🎧🍌 The $5B Venture Growth Buyout Playbook | Alex Israel, CEO of Metropolis
Inside Metropolis AI rollup strategy of parking lot operators, why parking never institutionalized as an asset class, and building "Buy Now" for the physical world
Metropolis is a nine year old startup that just so happens to be the largest parking lot operator in the world.
They started by first building technology to double the gross profit of parking lots. Then, they ran into a wall selling it to customers (100+ year old real estate operators).
In Alex’s words “We had unit economic fit. We had product market fit. But we didn’t have go-to-market fit.”
So they decided to raise billions of dollars to acquire parking lot operators, including a publicly traded company. And then they implemented the product themselves.
This has emerged as a legitimate option for AI-native businesses, and I talked to Alex to unpack their venture growth buyout / AI rollup playbook.
We also get into why parking never institutionalized as an asset class (despite being 15%+ of most cities real estate footprint), why parking lots are perfectly positioned to be hubs for robots and autonomous vehicles, and his advice for using technology to grow revenue, not just cut costs.
Thanks to Jamie Siminoff, Adam Bain, Will Quist, and Yoni Rechtman for helping out with topics for Alex on this one!
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Timestamps to jump in:
1:10 Helping 50m Americans park
4:00 Building “Buy Now” for the physical world
9:02 Real-world checkout technology that works
16:07 Why parking never institutionalized as an asset class
18:34 Using tech to make parking assets more valuable
21:53 Parking lots as autonomous robotics hubs
29:07 Going to film school, working at MTV
30:55 Starting his first parking data company
33:47 Culture of pranking each other
36:27 A Fortune 500 CEO convinced him to start a 2nd parking company
42:55 Realizing they couldn’t sell to real estate operators
46:09 Acquiring a company 10x their size to jumpstart GTM
50:20 How to do a successful AI growth buyout
54:48 Revenue growth must be driven by technology
1:00:33 Why companies should do growth buyouts
1:03:55 Being legible to capital
1:09:16 You need creativity to take risks
1:13:30 AI is the first ever disruption to skilled labor
1:19:14 CEO challenges growing zero to 23,000 employees
1:24:31 Alex’ personal AI stack
Referenced:
Find Alex on X / Twitter and LinkedIn
👉 Stream on YouTube, Spotify, and Apple
Transcript
Find transcripts of all prior episodes here.
Turner Novak:
Alex, welcome to the show.
Alex Israel:
Thanks, Turner. It’s great to be here.
Turner Novak:
I’m excited. I talked to a bunch of people before doing this. I know you told me to talk to Jamie at Ring. I talked to Adam Bain, the guys at Slow Ventures, and Yoni. So I got a bunch of different perspectives, and I think you gave me some ideas too. I think we have a pretty fun conversation coming up.
Alex Israel:
I’m looking forward to it. Now I have to be nervous or intrigued as to what they said.
Turner Novak:
Honestly, it was better than I would’ve come up with by myself. There are a lot of interesting perspectives and narratives to hit on. Probably one of the big ones is that you’re the first, or maybe the most prominent, to pull off this kind of venture growth buyout AI rollup strategy at scale. I’m most interested in hearing how the sauce is made.
Alex Israel:
I was wondering if they took credit for it.
Turner Novak:
They did. They’re like, “Make sure we’re in the lead position for how much work we did here.” But I think the most interesting thing is that we were talking about how something like 50 million Americans have in some way interacted with or used the Metropolis product. That’s kind of massive. And yet a lot of people have never even heard of the company. So what is Metropolis?
Alex Israel:
You’re right, a lot of people haven’t heard of the company. At this point, over 24 million Americans have signed up on the platform, and probably north of 50 million people have actually used our product or our services.
There are two fundamental ways to think about the company. On one side, this idea of an applied AI company. We talk about ourselves as artificial intelligence for the real world. The question is: how do you take these services and products we’re so used to having in the palm of our hand and extend them into the real world?
We’ve leveraged computer vision and artificial intelligence to create seamless experiences everywhere around you. We started with parking. The idea that you could just drive into any Metropolis-enabled facility anywhere in the United States, get a text message when you arrive, and be seamlessly charged when you leave.
That’s one side of our business. The other side is that we’ve rolled up legacy businesses to accelerate our go-to-market. As a result, our services consist of businesses that have been around for almost a hundred years. In just the last few years, those businesses have touched the lives of north of 50 million Americans.
Turner Novak:
That’s insane. So when I’m interacting with a Metropolis product for the first time and I drive my car into a lot, what happens to make the product work?
Alex Israel:
Our goal is to drive what would qualify as a magical experience. You scan a QR code, you enter your credit card, your license plate, and your phone number. From that moment on, you’re a member on the Metropolis platform, which means you have access to the entire Metropolis network.
You pull into any Metropolis-enabled facility anywhere in the United States, drive out the gate automatically, get a text message welcoming you back, and when you leave, you get a text message with your charges. You never have to fumble with tickets. None of the traditional pain points associated with parking.
Turner Novak:
So you do have to sign up the very first time?
Alex Israel:
You do have to sign up for the first time. That’s where we’ve crossed the Rubicon of 24 million Americans signing up on the platform to create those seamless experiences. We started in parking, and now we’re scaling past parking into both mobility and non-mobility based experiences.
Turner Novak:
What are those, for example? I saw some things on the website like restaurants, hospitals. Are these all parking, or is it like placing an order where you walk into Wendy’s and a burger just shows up at the counter?
Alex Israel:
More on that in the future. What you’ll see right now is we’re extending very deeply into the mobility landscape. We’re going deep, and that depth manifests itself in gas stations, car washes, and quick-serve retail. The idea that you can go through a drive-through and you’re welcomed back, your order history is on file, so you can say, “Do you want your same Big Mac or Quarter Pounder?”
There’s a sense of belonging everywhere you go. You’re recognized, your order history is on file, and you can seamlessly pay. At the same time, we’re extending past the mobility landscape and moving further into experiences in your day-to-day life. How can we leverage what we call the recognition economy? How can we leverage biometrics, the kind you’d see with Clear or other organizations, to create seamless experiences everywhere you go?
Whether that’s an office building where you no longer have to check in, or a doctor’s office where you never have to fill out the same forms over and over again. A sense of belonging, a sense of personalization everywhere you go.
Turner Novak:
It’s almost like Stripe for the real world, or Toast for the physical world. Some kind of automated, frictionless checkout experience for things that don’t have a point-of-sale system or a buy-now button on the internet.
Alex Israel:
It’s the buy-now button in the real world. You’re right. We’re so used to online experiences where we just click and it’s seamless, but then we enter the real world. We go into a restaurant, a doctor’s office, a classroom, an office building. We try to check out at a grocery store. We have to show our ID. We have to hand our credit card to a complete stranger.
Think about how payment technology has evolved over time. Most people paid with cash. Then you’d slide a credit card through one of those old readers. Then you’d swipe. Now we tap. And just recently we tap a cell phone. It’s a linear expansion of technology, not exponential, not disruptive.
But why do you need a credit card? Why do you need to prove your identity everywhere you go? Why can’t you just belong? How do we leverage your identity, leverage recognition, leverage the technology that already exists to create these seamless experiences? First starting with the car, then extending past the car and moving with you everywhere you go.
Turner Novak:
How does the actual technology work? I almost get two opinions on this. On one hand, parking seems like it’s just computer vision reading numbers on a license plate. It seems super simple, like anyone could do that with technology from a decade ago or more. On the other hand, you’re talking about biometrics, eye scans, fingerprints. It sounds both really easy and really hard at the same time.
Alex Israel:
Let’s start with the car. I’d say the technology you’re describing has been around since the seventies. Think of it as optical character recognition. You identify a license plate, look up a file in a table, match it with a profile, and charge the person. Relatively easy.
Fortunately, or unfortunately, that’s not what we do. The reason is twofold. One, it’s not very accurate. Those traditional models get to about 70% accuracy. Two, what happens if you can’t see the license plate? What if you need absolute accuracy? What if you’re granting access to a secured government building or a residential building with limited access?
You need near-perfect information, and it needs to be actionable in real time. I need to recognize you, match you with your account, know you’re authorized to pull in, and do all of that in fractions of a second. And I need to maintain that level of accuracy even if your license plate is obstructed.
That’s how we think about biometrics in the context of a vehicle. How do we create a fingerprint of your vehicle? How do we identify it independent of whether your license plate is covered in mud or snow, or you’ve got a bike rack on the back? We’ve captured, I believe, over 250 million images. We’ve trained our data set to identify a vehicle independent of the license plate, where the license plate becomes one variable, not the single most important one.
Turner Novak:
So one of my cars is a beat-up minivan with a dent and a scrape on the side. Would that be in the database?
Alex Israel:
I’d just search “beat-up minivan with dent inside.” But that’s a perfect example. It could be dents, scratches, a bumper sticker, colors. All of these heuristics make up a profile, a fingerprint of your minivan that identifies your vehicle as distinct from another car that’s the same make, model, and color pulling in right after you.
Turner Novak:
I feel like some people listening to this are thinking, “Oh my God, this sounds like a privacy nightmare.” There are tons of potential concerns. How do you think about making sure all this stuff is safe and secure?
Alex Israel:
Privacy is at the forefront of Metropolis. We talk about it at the executive level, the leadership level, the board level, consistently.
On one side, there’s how we secure the data. We use best practices, and we don’t license that data to any third parties. That data is retained by Metropolis and the member. You have your data, and we have a license to use it.
On the other side, there’s what I’d call the fair exchange of value. Why is someone willing to give Metropolis their information? Think about online checkout. You give someone your address and credit card because there’s a fair exchange of value. We carry around these little devices all day. Why do we do that? We see a fair exchange of value.
Think about two concentric circles. One is convenience, the other is privacy. They don’t really overlap. Where a consumer gets involved is where they decide how much privacy they’re comfortable giving up in exchange for something else. You and I are very comfortable giving up privacy in a security context, like going through an airport. That same dynamic presents itself with Metropolis.
If you can’t present a fair exchange of value, it doesn’t work. But if someone is giving you their license plate and credit card, and you’re giving them back time, you’re giving them back what matters most in their lives. Not waiting in line to get out of a parking garage. Getting to the event they want to be at. Getting back to their family for dinner. No one wants to be waiting in line to get out of a parking facility.
Turner Novak:
Waiting in line at a stadium is the worst. You get up between periods, go to the bathroom, you’re waiting in line for a hot dog for 30 minutes.
Alex Israel:
You want to be sitting in your seats with your kids having a wonderful experience. You don’t want to be waiting to get into the bathroom, waiting to buy a Dodger dog, waiting to pay for parking. All of these little pain points erode our most precious asset, which is time. You have to give people something back. There has to be a fair exchange of value.
Turner Novak:
It reminds me of those Amazon Go stores. I’ve used them at stadiums. You walk up, grab your water or hummus or whatever, and walk out. They’re pretty quick and nice to have.
Alex Israel:
Amazon called that “Just Walk Out” technology.
Turner Novak:
You’re almost like “Just Drive Up” technology.
Alex Israel:
Exactly.
Turner Novak:
So what was the pitch when you’d go to a parking lot operator? I feel like parking is notorious for being resistant to technology changes. It just works, and they make money. What’s the pitch to say, “You should use this technology and it’ll do X for your business”?
Alex Israel:
You’re right. The industry as a whole hasn’t really evolved for about a hundred years. Traditional parking was a land play. A guy with a wad of cash, or a box you’d put cash into.
Turner Novak:
Maybe a sign: “$50, Super Bowl parking.”
Alex Israel:
It’s so old world. It’s actually shocking. Parking represents 15% of the surface area of our cities, yet it’s almost not an institutional asset class. We talk about Class A office, multi-family, single-family. When do we talk about parking?
Turner Novak:
You’d think the cash flow is pretty sticky. It’s low maintenance, low CapEx. It’s just a lot with a gate. But you’d also think about developing it into a 50-story complex and making a ton more money on the land. Why has it not really institutionalized?
Alex Israel:
I think there are a few reasons, but this sounds remarkably simplistic: it’s unsexy. Think about it. “What did you do?” “I created the biggest Class A building in New York City.” versus “I buy parking lots.” It’s dirty, it’s gritty, it’s a piece of pavement. There are weird smells and weird associations. It’s the last bastion of non-institutional real estate in the United States.
When we started, we found we could create technology that facilitated a better mousetrap in a few ways. One, it created an amenitized, truly differentiated experience for the consumer. The idea of just driving in and driving out. Two, it reduced the cost to operate these facilities. Three, we captured significantly more revenue. The net result is that we actually increased the value of the underlying property.
So while at first it was a complicated sales cycle, what we found is the product sells itself. It sells itself because of that differentiated consumer experience, and because of the value it drives to the real estate owner by increasing the value of their underlying dirt, which is their primary objective.
Turner Novak:
How does that happen? Are you able to better optimize use of space, charge better prices, use surge pricing? Do they lose less money because of reduced fraud?
Alex Israel:
It’s all of those things. Think about what you’re comparing: a company that’s invested hundreds of millions building this technology, versus the guy with a wad of cash. We founded Metropolis as a technology company from day one. We brought together a group of technologists to build a solution from the ground up, not as a history of parking operators.
We started looking at parking as the first vertical where we could deploy robust applied artificial intelligence to create seamless experiences, but also build a profoundly differentiated product for real estate owners. We reduce fraud, we capture more revenue, and more people choose our locations because they know it’s a Metropolis location.
Turner Novak:
So if there are two parking lots on opposite sides of the street, and you know one is Metropolis and you can just drive in, you’ll always choose Metropolis.
Alex Israel:
That’s the goal. A hundred percent.
Turner Novak:
Where is this going? It hasn’t changed much in a hundred years. When I think about self-driving cars, I wonder: do they even need to park? Does parking go away? Could this either be terrible or really good for you depending on what you say next?
Alex Israel:
We have 23,000 employees in those parking lots, and those Metropolians are driving remarkable value today. At the same time, we see those experiences evolving where that human capital can drive even more value, whether as valets or shuttle drivers.
I’ll also tell you: while Metropolis is the 800-pound gorilla in US parking, we represent 6% of the market. We’re tiny. The question is how quickly we can get from 6 to 12 to 24 percent. That’s about continuing to prove out this value proposition to real estate owners and scaling into new verticals.
There’s nothing more powerful than a real estate owner who realizes they can pay for parking with the same application they use to pay for fast food, get into their office building, and get through tolling. As we expand into new verticals, that becomes self-reinforcing.
On autonomous vehicles, let me dissuade you of any assumption right away: I’m hugely bullish on artificial intelligence in vehicles and on bringing AVs to the forefront of our daily lives. I’m an early adopter, a huge proponent. I have an 8-year-old daughter and I genuinely believe she’ll never have a driver’s license. Around 50,000 Americans lose their lives every year in automobile accidents. I want to take that number to zero.
Now, will it happen tomorrow? No, for a few reasons. Americans’ personal vehicles have a useful life of over 11 years. If you buy a car today, you’re probably going to have it for 11 years. You’re not going to switch immediately to an autonomous vehicle. You might supplement your personal travel with an AV, but the question is temporal.
Here’s why Metropolis is so exciting in this context: we’re the only player at scale that can convert parking into mobility hubs. Where do all these vehicles need to go to be cleaned, serviced, charged, deployed, and to offload data? Without those services, we don’t have level-five autonomy. What you won’t see is some dystopian future where cars just circle the block endlessly waiting for their next ride. Cars are going to need to go somewhere. They need to be stored, deployed, cleaned, serviced.
We have 4,600 locations across the United States that were traditionally archaic infrastructure and are now connected. The question is how you bridge next-generation autonomous vehicles with old-world infrastructure. We’re that API layer. That pragmatism puts us at the forefront of autonomy and allows us to bring autonomous vehicles to reality at a much faster pace.
Turner Novak:
So if I was distilling the Metropolis business model into the simplest, most compelling description, it’s almost like a profitable, cash-flowing, real-world self-checkout business that also happens to be the autonomous robotics hub of cities in the future. Is that a fair way to describe it?
Alex Israel:
We have significant depth and breadth in the business. On one side we have this recognition platform. On the other side, we have verticals, one being mobility and others outside of mobility. How does this technology travel with you everywhere you go?
You’re absolutely right about the convergence from personal car ownership to fleet ownership to individual AV ownership, and how those modalities coalesce into the future of mobility. Metropolis is perfectly positioned to convert parking into mobility hubs. That depth provides defensibility.
And we’ve done something that almost no company in the applied AI or AI space has done: we have a defensible service layer, a traditional business layer. It’s almost as if, almost as if we planned it, this idea of blending next-generation artificial intelligence with traditional managed services.
Turner Novak:
Was it all planned? This is your second parking company. You’d gone to film school, you were working at MTV, and then you became this parking business magnet. How did this all start and evolve?
Alex Israel:
I was very excited to go into a career in film. Starting companies and creating film or television are actually very similar in that you’re taking something from abstraction and bringing it to fruition. You’re taking an idea on paper and building it. The difference is that in film and television, it’s normally a year and then you’re done. With technology startups, you build for a decade and keep building.
When we founded Metropolis, we set out with the ambition that this would be our last company. The four co-founders said: we will build a culture, a company that stands the test of time, and one that we’d all want to remain at. That was an objective from early on.
Turner Novak:
What did you produce at MTV? Were there specific shows or segments you worked on?
Alex Israel:
I was a contract producer working on international segments for international MTV. Red carpet segments, behind-the-scenes content. I loved it. I loved producing shorts. Maybe one day I’ll get back there.
Turner Novak:
So how do you go from that to starting a parking company?
Alex Israel:
It was happenstance. We actually started out building what I’d call a data company. My co-founder and I were late for a movie in Santa Monica. We couldn’t find parking and couldn’t believe it. We realized we could build a reservation and data platform that told people where parking was available in real time, both on and off the street, all over the world.
We pooled our Bar Mitzvah money, raised some family-and-friends money, about $150,000, and flushed it down the toilet. We had no idea what we were doing. We were non-technical. We had no real basis for starting a startup.
Then we started to get traction. We raised a little more money and started getting licensing deals. Large automotive companies and dashboard navigation systems wanted to license our data. We started licensing data to the largest navigation companies globally, from Waze to Google to dashboard systems like TomTom and Tele Atlas, and then most of the largest automotive companies from Ford to Porsche.
Turner Novak:
So I could click a button and see the closest open parking spots?
Alex Israel:
When you get into your car today and navigate to downtown, you’ll see all these little blue Ps pop up on the map. Most likely, that data is still coming from the company I founded and sold.
Turner Novak:
Fascinating. Does that show up on Google Maps, Apple Maps?
Alex Israel:
Exactly. If you go into Google Maps right now and look at all those little parking icons that come up all over the world, that data comes from a company I sold to a Microsoft spinout called Inrix.
Turner Novak:
And do they keep that data cleaned and updated, selling it to Google and these map providers?
Alex Israel:
That business is still up and running and thriving as a division of a larger company. There are executives I hired who are still with that business, almost 20 years later.
Turner Novak:
I know you had a pretty big culture of pranking people internally. What’s the story there?
Alex Israel:
Pulling pranks definitely fades as you get older. At the company I co-founded, ParkMe, we’d pull pranks on one another. These startups are so stressful. You have the highest highs and lowest lows in a single day. We wanted to keep things humor-filled.
I would pull a pretty elaborate prank on my co-founder Sam every birthday. One year we had these glass offices with a door and a glass panel. Everyone went home around eight o’clock and I teamed up with four engineers. We went to Home Depot, bought drywall and molding, and drywalled over his door and window. When he came in the next morning, there was just a wall where his office used to be. It was so well done that he couldn’t figure out where his office was, and he eventually had to Kool-Aid Man his way through the wall.
Turner Novak:
He actually smashed through it?
Alex Israel:
There was no other way to get into his office.
Turner Novak:
Are you still pulling pranks at Metropolis today?
Alex Israel:
Not as much. At the executive leadership team level, we troll each other a lot, mostly via Slack. I asked one of my co-founders for a deliverable on the ELT Slack yesterday, and he responded by saying it was “in that little box under your screen.” We use humor to bring levity. We push each other.
Turner Novak:
You mentioned you sold ParkMe to this Microsoft spinout, and I think I remember you saying you were ready to stop doing parking altogether before starting Metropolis. How did that go?
Alex Israel:
There are two components to that story. When we founded Metropolis, we weren’t really focused on parking. We were focused on this intersection of artificial intelligence, computer vision, and autonomous vehicles. We were thinking about whether we could build what we now call a recognition platform and create seamless experiences.
We thought about grocery stores, we thought about car washes and tolling. We ended up settling on parking because it’s everywhere, because I had some experience in the space, and because we realized that if we could tackle parking, we could build a flywheel that affected tens of millions of people’s lives on a daily basis. That was always meant to be a jumping-off point into so many other verticals.
The other side of the narrative is I was still pushing back. I sat down with a friend of mine, the former CEO of Mattel, who has since passed away, and I told him I had no interest in going after parking again. He basically called me an idiot. He talked about how I had built this idiosyncratic knowledge set, that I knew something deeply about an old-world industry with a defensible, unique data set, and that I should exploit it, go after it, do something truly remarkable in the space. That’s why we settled on parking as our first vertical, and it’s still our most important one. But over the next five years, you’ll see parking become a minority of our total platform.
Turner Novak:
It comes back to: what do you have a competitive advantage in? Just lean into that, because starting a company is hard enough on its own.
Alex Israel:
Completely agree. Brian gave me great advice, and that was exactly it. All great startups, if you go back to Silicon Valley lore of Google, Apple, etc., they all started in a garage. We started in a garage in Santa Monica. Four of us, whiteboards, post-its on the wall. Both of my startups started in a garage. I don’t know, there’s something about a garage. It’s inhospitable but also homey. You can make it your own.
Turner Novak:
So you had this advantage in parking, I’m assuming you hit the ground running, everything worked well, customers were signing up left and right. Is that what happened?
Alex Israel:
Yeah, it was just like a fairy tale. We wrote it down and it played out day by day exactly as planned. No.
Turner Novak:
So what happened?
Alex Israel:
We ended up raising a two-tranche seed round, about $20 million total. The first tranche was $7.5 million, which, compared to my first seed round of $350,000, felt like an exorbitant amount of money. We raised the capital, started to build the team, hired technologists and engineers, started building out our AI platform. This was late 2017, early 2018.
We started putting cameras on the side of the road and testing whether we could catch vehicles. Then we got our first location, which we called M1, Metropolis One, in Venice. Eight years later, we have just under 4,600 locations. But it was definitely non-linear.
We scaled to about 50 locations in Southern California and quickly realized that real estate is just as old-world as parking. Real estate investors like cash flow, they like picks-and-shovels plays, they like low-risk value propositions.
Turner Novak:
They want to go touch the building, feel the brick, pick up the dirt.
Alex Israel:
And they don’t like to take risks. No one in real estate wants to be the first to try something new. You’d sit down with a Class A office developer and say, “We’d like to take the keys to your $250 million building. We’d like to be the first touchpoint for your visitors. We’d like to start with parking and scale past it.” And you’d get something along the lines of, “Cute startup, come back in 50 years.”
The legacy providers these real estate companies work with, construction companies, property management companies, parking companies, many of them have been around for over 50 years. So we shifted strategies. We were going to do something that technology companies do not do: pioneer what we call a growth buyout.
The idea was to take a traditional venture-backed technology company developing artificial intelligence, and actually acquire an old-world business. We were going to buy EBITDA, which is almost a dirty word in technology. Remember Silicon Valley, the show? That scene about being pre-revenue? Tech investors are similar about EBITDA. “No no no, don’t have profitability.” But we went out and acquired EBITDA. We acquired these old-world staffing businesses.
We bought our first parking operator, a company based in Nashville called Premier Parking, probably the 10th or 11th largest parking operator in the United States. We used it to scale our technology to 400 locations overnight. We went from this mom-and-pop technology company to running one of the largest parking operators in the United States.
Turner Novak:
You went from 50 locations to about 450?
Alex Israel:
About 450. Exactly.
Turner Novak:
And Premier was basically a staffing and property management company for parking?
Alex Israel:
That’s exactly how you think about it.
Turner Novak:
How did you acquire them? You’d raised about $20 million, but this company was doing $10-12 million of EBITDA. That’s a pretty big acquisition relative to your size.
Alex Israel:
The company was doing around $10-12 million of EBITDA, and we acquired it for a little north of $120 million. So we had to raise money. We raised from Silver Lake, Dragoneer, and a lot of the usual suspects, including a16z and others. Tier-one Silicon Valley firms. We raised the capital, raised some venture debt as well, and acquired Premier.
We went from just under 200 employees to just over 2,200 employees overnight, from about 50 locations to about 450 locations overnight. We took a company doing a few hundred transactions a day to a few thousand transactions a day. At this point, a new member signs up every one to two seconds, 24 hours a day, seven days a week. Transactions are a multiple of that.
Turner Novak:
You couldn’t just go to Google or Facebook and spend $10 million on ads to acquire profitable customers. You literally had to put things up around hundreds of locations. So it actually made more sense, and probably sped up implementation, to just acquire the existing footprint.
Alex Israel:
At the core, we had unit economic fit, we had product-market fit, but we didn’t have go-to-market. The go-to-market was flawed because we kept hitting a wall with traditional real estate investors. They wanted an institutional operator with proof points, and we needed to use Premier to build that foundation.
What we didn’t know at the time is that the acquisition of Premier was going to be a remarkable success. We didn’t realize we were going to take this traditional business and roughly double its gross profit relatively quickly. So we went back to the venture capital community and said, “We should do this again.” They were pushing for it.
Instead of a slow organic ground war, we could scale inorganically. We raised $1.6 billion as our Series C to acquire the largest operator in the space, SP Plus, which was publicly traded with just over 20,000 employees and just over 3,600 locations. We acquired them almost two years ago now.
Turner Novak:
Were they the biggest parking company in the US?
Alex Israel:
Metropolis is now the largest parking company globally.
Turner Novak:
From garage to largest in the world in a decade or less. That’s crazy.
Alex Israel:
It’s been exciting. What the team has built in a short period of time is remarkable.
Turner Novak:
I feel like this strategy has become pretty common in services businesses. You see it with accounting firms, a dozen AI rollup plays in various categories. What has to be true for this strategy to work? Or does it only work in parking?
Alex Israel:
We pioneered this strategy, and you’re seeing a lot of people now implement it, or realize the value in it, especially through the application of AI. You’re seeing General Catalyst deploy it for hospitals. You’re seeing others deploy it in accounting. It’s becoming a significant component of the future of venture capital.
What makes this strategy successful comes down to one thing, and I couldn’t be more direct about this: people focus on cost synergy. It’s the traditional mantra of private equity, LBOs. Everything is about cost takeout. But cost synergy doesn’t create durable growth.
Any application of AI to an old-world business that focuses only on cost takeout and the reduction of human capital will succeed to a degree, but not at a technology company multiple. They’ll build private equity companies. That’s not a bad thing, but it’s not how you build a next-generation technology company.
In order to succeed with a growth buyout, you need to focus on revenue synergies. You need to drive more revenue through the deployment of technology, not simply the elimination of cost. The simple test: through the deployment of technology, are you seeing more gross profit? Not just, are you seeing costs come out?
Turner Novak:
It’s almost like cost cutting with AI is table stakes. You really should be doing it, but it only truly works if you’re also using it to grow the business much faster than non-technology-native companies in your industry.
Alex Israel:
What you’re finding right now is there are partners and analysts all over the world sitting in investment committees with memos about how they can buy an old-world business and deploy AI. In this model, they’ll be taking technical risk, which private equity firms don’t traditionally want to take, but they’ll have confidence in the underwriting because it all comes down to cost takeout. It’s just not that interesting. It’s not going to be the next trillion-dollar company. It’ll generate decent middle-of-the-road returns, but it’s not how you build a truly compelling business.
Turner Novak:
So what has to be true on the revenue generation side? Because if I’m trying to roll up accounting firms, law firms, or creative agencies, a customer can just leave and go to another firm. Maybe parking is different because once I’m in your lot, I’m committed. Are there certain things that need to be true for the revenue opportunity to play out?
Alex Israel:
You’re right that we’ve built a tremendous moat in parking. But to your comment, the technology itself needs to be what drives the revenue. Take your accounting analogy. The natural inclination with any rollup is: combine firm A and firm B, you don’t need two CEOs, cut all overhead, save 10% of costs. That’s fine, but it’s not going to create durable growth. It’s going to create an uptick in EBITDA but not multiple expansion.
To get multiple expansion, you need to broaden the product and actually drive more revenue from your customers. You need to create a platform that, after rolling up these accounting companies, allows you to generate more revenue from existing relationships. What you often get instead is clients saying, “You’ve reduced costs by 40%, can you share some of that savings with us?”
You need to create durable growth through revenue synergy, through the unique nature of your technology with your partners and customers. It almost reminds me of the Amazon aggregators that popped up during COVID. The model could have worked, but most of them were just cutting costs and aggregating brands. To your point, it might have worked better if they’d expanded those brands into Shopify, Walmart, Target. But a lot of them were also just mediocre products. You need a good underlying asset that actually enables you to lean into higher revenue generation, with or without technology.
Alex Israel:
Look, it could be luxury, it could be premium, but it needs to drive value. The purpose of a technology company is to create products that generate value for customers and partners. If it’s not generating value, you’re engaged in financial engineering. A lot of these rollups are inherently that.
If you look at any company that performs well in public markets, you can distill their value to durable growth. DCF analysis, future value, it’s all tied to how the market perceives the viability of their durable growth over the next five to ten years. Companies trading at a discount? The market is basically saying it doesn’t believe that company is going to grow. That’s why private equity companies are compelling, but they’re not how you build a business that stands the test of time. They’re not how you build the next trillion-dollar company.
Turner Novak:
Do you think more people should be using this growth venture rollup strategy, or is it going to end in disaster if the whole industry adopts it in the wrong ways?
Alex Israel:
I’m a huge advocate, a huge proponent. I think it’s the future. The idea of four co-founders in a garage building something de novo is definitively not dead, especially with the advent of AI. Do I think we’ll have the first $1 billion one-person company? Yeah, I think that’s inevitable. But there are also really compelling solutions to be deployed leveraging a growth buyout, and I think it’s the future.
You’re going to see every major venture capital firm deploying these strategies, and private equity firms moving into a higher-risk venture profile. But people are a little too narrow right now, too simplistic. They’re really thinking about cost synergies, even if they frame them as revenue synergies. The firms that can capture genuine revenue synergy on top of the cost synergy downside protection will be remarkably successful.
Look at our cap table. You have a blend of traditional private equity investors, credit investors, and venture investors all in the same round. You don’t see that. You don’t see those players together in one company. That’s because we have all the downside risk mitigation of a private equity play and all the upside potential of a venture play. That idiosyncratic return profile is why we can work with players like Eldridge and BDT & MSD, but also with Dragoneer and Silver Lake, and also with Temasek and Vista. You don’t see those names on the same cap table.
Turner Novak:
Is that where having the pure private equity guide who wants to cut lines on a spreadsheet, alongside someone like Adam at a16z who wants to grow revenue, helps you triangulate those two aspects?
Alex Israel:
A hundred percent. When we founded the company, I was probably naive about how the capital markets work. I thought: if you can give an investor an opportunity to make money, they should seize on it. You quickly learn that the capital markets operate in pretty narrow boxes. Private equity funds invest here. Venture debt invests here. Private credit invests here. Infrastructure funds. Real estate funds. Very narrow niches.
What we found is Metropolis didn’t sit in any of them.
Turner Novak:
That could be bad. How do you raise money then?
Alex Israel:
It can be very bad. It takes brilliant investors to see the vision and move past those hurdles, and really creative minds to understand how they can play across the capital stack. People like Todd Boehly and Tony Minella at Eldridge have fund structures and capital bases that allow them to invest in venture and also in private credit. They can look at unique businesses and operate outside the box.
I’ll tell you: we’ve had limited success at the VP or analyst level raising money. Historically, if I got on the phone with a VP or principal, almost nothing happened. It took a partner with a significant level of investment experience to understand the vision of Metropolis and where we’re going. So we stopped talking to junior team members, not because we undervalued them, but because they weren’t going to be able to sell their investment committee on the model. Now it’s changed because we have the track record. We have a business generating over $2.1 billion of revenue. But early on, it was very complicated.
Turner Novak:
Have you heard of this concept of being legible to capital?
Alex Israel:
No, but tell me.
Turner Novak:
It’s basically what you just described. How familiar would an investment committee be with this pitch? A memo shows up in the meeting, there are 10 people sitting there, mostly finance people reading the same things, doing the same things, investing in the same businesses. A pretty legible pitch right now is, “We worked at OpenAI for four years, trained some of these models, and now we’re leaving to start this new thing.” That’s the most legible pitch you could possibly have. Versus something like: “It’s kind of real estate, there are some cameras, it’s payments in the real world.” That’s not as legible. Even if they kind of got the idea, they’d think: what can I actually get through IC? They’d just do the thing that’s more trendy, the thing they can talk about at a happy hour and look good at investor networking events.
It’s gotten worse as funds have gotten bigger and capital flows have gotten more pronounced. A lot of investors think about positioning themselves at the beginning of capital flows. Where’s capital going to flow? Robotics? Humanoids? Space? I need to deploy capital into this theme and ride the narrative of this sector, whether or not the individual company makes sense. It’s more about exposure to narratives or themes. There’s a lot of alpha, I think, in just understanding a core new stream of cash flow that’s opening up, whether it’s an individual business or not.
Alex Israel:
For me, if you think about human behavior and decision theory, what you find is that people are inherently risk averse, especially about their careers. If you think about government bureaucracy or a venture capital shop or a private equity firm, people not only stay in their lane, they don’t want to be creative. Creativity exposes them to career risk, personal risk. No one’s going to get fired for investing in OpenAI.
Turner Novak:
You’re going to get promoted because you got allocation in the hot deal.
Alex Israel:
Exactly. Ninety-plus percent of investment is FOMO. There are market forces at work and people are investing out of fear of missing out. There’s no creativity, no unique thought. “This firm is investing, so we should invest.” People like to justify their existence and say that’s not the case, that they’re different. It’s the same way people like to think about AI. “I’m not going to be affected, my job is safe.” Your job is not safe. Everyone’s job is going to be affected.
Most people in venture and private equity globally are lemmings. Most people at startups are lemmings. Most people don’t focus on creativity and don’t want to take the risk. That’s okay. It’s fine to be risk averse. But I think it’s not okay to be a hypocrite. It’s not okay to claim you’re going to be creative and do idiosyncratic things and then not do them.
There are a small handful of investors who are actually doing unique, creative things with capital that haven’t been done before. It’s rare. It takes a level of risk tolerance and creativity that most people don’t want to deploy, even if they’re capable of it.
Turner Novak:
It’s almost riskier to take risks as an investor than as a founder. As a founder, you’re acting on it, you’re doing it. As an investor, you’re a middleman deploying someone else’s capital. It’s almost like the asset class has gotten too institutionalized.
Alex Israel:
Most investors are in the business of raising capital, not deploying capital. Most generate more personal return off their management fees than their carry. So they’re focused on fundraising constantly.
Then you get the rare investor who is truly focused on doing innovative things, on building not only a unique firm but investing in unique companies or building those companies from the ground up. You look at what Todd Boehly and Tony Minella have done at Eldridge. What Robert Smith has done at Vista. What Byron Trott has done at BDT & MSD and Michael Dell. Really interesting entrepreneurs, not just investors. They’re building entrepreneurial firms and injecting that spirit into their organizations. That’s really interesting. But it’s rare.
Turner Novak:
One thing you mentioned earlier is that AI is going to change a lot of skilled, white-collar labor. It’s one of the first times a technological revolution is hitting that end of the spectrum. How should someone position for that in their career? Is the key just to get really good at AI, become the AI expert at your organization?
Alex Israel:
On the personal level, you need to move as quickly toward being an evangelist as possible. Otherwise, the disruption to your personal career is going to be profound.
On the macro level, I think people are getting this wrong and not talking about it. We talk about industrial revolutions historically as the repurposing or retraining of the low-skilled workforce. The Uber driver can be retrained. The factory worker can learn to operate an automated line. It’s an adjustment, an upskilling.
What people are not talking about right now is what happens with the combination of artificial intelligence and the advancements in robotics. We’re affecting both ends of the spectrum. What gets really interesting is what happens when you take a designer, a lawyer, an accountant, a doctor who has trained and worked for 15 years, and say, “You’re no longer needed.” And at the same time, you tell the plumber, the janitor, the chef, the line cook, and the Uber driver the same thing.
We’ve never seen an industrial revolution affect both sides of the bell curve simultaneously. We’re not talking about it because it’s scary and it could seem like fearmongering. But we need to embrace it, understand it, and address it as a society. That’s why you have people like Elon Musk jumping to UBI. He’s arriving at the conclusion without fully diagnosing the cause. I think we need to do both.
I like to think about Amara’s Law: we have a natural inclination to overestimate the impact of technology in the short run and underestimate it in the long run. That’s exactly what we’re doing with AI, especially in combination with robotics.
Turner Novak:
Amara’s Law. A-M-A-R-A. I’ve definitely heard that. It’s like: we overestimate what’s going to happen in the next two years and underestimate what happens in the next ten. Do you remember peak Web3 in 2021? Everyone thought every flight ticket would be an NFT, every meal at Wendy’s would come with an NFT. And then the same thing with autonomous vehicles. Ten years ago people said it would be here in two years. We kind of forgot about it. And now Waymos are quietly working really well in some cities and most people don’t even talk about it.
Alex Israel:
We go from science fiction to entitlement overnight as a society. Ten years ago we didn’t have Wi-Fi on planes. Now if you don’t have satellite internet, you’re panicked. We’re entitled instantly. And yeah, I think we’re grossly underestimating the long-run impact.
Speaking of impact: you mentioned I went from a couple hundred employees to 20,000. The scale of that change may be one of the largest magnitude of CEO transitions ever. How did you do that? Or how are you doing it?
Turner Novak:
How has the CEO role changed as the company has scaled that quickly? What does your day-to-day look like?
Alex Israel:
The role shifts dramatically over time. It goes from heads down, sweeping the floors every day, to doing podcasts, press interviews, and government affairs. What remains the same is that you’re always focused on the biggest problems facing the company at any given moment.
You don’t get the great news. You don’t get the good news. You get the biggest problems, the things your best people couldn’t solve. Something rises to your desk because it’s a nightmare. So you’re constantly battling the most difficult challenges facing your organization at any given moment.
As a CEO, you have to step back and ask: what are actually the greatest imperatives facing the organization right now? Make sure your attention is focused there, not just on the single fire that’s in front of you. You need to balance those two things. And I think that holds from four people in a garage to 23,000 employees across the world.
Am I succeeding at it? Am I failing at it? I’m learning every single day, and I’m humbled by the team willing to put me in this position, our investors, our board, my co-founders. I like to say we’re “failing up”: you’re running into walls, failing, falling down, and getting right back up. I’m very excited about what we’ve built, and even more excited for the future. The true sign that this is your last job is that you wake up, not every day, but almost every day, more excited about the business than the day before. That’s absolutely the case with Metropolis.
Turner Novak:
There’s this concept from Sam Harris called “Begin Again.” I’ve never heard of this before. What is it exactly?
Alex Israel:
Sam Harris talks about “Begin Again” in the context of meditation. The idea is to take a moment, take a breath, and begin again. Being a founder can be so emotional. We talked about the rollercoaster of highs and lows, sometimes in the same day. Just closing your eyes, breathing, and beginning again. I find it very calming and reassuring.
So many things happen to you as a founder that are outside your control, but your breath is always inside your control. And this idea of beginning again keeps you from ruminating on the past, which can be so unhealthy. It allows you to learn from the past while focusing on the future. I may be bastardizing what Sam Harris is actually teaching, but I love the concept.
Turner Novak:
Do you have a personal AI stack? How do you use AI day-to-day? Are you pretty vanilla, mostly ChatGPT? Any cool new tools you’re using?
Alex Israel:
On the spectrum of CEOs across the United States in terms of total capability with the technology, I’d say I’m in the bottom tier. This technology is capable of so much and I’m just scratching the surface. We’re a technology company doing profound things. I’d say we’re definitely on the cutting edge in terms of how our team is leveraging AI internally, and also in terms of what we’re building, namely computer vision. But personally, I’m probably leveraging Claude and Anthropic more than anything else, while also using Gemini and OpenAI every single day.
Turner Novak:
When you talk about interesting things you’ve done internally, anything that another founder might find useful?
Alex Israel:
One thing we’ve focused on is where AI innovation comes from. Is it top-down, bottom-up, or dispersed through the organization? We’re spinning up a Chief AI Officer role right now. We’ve hired that person and placed them in the role. Their job is to streamline and build tools for our organization directly tied to artificial intelligence, and to balance top-down and bottom-up adoption. The goal is to deploy AI at scale to all 23,000 employees, not just a limited set.
Turner Novak:
What does the background of that person look like? Because it could be almost anything.
Alex Israel:
This individual has experience in both large-scale organizational transformation and technology. They can manage engineers, and they’ve been involved in large-scale transformation on the consultancy side. Critically, this person already works at Metropolis today and is highly trusted by all of the department leaders across the organization. They have that foundation of internal trust, a background in driving large-scale transformation, and the technical background to adopt technology at scale with speed.
Turner Novak:
So the idea is to build tools and processes that the rest of the company uses to get work done faster, more efficiently, more profitably.
Alex Israel:
A hundred percent. It comes back to revenue synergy. How do we focus our team members on their highest and best use? We have 23,000 employees. What is the best way for each of them to drive value for our partners at any given moment?
Turner Novak:
Cool. Alex, this was a lot of fun. Thanks for coming on the show.
Alex Israel:
Of course, Turner. Thank you for hosting. This was great.
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