Venture Capital Startups Policy

Lime’s Loss to Top $300 Million in 2019

Scooter rental operator Lime has touted itself as one of the fastest-growing startups ever, blanketing cities such as Berlin, Paris and Los Angeles with thousands of two-wheeled electric vehicles. But the firm is losing money nearly as quickly as it expands in part because the company’s vehicles tend to break down before they can generate much cash.

Lime’s operating loss is likely to surpass $300 million this year, on more than $420 million of gross revenue, according to financial projections viewed by The Information. This is the first detailed picture to emerge of Lime’s financial performance, but details of the previous year’s results couldn’t be learned.

The big loss in 2019 is largely due to significant expenses such as the depreciation of its scooters and how much it costs to run warehouses that repair and position the vehicles. The company has projected it would cut operating losses in half next year as the reliability of its scooters improves, while pushing gross revenue past $1 billion, according to the financial information.

The Takeaway
• Lime’s 2019 operating loss to surpass $300 million
• Scooter breakdowns, warehouse costs fuel expenses
• Loss projected to fall by half in 2020 as scooters improve

This year’s performance caused some potential investors to balk at the company’s recent efforts to raise half a billion dollars in new equity capital over the past few months, although Lime still might be on the verge of a major fundraising deal, people familiar with the matter said.

The San Francisco–based startup has an agreement for a new lead investor to pump in money at a valuation that would represent a slight bump from its prior valuation of $2.4 billion in January, a person familiar with the matter said. The identity of the new investor and whether the deal has been finalized couldn’t be learned. 

The firm likely needs the money. Lime burned through more than $200 million in cash this year through July, according to the financial data. It has raised more than $750 million in equity capital since its 2017 founding from the likes of Alphabet venture capital arm GV, Andreessen Horowitz, Uber and Singaporean sovereign wealth fund GIC.

Joe Kraus, Lime’s president, told The Information in an interview that the company invested heavily this year to improve the durability of its scooters, while also raising the price of scooter rides and improving local operations. He said the company expects a more recent version of its scooter to last longer than a year on average. 

“The way this business looks in 2020 is materially different,” he said. “A longer-lasting vehicle has a compounding effect on the expense profile of the business.”

Changed Environment

The investment climate for money-losing consumer businesses has cooled since Lime last raised funds in January. The public market debuts of Uber and Lyft were major disappointments for those companies, and WeWork pulled its IPO in part because investors balked at the company’s potential to produce profits. Kraus declined to comment on Lime’s fundraising talks.

But Lime’s outlook has been aided by strong growth in some big overseas markets. Most of the company’s revenue now comes from Europe and the Middle East, with cities like Berlin, Tel Aviv and Paris among its top markets. The company pulled in about $100 million in revenue in 2018, mostly in U.S. cities before expanding to Paris last fall, which became its most lucrative market. The company had a loss of $23 million in October 2018, its worst month of that year, The Information previously reported. Lime introduced scooters in early 2018; before that, it mainly operated bike rentals.

The world’s biggest scooter operator, Lime has roughly tripled its fleet since last fall, and had about 120,000 scooters on the road this summer. Yet it has struggled with hardware problems. Scooters put on the road this spring lasted a median of five months. 

How long scooters operated by rivals such as Bird, Lyft and Berlin-based Tier last is unclear, but each competitor has been investing in developing more durable scooters. Santa Monica, Calif.–based Bird announced earlier this month that it raised $275 million at a valuation of $2.5 billion. 

Lime also has hit speed bumps in its effort to roll out new versions of its scooters. The Information reported in June that the company’s attempts to fully launch the newest model of the scooter, the Gen 3, were delayed by higher-than-expected costs to repair the vehicles. Lime executives have told investors that it recently rebuilt its Gen 3 scooter to give it a sturdier frame, and is testing the vehicle in newer markets like Germany.  

Some prospective investors who met with Lime recently concluded that the current lifespan and costs such as charging and repair mean that the company loses almost all the money it sinks into purchasing each scooter. 

Lime has said it is trying several ways to improve its margins over the long term, including making scooters more durable. It is trying to reduce how much it pays the people hired to charge scooters by making batteries easy to swap out with new ones. Executives also have told prospective investors it will drastically reduce how much it costs to run operations in individual cities, in part by positioning vehicles in areas where they are likely to get more rides. 

There are signs of progress so far this year. Between March and July, Lime decreased how much it spends as a percentage of gross revenue on paying people to charge scooters, depreciation and local operating costs. In July, the company told investors it spent about 35% of gross revenue on depreciation, 40% on local operations and 17% on charging. Other smaller costs include payment processing, customer support and insurance.

Regulatory Challenges

Even if operations grow more efficient, Lime and its rivals still will have to grapple with a patchwork of regulations and permits around the world. Lime, for example, recently gained permission to operate in its hometown of San Francisco. But it lost out on a competition to operate in Marseille, a dense French city that until now had generated meaningful revenue for Lime, and Mexico City. (Kraus said he “doesn’t like to lose any city,” but added that the fees paid to those cities would have been onerous.)

The company has a recent history of falling short of ambitious goals. In the middle of last year, it told investors it would generate hundreds of millions of dollars in profits in 2019. It eventually adjusted some of those expectations downward, but still told some investors late last year that it expected to start to show monthly profits by this summer, a person familiar with the matter said.

Kraus said the company has gotten better at forecasting the business more precisely.

“Any business that is new and growing quickly—and that is pioneering—has to learn about what the dynamics of its business are,” he said. “It’s still new. We’re not Alcoa building aluminum where we can forecast global demand to a tenth of a point.”

Cory Weinberg has been a reporter at The Information since 2015. He covers technology, real estate, travel, transportation and venture capital. He can be found on Twitter @coryweinberg.