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A Lime investor predicts only 2 or 3 scooter players will win after COVID-19, meaning there's going to be a major crunch in Europe

Paul Asel
  • Scooter startups are at a crossroads with COVID-19 and potential capital scarcity forcing an increased focus on sustainability and careful use of cash.
  • In the US, the market has matured, allowing two to three operators to thrive per city, but in Europe there are more than a dozen operators which investors say is impossible to sustain. 
  • The re-opening of cities from lockdown is a litmus test of scooter companies' ability to scale and survive after the COVID-19 crisis.
  • "The move towards efficiency is happening irrespective of COVID-19," Paul Asel, managing partner at NGP Capital and an investor in Lime, told Business Insider in an interview. 
  • Click here for more BI Prime stories. 
Scooter startups have been growing rapidly in Europe in recent years amid growing appetite for alternative urban transport options. That shift is set to as cities re-open from coronavirus lockdowns, and the public tries to avoid the scrum of buses, trams, and metros.
The advent of electric scooters in Europe became something of a smash and grab, with operators dumping thousands of scooters on the streets of major cities, often without approval from local authorities. Paris became the epicenter of some 12 operators competing for crowded curb sides, with the city eventually opting to only allow three operators going forward in its next tender process.
The French capital's example could soon become the norm, according to Paul Asel, managing partner at NGP Capital and an investor in Lime. He predicts that investors will no longer pile millions of dollars into the industry. Instead there will be a greater focus on sustainability, which will lead to a more competitive ecosystem and, as a consequence, more failed companies.
"The move towards efficiency is happening irrespective of COVID-19," Asel said in an interview with Business Insider. "The Uber/Lime deal showed that this market is a natural duopoly, having so many operators per city is a money-losing exercise which causes consumer confusion."
Uber's recent $170 million funding round into Lime was a de facto deferred purchase with the company's valuation slashed by 80% with provisions in place for SoftBank-backed Uber to buy the scooter startup in two years.
scooters
Competition in markets is obviously nothing new, Asel cites automobile, radio, and telecoms companies as good examples of industries where dozens of operators are whittled down to two or three major winners.

The post-COVID comeback 

Scooter operators have been starved of revenue due to coronavirus with almost all having to take their product off the streets in response to stringent lockdowns across Asia, North America, and Europe. The way in which cities respond to re-opening is key to the future of the industry, Asel says.
He quotes Thomas Kuhn, author of "The Structure of Scientific Revolutions" who said: "The significance of crisis is the indication they provide that an occasion for retooling has arrived," and argues that retooling for scooters will take the form of people shunning public transport for fear of catching coronavirus.
Milan for example is widening cycling lanes, and the same is happening in France. The UK is fast-tracking its previously glacial discussions about the legality of e-scooters, in a bid to provide more options for commuters as the country comes out of lockdown.
"The previous rush and focus on growth led to an adversarial relationship between cities and micro-mobility," Asel said. "Now players in those markets been more collaborative because micro-mobility should increase as a public transit alternative over time."
Operators will be glued to the results of tender processes in Paris and Lyon, which will be announced in the coming weeks. The market could experience new mergers off the back of those results, depending on which operators are successful, according to Noa Khamallah, a former executive at Lime and Voi.
Earlier this year, pre-COVID, Bird bought European scooter operator and one-time competitor Circ, and subsequently cut many of its former competitors' staff as well as some 420 of its own months later to help streamline the business.

Scooters can say goodbye to waterfalls of money

Another key factor in the boom of scooters across the world has been the Uber-like rapid expansion that came from vast sums of venture capital poured into startups in San Francisco and elsewhere. In just three years since founding, US companies Bird and Lime have raised $623 million and $925 million respectively while smaller, newer European competitors Tier and Voi have raised $131 million and $168 million each, per Crunchbase.
"Investors will not continue ploughing money into these sectors," Asel added. "More companies die of indigestion than starvation, that message has not been well received or heeded for the last 10 years. SoftBank has done more damage to this market than good and many companies have been destroyed."
SoftBank has not directly invested in a scooter startup but has ploughed cash into mobility firms including Uber and Ola. That appeared to set a trend for over funding in general.
A focus on unit economics and sustainability is now set to be key to the ongoing feasibility of scooter startups, but that alone won't be enough. Tier, for example, has pioneered replaceable batteries on its scooters and has a small side business in selling refurbished scooters for private use. Similarly, companies have spent large sums on R&D to help max out the life of each scooter with many newer models now lasting around 18 months.
Worldwide, the e-scooter and bike industry has shed over 1,000 full-time jobs in the past few months, according to online tracker Layoffs.fyi. "VCs have cash but they will slow the dynamic because they realize scooters are not yet profitable and there is a lot of uncertainty in the industry," Khamallah added.
SEE ALSO: The CEO of Voi, scooter rival to $2.5 billion Bird, goes public on why it furloughed and laid off staff to cope with COVID-19
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