Rollercoaster on a Bike: Zagster CEO Tim Ericson (Part 5)

Sramana Mitra: What was the total amount of capital you had raised at this point when the market started becoming challenging?

Tim Ericson: We’d raised about $16 million in total at that point. 

Sramana Mitra: You had a chunk of capital in hand when the problem started happening?

Tim Ericson: Yes.

Sramana Mitra: What did you do?

Tim Ericson: In hindsight, we should have bought the companies in the US that were starting to raise capital like Lime Bike. Being a first-time CEO, I made the worst mistake of going against your gut.

I didn’t think this model would work, but all of our customers were saying, “Why would I buy from you when I’ve got five or six companies around the world that seem to raise a billion dollars offering this for free?” We pivoted and started trying to compete with them.

We were focusing on the smaller markets where we thought that if we could have exclusivity with the smaller market, we could make it work. We knew we couldn’t make it work competing against five companies in Rochester, New York, or other larger markets. We figured it out and got enough scale to make the economics work.

That was the biggest fundamental mistake that I made in the business given how quickly it went from nothing to a billion dollars of venture capital raised to those companies going out of business. If only we had shut back for 12 months, we would have been in a better spot.

Sramana Mitra: What happened? How did this play out?

Tim Ericson: We ended up earning more capital going after this model. The total up to this year, we raised about $40 million in venture capital. By the end of 2018, we had to take out half of our staff and figure out a path forward. Electric scooters were starting to come in and they were going through the same growth and valuation that we found in bikes.

This time instead of competing with them, we partnered with them. We were still operating 250 bike share programs in 35 states at the end of this. We had signed up three- to five-year deals with our customers.

When we were growing in 2015 and 2016, we stopped getting new customers because there was a change in the market, but we kept almost all our existing customers during that time. We pulled a good $10 million to $11 million recurring business in the bike-share market.

What we have done well was figuring out how to do this management at scale in 35 states across the country cost-effectively. This is everything you need to do on the ground, which is deploying, moving and rebalancing the assets, maintaining them, and fixing them.

In conversations with these scooter companies having zero operations experience but with a ton of money, we decided that we could bring our fleet management to them and license it to them and offer it to service. We have worked with companies like Spin which was bought by Ford.

We worked with several other companies where we would be their brands in the market – their app. They would fund the capex for growing this out and then pay us a fee for a scooter per day to do the fleet management. We started in 2019 with zero dollars in fleet management revenue.

By the end of 2019, we had built the business to about $10 million run rate in 12 months. That was the craziest time. It took us so many years to get to $10 million.

This segment is part 5 in the series : Rollercoaster on a Bike: Zagster CEO Tim Ericson
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