Why Was Uber a Pre-IPO Bet on People and Technology? Howard Morgan on Tech Trends

TL;DR

Uber became a compelling pre-IPO bet because First Round trusted founder Garrett Camp and saw that smartphones, mapping and strong product design could transform the taxi experience. The service displayed the approaching driver and estimated arrival time, while Uber X, pent-up demand and city-launch playbooks accelerated growth. Read on for Howard Morgan’s account of the people, technology and strategy behind Uber’s expansion.

Transcript

It goes back to the story of First Round. So in 2004, Josh Kopelman, who I had funded in Infonautics and then was an early investor in Half.com with his next company, which we sold to eBay, and then we did another company together after he left eBay-- said he wanted to start a seed fund. He realized that it cost $5 million, roughly, to get Infonaut... Read More

Key Insights

• 👻 The decreasing cost of starting a company enabled the creation of seed funds, allowing small investments to have a significant impact.
• 🚕 Uber's success was heavily influenced by its consumer experience, which revolutionized the taxi industry.
• 🤗 The pent-up demand for a better taxi service and broken systems in cities like New York contributed to Uber's explosive growth.
• 🖐️ Uber's expansion strategies, through playbooks and hiring exceptional individuals, played a vital role in its global growth.

Questions & Answers

Q: Why did First Round invest in Uber?

First Round had previously backed Garrett Camp’s StumbleUpon and trusted him after its successful sale to eBay. Howard Morgan says the firm bet on the jockey, supporting Camp when he proposed an app for calling black cars and solving San Francisco’s cab problem.

Q: What problem was Uber originally designed to solve?

Garrett Camp wanted to make it easier to get cabs in San Francisco by building an app that could call black cars. The initial service connected users with a few dozen vehicles from a dial-a-limo operation.

Q: What technology made Uber’s original product possible?

Uber combined the iPhone or smartphone with mapping technology such as Google Maps and treated the experience as one integrated product. Riders could specify their location and destination, see which driver was coming and follow the driver’s approach.

Q: What was Uber originally called?

The service was initially called Uber Cab. According to Howard Morgan, the San Francisco Taxi Authority required the company to remove “Cab” from its name.

Q: Who helped build and lead Uber in its early years?

First Round started the company with Garrett Camp and Ryan Graves, who initially built it in First Round’s office and later at Rocket Space. Travis Kalanick then joined, bringing a more expansive vision, while Rachel Holt led North American operations from Washington, DC.

Q: How did Uber X contribute to Uber’s growth?

Travis Kalanick helped develop the idea of Uber X as a way to open the service more broadly. That expansion went beyond the original black-car model and helped Uber address substantial unmet demand.

Q: Why did demand for Uber grow so quickly?

Howard Morgan attributes the growth to broken taxi systems, pent-up demand and Uber’s strong consumer experience. He notes that New York City had 13,000 taxi medallions in 2010, the same number approved in the 1930s, leaving areas outside Manhattan poorly served.

Q: How did Uber expand into new cities?

Uber hired strong operators and created playbooks explaining how to launch in a city. Teams used this repeatable approach in places such as Fargo, North Dakota, and Houston, Texas, while pursuing expansion aggressively.

Summary & Key Takeaways

• When: First Round began in 2004 with a $7 million fund after startup costs had fallen substantially.

• Number: Infonautics required roughly $5 million to reach its first product shipment.

• Number: Half.com required $2 million to reach its first product shipment in 1998.

• Number: Turntide required $700,000 to reach its first product shipment in 2003.

• Who: First Round backed Garrett Camp after previously investing in StumbleUpon, which was sold to eBay for about $85 million.

• Definition: Uber began as Uber Cab, an app for calling a few dozen black cars and improving access to cabs in San Francisco.

• Tool: Smartphones and Google Maps enabled riders to locate themselves, choose a destination and track the approaching driver.

• Who: Ryan Graves helped build the early product, Travis Kalanick broadened the vision and Rachel Holt ran North American operations.

• Compare: San Francisco’s taxi business was roughly $100 million in 2010, while Uber later did about half a billion there alone.

• Number: New York City had 13,000 taxi medallions in 2010, matching the number approved in the 1930s.

• Step 1: Uber created city-launch playbooks that told operators how to open markets such as Fargo and Houston.

• Definition: Uber’s integrated consumer experience and aggressive expansion helped turn “Uber” into a verb for traveling somewhere.