Carl Icahn is betting $100 million that ride-sharing startup
Lyft Inc. can keep growing in a world increasingly dominated by its
larger rival, Uber Technologies Inc.
The activist billionaire on Friday said he is backing Lyft
because he considers its valuation of $2.5 billion a "tremendous
bargain" compared with Uber, most recently valued by investors at
$41 billion.
Mr. Icahn is now one of the most prominent supporters of San
Francisco-based Lyft, the underdog in one of Silicon Valley's most
heated rivalries. In their race to sign up millions of passengers
and secure a role in the future of urban transportation, Lyft and
Uber have spent heavily to undercut each other's prices, poach
drivers and copy each others' latest technological moves. Both also
face regulatory challenges.
Coca-Cola versus Pepsi this is not. Lyft operates in 65 U.S.
cities, compared with 300 world-wide for Uber. Lyft has 400
employees—less than 15% the staff at Uber—and
has yet to prove the still-nascent business of car-hailing services
can support a second player.
"There is room for two," Mr. Icahn said in an interview.
But catching up to Uber will be difficult when Lyft is far
behind in fundraising. Uber has raised a $5 billion war chest; with
the latest round, Lyft will have just over $1 billion.
Revenues at both companies are accelerating. Uber earlier this
year told some investors that it forecasts net revenue, or the
amount it keeps after paying out drivers, of more than $2 billion
in 2015, according to a person who was briefed on the matter. That
would be five times as much as in 2014, when net revenue was more
than $400 million, the person said.
Lyft expects revenue this year of about $800 million, according
to Bloomberg News, which said it reviewed a copy of the company's
most recent presentation to investors. That would be about six
times last year's sales of $130 million, Bloomberg said.
Spokeswomen for Uber and Lyft declined to comment on their
companies' financials.
Investing in a young startup with an emerging business model is
unusual for Mr. Icahn, an outspoken investor known for taking large
stakes in publicly traded companies and challenging management to
make changes. In Lyft he sees an underdog, but he is risking a
small fraction of his $32 billion stock portfolio. Mr. Icahn's
largest holdings as of March included multibillion-dollar stakes in
companies such as Apple Inc., CVR Energy Inc. and eBay Inc.,
according to a regulatory filing on Friday.
Lyft has worked to stand out from its rival by emphasizing the
customer service of its drivers and building more loyalty with
passengers. Scott Weiss, general partner at Lyft investor
Andreessen Horowitz, compares Lyft's opportunity to Southwest
Airlines and Virgin America, which became competitive with
more-established airlines by selling themselves as more
customer-friendly.
Even so, Lyft has in recent months backed away from some of the
things that made it different from Uber. In an email last year, the
company told passengers it no longer expects them to sit in the
front seat of the car and bump fists with the driver, quirky
customs the company used in the past to emphasize the community
aspects of its service. In place of the fuzzy pink mustaches Lyft
drivers affixed to their cars, the company this year gave drivers a
smaller, glowing pink mustache that sits on the dashboard.
In Mr. Icahn, Lyft saw a chance to add a well-known
public-market investor whose name and connections could help with
future fundraising, said Lyft President John Zimmer.
"As we look to the future to raise capital, whether it's next
year or whenever, that's going to be a large validation," Mr.
Zimmer said.
The fight to add investors and raise the most capital has become
another front in the battle between Uber and Lyft. In recent
months, both companies have asked potential investors to sign
agreements stating they won't invest in competitors for a period of
six months to a year, people familiar with the policies have said.
Investors are asked to sign the pledge before seeing any internal
company data that could help them make a decision.
Uber is currently seeking an additional $1.5 billion to $2
billion from investors, people familiar with the matter told The
Wall Street Journal earlier this month.
The new round could vault Uber's valuation to more than $50
billion and potentially make it the most valuable venture-backed
startup in history.
Lyft raised $530 million in a funding round earlier this year
led by Japanese e-commerce firm Rakuten. Mr. Icahn's investment is
the largest portion of a $150 million extension to that round at
the same valuation, the company said. The company didn't disclose
who contributed the other $50 million to the extension.
Jonathan Christodoro, one of Mr. Icahn's managing directors,
will be added to Lyft's board of directors.
Lyft's drive to keep up in fundraising has turned two combatants
into allies. Mr. Icahn's investment aligns him with venture
capitalist and early Lyft investor Marc Andreessen. Last year, the
two investors publicly sparred after Mr. Icahn bought a stake in
eBay, where Mr. Andreessen was a board member.
Mr. Icahn accused Mr. Andreessen of being conflicted in his role
on eBay's board, because Mr. Andreessen invested in numerous
startups that compete with eBay's PayPal unit.
At the time, Mr. Andreessen defended himself by saying he is
recused from board discussions that involve a potential conflict of
interest.
In an October interview with CNBC, Mr. Icahn said of Mr.
Andreessen, "he's screwed more people than Casanova." In a separate
interview that same day with CNBC, Mr. Andreessen said of Mr.
Icahn, "Carl just makes stuff up…he lies and he
slanders…his inner six-year-old comes out."
In an emailed statement this week, Mr. Andreessen wrote, "All's
fair in love, war and ride-sharing."
Rolfe Winkler and David Benoit contributed to this article.
Write to Douglas MacMillan at douglas.macmillan@wsj.com
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