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Why Andreessen Horowitz gave a $60 million Lyft

May 23, 2013: 12:02 PM ET

lyft

FORTUNE -- Ride-sharing service Lyft today is announcing $60 million in new venture capital funding led by Andreessen Horowitz. So I spent some time on the phone with Andreessen Horowitz partner Scott Weiss to learn why the firm is putting so much money into a company that faces so many challenges.

What follows is an edited transcript of our conversation:

FORTUNE: There is a lot of money going into this general space right now, with other VCs backing such companies as Uber and SideCar. Why such a big bet on Lyft?

Scott Weiss: Lyft may look similar on the surface to a company like Uber, but under the covers it is a completely different service. The vision these guys had from the very beginning is about how to do the next big innovation in transportation, rather than just automating existing businesses like towncars or taxis. They realized that there are thousands of cars on the road with empty seats, so the challenge was figuring out how to get normal people to jump in the car with them."

So they used Facebook Connect… If we're ever going to realize the dram of normal people going around and picking up other normal people, there needs to be a way for everyone to get comfortable with each other… Not only do users get an actual picture of who the other person is, but they also get a picture of what the other person is like – and they know that this is someone they'd be comfortable sharing the front seat of a car with.

It's social and safe, which may explain why the majority of our passengers are females between the ages of 18 and 35 who may not feel safe with anonymous taxis or towncars. This is more about a community than a transaction.

You're leading the Series C round, but Lyft raised a Series B round less than six months ago. Did you look at that one? Wouldn't it have been cheaper?

Yes.

Why didn't you do it?

At the time we thought that Facebook Connect might be a limiter, because there was no one else doing that. And the stats were not yet as convincing as they are now. Two months ago they were doing 14,000 rides per week, and now they're doing 30,000 – primarily coming out of San Francisco. As an investment philosophy, we had to be sure that it has a secret sauce that others don't, which really is that it's about the community and the experience more than it's about the money. Much like AirBNB, which we also invested in

I was also surprised when I saw the data on female customers, and also on how many customers are becoming drivers. I'm not saying they'll take the whole market. For example, there are certain people who don't like the social experience of AirBNB and really would prefer the hotel experience -- but this really is a movement among a lot of people.

Is the sharing economy is partially predicated on a sluggish economy? If things get better faster, don't more people buy their own cars and no longer need services like Lyft?

I think people ultimately like convenience. If there are cars going where I want to go and it's really cheap, then I'd prefer that to spending the money on owning a car, maintaining a car and parking a car. That could ideally be public transportation, but generally isn't… I think this has the potential of having the same effect on auto ownership and public transportation that Southwest Airlines had on something like Greyhound. Why take the bus when there is a cheaper flight going faster to where you want to go? And there's also the environmental and social factors, which appeal to certain types of people.

What is the $60 million for?

We're going to blanket the earth. These guys have cracked the community code in a way that no one else is even trying to do. Being part of a movement is very different than trying to optimize a service.

Will some of it be used for lobbying?

Clearly regulatory is a big issue, particularly because it's all at state or municipal levels, but I think two things are working in Lyft's favor: First, Lyft walked into the California Public Utilities Commission and got its suspension lifted because they had data on why they're safer than traditional taxis or towncars and how they've done a better job screening and training their drivers. Second, Lyft is literally taking cars off the road, in a time of HOV lanes and pollution control. I feel like they're on the right side of those regulatory problems.

Do you expect Lyft to work on regulatory issues with companies like Uber, or is it every car-sharing service for itself?

We will work together in every possible way, but we'll also be clear in pointing out the differences. These are normal people driving other normal people. The regulations weren't designed to prevent that.

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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