Ford Acquires Chariot (YC W15)
techcrunch.com
techcrunch.com
This is a rescue acquisition, pure and simple.
I could probably write a book about how not to run a company based on my experience there. Coordination failures at all levels and constant managerial abuse. In the words of an Uber employee familiar with the situation, "That company has employees solely so they can be a clueless, abusive megalomaniac's captive audience". Just read the Glassdoor reviews- the ones that aren't the fake 5 star reviews the CEO paid someone to submit.
Another employee has set up a Former Chariot Employee Alumni support group, FYI. Message https://www.suggestionox.com/r/Q5EWLs with your LinkedIn details if you are one and you need help.
From the outside it is very well run and I was amazed at how quickly it went from creepy white vans to a whole fleet of branded vehicles with a mobile app.
Here's one example:
<quote> Hi Ali et al.,
Wanted to bring your attention to an incident that happened this morning on my drive to work (though I'm a monthly customer, I drive probably 3x/week).
I was driving in my lane headed towards the Embarcadero when all of a sudden the driver of Chariot van #49, realizing she was in a left-hand turn only lane, swerved violently in front of me. Had I not immediately slammed on my brakes, I would have crashed right into her at a relatively decent rate of speed.
Somewhat shaken, I immediately grabbed my phone to document the incident and submit just a "heads up" to you to instruct this driver to be more careful. While taking pictures (included below), I notice the woman lean over towards the passenger seat and watch me taking pictures in the side-view mirror. She did not appear to be pleased with my actions and gave me a dirty look through the mirror.
Thinking no more of it, the light turns green -- we're in bumper-to-bumper traffic at this point -- and she begins accelerating. Then, out of nowhere, she slams on the brakes (a "brake check" if I didn't know any better), causing me to slam on mine, and bumping into her at about 2 mph. My immediate thought was that she was trying to induce an accident, or at the very least give me a scare. Either way, not at all a professional move by someone entrusted with the safety of your passengers.
As soon as this happens, the woman gets out of the car and I roll down my window to try to talk to her. I attempt to get her to exchange information, but she simply ignored me, took pictures, and drove away without a single word. Finally, at the spot I was previously* cut-off by one of your drivers (i.e., where they make a left-hand turn into that parking area), I was able to catch up to her to take my own pictures (these are below as well).
Given what happened today, and what I've observed before (see below), I'm inclined to bring this matter to the attention of the San Francisco County Transportation Authority. Before doing so, however, I wanted to hear you out and understand what sort of driver training your company has instituted -- and what actual re-training this driver might be required to take. While I'm a big fan of the service and convenience you provide, I can't help but think you're suffering from a serious driver quality issue. I've lived in this city for 10 years and have not had a single incident on the road outside of with Chariot vans.
Here are the pictures I took immediately after van #49 swerved into my lane:
1. Showing her stopped in my lane after cutting me off (when she realized she was in the wrong lane) [PIC]
2. The view from my car after I slammed on the brakes and swerved to the right to avoid the accident as she plowed into my lane [PIC#2]
3. How close we came to a decently high-speed accident [PIC #3]
And here is the picture that I took after I manage to catch up to her on Embarcadero:
1. Note that small scratch on the right side of the bumper (my car has somewhat more damage, including my license plate). This happened when she slammed on her brakes after immediately starting to go through the light -- inducing, I believe, me to bump into her:
* This is not the first time I've been aggressively cut off by one of your drivers. A month or so ago I submitted a report through the app. It should show up under support requests for my email address: prdonahue@gmail.com.
Please let me know if you need any more information.
Thank you, Patrick </quote>
To which the CEO replied: <quote> Hi Patrick,
Thanks for bringing this to my attention. We've logged tens of thousands of miles at this point and I will stand by our company's safety and compliance procedures and record of success firmly. Accidents happen, and regretfully you were involved; that's not an indictment of our driver's professionalism.
I have cc'd our manager Josh and team to investigate this matter immediately per our SOP.
You should expect to hear from them soon. </quote>
I got a boilerplate response indicating someone would look into it—but then radio silence.
I think it also insinuates a less then lucrative outcome for employees and perhaps founders, as a rescue acquisition would give a large amount of leverage to the buyer who would then pay less for the company. I.e. early investors with preferences would get out ahead while common stock holders potentially come out behind.
Hi All, Thanks to those who have wished us well on this thread. Keeping everyone happy is tough, if not impossible, and it's even harder for them to swallow when they depart ahead of a very successful exit. Nevertheless, we wish everyone who spent time with us only the best since they contributed to our success.
We're really proud to be Ford Smart Mobility's first acquisition and become a building block in their strategy. Our mandate is to scale the effort with the considerable resources we can leverage from Ford.
If you're interested in learning more, check out opportunities to join us at chariot.com/careers. Hope to hear from you!
Ali Vahabzadeh
I predict that in 5-10 years this will really come back to haunt them. I was planning to buy some Ford stock for a while, but after seeing this shift, not touching it with a 10ft pole.
1. http://www.bloomberg.com/news/videos/2016-09-09/ford-ceo-on-...
It's been a long while since I read The Innovator's Dilemma, but the ground-breaking thesis in that book as I remember is that established companies are disrupted because it's 100% rational for them to continuing pursuing and maximizing profit in their established market, even while obsolescence is knocking on their door.
The dilemma is that they have to choose between maximizing profits in their current market and returning unused capital to stockholders, or burning money on speculative investments in a bid to remain relevant in the future.
Were labor and capital markets frictionless, it wouldn't even be a dilemma. The answer would be obvious--choose the former. Any investments you divert from maximizing your current advantage is always a net loss. Excess capital is best given back to shareholders because "the market" will do better at choosing the next disruptive technology than any single person or business would be. That you're doomed to obsolescence and will eventually have to wrap up the business doesn't matter; what matters is maximizing profits.
But because labor and capital markets aren't frictionless, it's not optimal to let an existing business entity disappear. Think fixed costs like HR; or brain trusts. Finding the balance between maximizing your current market position and speculating on disruptive technologies is therefore arguably something worth pursuing.
But as labor and capital markets become more free and liquid, there's less of a dilemma.
Anyhow, long story short, companies aren't disrupted because they're dinosaurs and antiquated. They're slow to respond because it's often perfectly rational (i.e. more profitable) for them to ignore new technologies and to continue pressing their advantage until the very end. And that incentive aligns well with maximizing global profits and capital investments. The intuitive sense that companies are doing something wrong by not preparing for disruption is irrational as a general matter. You prepare for disruption by making as much money as you can and jumping ship at the very last moment; doing anything else is leaving money on the table.
Giving X people mac books and asking them to write a "Clone of X Tech Startup" is not that hard, just potentially time consuming.
Now, Ford may USE technology to improve their manufacturing and core product (a transportation device). They may become an ultra high-tech manufacturer (if they aren't already)..., but they will not magically become Google or Apple.
It's also worth noting that Apple makes some impressively complex (and profitable!) hardware.
Think about how much of the machinery (and profits) of the car business would get eaten. No more annual model updates, no more advertising, much smaller luxury market and so on.
In that world it makes sense to try and move up the stack to own your own destiny and capture profits.
It's nice. Feel free to hit me up if you have any questions I could answer.
How?
It's so cool that transportation is the zeitgeist these days. It's a fascinating technological and societal issue and Michigan and Detroit could be a huge leader. Lots of strong, eager engineering talent in the Midwest (UIllinois,UMich,Purdue, etc.). No reason it couldn't be side-by-side with silicon valley as the leading tech sector in the world.
Silicon valley created the computer. Detroit invented the car. Put them together you have magic. The virtual and physical machine.
New engines are much more powerful and efficient than before as well. I'm sure improvements have been made to the suspension like using inner wheel braking for FWD cars although I'll admit I dont know too much about this. And of course the biggest improvement is probably safety..
Nokia, Motorola, RIM, Palm were leading manufacturers as well, and they all had their lunch eaten.
If that comes about, then the automobile market would likely shrink or growth would stagnate. Purchasing of automobiles would be much less about any kind of individualism/style/brand loyalty. Competition for share would be more intense. Ford would do well to try and integrate itself into the service-provider realm to stay relevant.
Per CrunchBase, Chariot only raised a $3M seed round a year ago (https://www.crunchbase.com/organization/chariot-3#/entity). Given the low-margin nature of the business (many other startups along these lines died out), I'm curious what dollar amount would make sense.
I was wild-guessing around the same ballpark too.
Here is some simple math I was thinking:
$3M round (a year ago) would have valued them around $10M.
Since then, then would probably have doubled or tripled their valuation, getting them to $20M to 30M at this point.
1) If they were doing well and got a $30m buyout offer, they'd probably have gone out to raise more money for a much higher valuation. Money is cheap, and if they have an offer in that range, a VC would probably cut them a check within an hour.
2) Buyouts generally benefit founders & investors, and common stock holders don't get much. They'll get a retention bonus or something depending on how important they are deemed, but other than that, unlikely that they'll walk away with what their on-paper ownership seemed to be worth.
I'm fairly jaded on this mostly from having watched friends get giddy about their company being acquired, then getting their paperwork and realizing that their stock is now worth $0, and if they want their $100k bonus, it's distributed in a back-loaded earn-out over 4 years (sometimes with conditions that they hit certain targets that aren't realistic). I've seen it happen (again, to friends/acquaintances) in most price points (~$5m, ~$50m and ~$100m), unfortunately.
Granted it's anecdotal, so I could be very wrong! But in general I think common shareholders are wiped out.
It seems the real way to get a payday is to bootstrap a consultancy, build it up over a few years, and save your money. Eventually, you can transition to a product company if you're still interested in that. This is what Fog Creek, 37Signals, and several other prominent companies did.
You can do stuff your way, on your terms, and make products the way you want without meddling VCs jumping down your throat. You can get paid as quickly as you can get clients and no one will be yelling at you for paying yourself more than $50k or working less than 70 hours per week.
I would implore all the devs currently in the startup rat race in SV to consider this as a reasonable alternative option. The people who get mind-blowingly rich in these transactions are primarily the investors, sometimes the founders, and only exceptionally rarely any of the employees.
Second of all, the company is selling after ~2 years. The average employee has probably been there for less than 1 year. Excluding the common stock of the founders (since they are the ones who made the decision to sell), employee common stock grants and common stock options are all about ensuring employees get a share of blockbuster company results, like IPOs or 8/9 figure acquisitions.
In the case of smaller acquisitions (of which this might have been or might not have been), stock options are probably not worth very much because the company hasn't grown that much. Nobody is at fault, nobody got screwed, its just how stock works. That is why employees are paid salaries. This is why employees often get generous retention offers from the acquiring company. Nobody is being "wiped out" because that assumes there was inherent value to begin with, which there isn't.
The reason I mention it is because it's easy to get sucked into the trap of "hey they exited for $30m, and the person who gave up $40k/year salary for 2% ownership just got a check for $600k!" when that simply isn't realistic. Unless everything goes exactly right, common stock isn't really worth the risk. I think it's an important distinction to make.
Again, not saying anyone got "screwed", just that even in this case, an 8-figure exit could very well mean no common stock holders got a dime. I'm very curious about the terms of the Cruise deal as well -- a 10 figure exit (!), but I'm interested to find out how much the common stock there was actually worth.
To then turn around on a YC forum and say "It is completely fair that employees come out of a $MM acquisition with the skin on their backs" is equally chickenshit.
Until startups stop banking on the marketing of equity to employees I'm always going to advocate for said employees.
Funny how the sucker following the law survived the longest. Someone could easily draw the conclusion that it's just an excuse for a bad business plan.
[0] https://techcrunch.com/2015/11/29/the-last-bus-startup-stand...
https://en.wikipedia.org/wiki/General_Motors_streetcar_consp...
It's really low ridership by any standard. Not even a dent in SF Muni ridership of 650,000+ daily rides. It's the equivalent of a local, infrequent Muni line you probably never heard of like the 36-Teresita or the 37-Corbett, both of which are moving around 2,000 riders a day. On a single, modest line.
Commuter shuttles have trouble attracting significant ridership, because riders are using them just for that: one commute.
We know that for transit to be successful, it's gotta be a way of life. For many car riders, their way of life heavily depends on getting everywhere with a car. It's hard to replace that with mass transit. Cities have done it, but commuter shuttles do not achieve that.
Dear YC - please allow me to invest in the whole class, like you did for Michael Bloomberg!
2nd, That isn't how it works. Deal flow is the most rare, and precious, and valuable thing to investors. FoundersClub is trying to get deal flow and they will win some deals, but ultimately, the investors with the absolute best reputation will get to invest in the best deals.
In any event, Founders Club likely passed on Chariot, which I would have to agree with based on how the economics of that business works, regardless of whether they had a great outcome here or not.
http://www.businessinsider.com/ford-buys-chariot-65-million2...