Uber and Lyft’s forgotten stepsister, Sidecar, raises a small round

Sidecar, the quietest company of the ridesharing trio, has pulled in $15 million from existing investors Avalon Ventures and Union Square Ventures. It also added new investor Sir Richard Branson, the founder of Virgin Group. Given its last round was a Series B in February, this seems to be Sidecar’s Series C, in which case the sum raised is a pittance. By way of comparison, Lyft’s Series C was $60 million and Uber’s was $258 million.

In a blog post announcing the news, Sidecar CEO Sunil Paul didn’t mention whether this counts as Sidecar’s Series C. Instead, he explained the round was specifically raised to expand the company’s “Shared Rides” program — its carpooling feature to compete with Lyft Line and UberPool. Paul said:

People love the savings and social connections that come with Shared Rides. 13,000 people requested one in San Francisco our first month and we’re currently matching thousands of these rides a week. In the coming months we’ll accelerate Shared Rides in San Francisco and beyond and we expect to reach 500,000 rides Shared Rides in one year. We’re making a big bet on Shared Rides, just as we did with instant rideshare.

For skeptical bystanders, there’s reason to doubt that $15 million will entirely go towards the new Shared Rides program. The company is only in eight cities in the United States, so there are a lot of expansion goals it has to hit to start catching up to its competitors. The fact that it would spend all its newly raised money — almost half of the funds it has raised to date — on a new feature instead of growing its core product doesn’t sound quite right. Unless of course it’s shifting to focus on carpooling entirely, which Paul doesn’t say in the blog post. I’ve asked Sidecar for an interview with Paul and will update this post if I hear back.

If $15 million is truly just to fund the new shared rides feature, it begs the question: Why not just raise a big Series C? Although some founders might skip big rounds to avoid dilution of shares, in the case of ridesharing the capital war chest will make or break a company’s success. The money to fight driver and passenger recruitment battles is key, given the fact that most believe this is a winner-take-all market, and the first to each new market will have a sizable leg up on recruiting customers.

Despite the fact that the company launched right around the same time as Lyft and UberX, Sidecar hasn’t expanded nearly as quickly. Lyft and Uber are now in 68 and 110 markets in America respectively, while Sidecar has stayed put in eight. The company has been hobbled in part by the marketing success of Lyft’s pink mustache and the financing power of Uber. It hasn’t been able to compete on either front.

Fred Wilson from USV Ventures and Rich Levandov of Avalon Ventures both wrote blog posts about why they’re “doubling down” on Sidecar, acknowledging that although Sidecar isn’t the industry leader, they think it offers a different enough product to compete. Levandov said he doesn’t think this is a winner take all market and Wilson made a fair criticism of Uber and Lyft’s venture-funded price wars:

The leaders in this market can subsidize prices and cut fees for their drivers as much as they want. But that’s not sustainable. What is sustainable is increasing the utilization of the car as much as possible. That’s Shared Rides.

New investor, Sir Richard Branson, noted the challenges facing Sidecar in a Q&A on the company’s blog and explained why he chose to invest anyway. “It has been reported this is a winner takes all market, but it’s not,” Branson said. “These are early days and, like a lot of other commodity businesses, there is room for innovators on great customer experiences.”

Sidecar has won over some diehard fans, who swear by the company’s unique “name-your-price” feature, where riders can pick the cheapest driver to get to their destination. I’ve spoken with others who love it because Sidecar has managed to stay out of the Lyft-Uber public drama. But unfortunately, a core group of fans does not make a successful venture-backed company.

And $15 million may be just enough to get Sidecar to the point where it’s an attractive acquisition target.