One Sidecar, Up With A Twist

I’m old enough that when someone says Sidecar, I immediately think of Cointreau, lemon juice and cognac, shaken and served up.

What’s remarkable to me is that the folks at GM, one of the country’s most venerable industrial enterprises, heard “Sidecar” and instead saw an interesting enough opportunity to find $39 million in cash to buy a shuttered company.

Looking at this deal — hot on the heels of a $500 million investment in Lyft — you have to wonder just what is going on at GM these days? More broadly, does it mean anything in terms of the (rapidly) altering landscape of ridesharing?

It could be a tectonic shift, and one that has implications for everyone, from competing car manufacturers to venture capital investors to, last but not least, the good people at Uber.

I spent the majority of my career working at banks, and I can say that we always paid attention when a “strategic” was buying assets. A strategic investor simply means an entity that is in the same or similar business as the target company.

There are 50 shades of grey here, because a lot of venture investors argue that they have industry expertise, or may have at one point come from your industry. But at the end of the day, a venture investor is looking for simple mathematical returns — a dollar goes in, and (they hope) many dollars come out.

A strategic investor, because they are actually in business, has more variance in motivation because there are more ways for them to realize value. If a competitor is for sale (or is going out of business), you could buy them and use their factories to make your stuff. Or you could sell your stuff to their customers. Or you could just be a lot better at running this particular type of operation than they are, so could improve margins.

In general, we expect a strategic investor to pay decent prices for assets, too, simply because they have more ways to realize value than a purely financial investor does. Want to figure out the price of an umbrella? Best to ask a person standing in the rain.

Fast-forward to today, where we have seen GM, fresh from spending $500 million for a stake in Lyft, paying $39 million for Sidecar’s assets and a clutch of key employees.

It’s tough to make a career selling dimes for nickels.

First, in combination, this says some remarkable things about GM and the company’s determination to actually participate in the future of their own industry. This is the company, after all, that famously did an about-face on the electric car (thankfully, I might add, for Elon Musk).

But now, GM is the company that is not only building hybrid and electric vehicles, but has made a key strategic investment in Lyft — and in return is getting access to Lyft’s most valuable asset — its data. Smart.

As of today, GM also is the company that is picking over the intellectual property of Sidecar, working to integrate its people, data and customers into its own division (Maven) responsible for, for lack of a better description, the future.

And to me, they’re looking shrewd doing it. The prices GM is paying for what we might consider to be “Admit One” tickets to the future are, on balance, low. Or, if not low, they’re at least a combination of reasonable and manageable, and made doubly so that these are investments GM, as a company that builds and sells an incredible number of vehicles in dozens of markets, is uniquely positioned to monetize.

Further, these prices raise a few questions about the valuations that financial investors are ascribing to certain other, really big, ridesharing companies. A lot of money has been deployed toward this space, to one company in particular. But even though they’re growing like mad, they don’t make any money, and, as we liked to say on the trading floor, it’s tough to make a career selling dimes for nickels.

In a very real sense, Uber is a data company, in which case, investors such as Baidu could arguably be viewed as strategic. But there is, in my mind, a real difference between, say, marketing alliances and actual operational synergies. Uber is reportedly looking to build its own cars, an enterprise-level concession that, if you’re in the business of driving a lot of people a lot of places in cars, maps pretty cleanly to making cars.

Making cars is tough, though, even for the people who make them: Daimler and BMW, for example, who both know a thing or two about the auto business, famously endured costly encounters with their own kind.

This begs the question: If a true strategic like GM (with more than a century of experience making cars) can enter in the rideshare game with just about every base covered, it’s not quite over, is it? Perhaps of greater importance is that GM operates in cooperation with multiple regulatory bodies in multiple jurisdictions, so this seeming runaway race in which we crowned a ridesharing king yesterday may have been called very prematurely.

I guess the good news is that if it turns out that financial investors have backed the wrong company in the ridesharing race, and it ends up shutting down, they now know there are strategic buyers for the assets.

These investors might, however, benefit from downing a couple of quick sidecars before learning what the price of those assets will be.