda Baker is a FreightWaves staff reporter based in Portland, Oregon. Her beat includes early-stage VC, freight-tech, mobility and West Coast emissions regulations.

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