After $109M series A, Grin + Yellow = Grow?

In late January this year, two of Latin America’s largest bike and scooter sharing companies, Yellow and Grin, merged to form a new company – Grow Mobility (derived from Grin+Yellow). Grow Mobility has more than 1,000 employees and an asset of 135,000 micromobility vehicles (bikes, electric scooters, etc.) across six countries in Latam. It now plans to double its fleet, and expand to the United States and Southern Europe.  

Yellow and Grin

Yellow is a bike and scooter sharing startup founded in early 2018. It was the brainchild of entrepreneurs Ariel Lambrecht and Renato Freitas. They set it up with bike industry expert Eduardo Musa soon after selling their ride sharing startup, 99, to Didi Chuxing in a $1 billion deal last year.

Within its first year itself, Yellow raised three rounds of funding from investors such as monashees, Base 10 partners, and GGV. The lastest was a $63 million series A round in September 2018, led by GGV. It was the largest series A round received by a Latin American startup (click here for our recent review).

Mexican-based e-scooter startup Grin was founded in April 2018 and is backed by Y Combinator. Similar to Yellow, Grin too has grown at an accelerated pace.

It received two rounds of seed funding in 2018 – a $7 million round in July and a $20 million round less than two months later. Investors included 500 startups, Shasta Ventures, DCM, SV Angel, Trinity Ventures, monashees, Base10 Partners and others.

It then raised a $45 million series A round in October led by Lukasz Gadowski (founder of global takeaway giant Delivery Hero). Soon after this, Grin merged with Brazil’s shared e-scooter startup Ride to expand to other Latam markets.

Why the merger?

Latam’s micromobility space is still in its early stages. Yellow was the only shared bike startup in Brazil, and Ride was the first shared e-scooter startup in Brazil. So why is Latam seeing such rapid consolidation in the sector without any initial competition between rival players? Here is our analysis-

1. This is a defensive move. 

Yellow and Grin are the only well-funded micromobility startups in Latam. For the two startups, the best exit option is to be acquired by either of the two ride-hailing giants Uber and Didi who are looking to enter this sector themselves.

However, there seems to be no interest in investing in or acquiring either Yellow or Grin. The merger is therefore in their common interest to defend their ground against Uber and Didi.

2. Need for more green ammunition.

Yellow imports its bikes, scooters and related accessories from China. However, due to the long distance and import time, unpredictable customs, and high costs it is not sustainable in the long run. As they scale, they are realising the importance of reducing reliance on Chinese import and having more control over the manufacturing and supply chain. This will not only bring down costs but ensure more steady supply of products and better quality control.To this end, Yellow definitely wants to set up a factory in Latam. They had this in mind while founding the company which is why they got Eduardo Musa, the former CEO of Brazilian bike manufacturer Caloi, as the co-founder.

However, this requires huge investment. Moreover, ride-sharing is an area that requires a lot of cash burn. Although Yellow and Grin are already growing at a fast pace, they are still looking for investors. But the valuation is too high, and no one is willing to put down the money.

3. Backing of early investors.

Yellow and Grin’s merger was mainly driven by GGV and the shared investor, monashees, behind the scenes. Hans Tung, the managing partner of GGV, mentioned that the combined forces of both the companies would be more powerful to deflect the threat from ride-hailing giants.

4. Other exit options.

At present, another attractive exit possibility for Grow Mobility is to sell to traditional companies that are looking to reinvent themselves, such as the car rental company Movida. However, these traditional companies too are wary of the high valuation versus the traction they are generating.

Will we see a drop in valuations in future funding rounds like what Lime and Bird saw in the US? It’ll be interesting to see how this plays out.

The article was originally written in Chinese by Yating and has been adapted to English by Antarika Sen.