Unpacking The $17B Uber Financing
Uber has come up a lot in conversations recently, so I felt compelled to jot down some notes about what their latest investment round means for the landscape. Last August (2013), I wrote a short post dissecting the big $~350M Google Ventures & TPG round, when Uber was just worth around $4Bn. Times have changed. Below is a short list unpacking the details I find of note in this latest financing:
Rumors And Valuation Jumping. Remember when Uber was worth $10B? That was a month ago. Since then, depending on what rumor mill you follow, it nearly doubled. Unreal. Whatever is happening behind the scenes vs the ink and PR game, Uber always knows how to play this brilliantly. It only takes two to tango, and in these kinds of private deals, once the parties are dug in, there’s a sunk cost element of fear at play.
Fidelity & Wellington Are The Lead Investors. Mutual funds and other large PE firms (and even banks and hedge funds, of course) are not being shy about investing in private technology companies. Fidelity had earlier invested in Pinterest at a $4B price tag, which now seems like a good deal as well. Many of the newer crop of hyper-growth companies like Airbnb, Dropbox, and Stripe are staying private longer and, frankly, it’s unclear where these firms would get exposure to such assets unless they came into the private markets hard. Hence, today’s environment.
How would public markets value Uber right now? Total speculation, but I’d have to think Uber could go public now (assuming it had built a plan to), but given recent volatility (and looking what happened to a very strong company like Zendesk), the timing is likely way off. I’d wager Uber would be valued at less than what it commands in the private markets, but I also don’t think matters as (1) public market investors would likely focus on short-term metrics and (2) there are enough private investors with deep pockets who believe there’s still lots of upside to be had.
A Mobile App, An Angel Windfall. The early investment rounds of Uber will make new titans. By a rough calculation, a $100k in Uber’s “seed” round is now $340m (not factoring in dilution). That means a whole new crop of power player investors who, assuming they’ve held positions, could be worth over $100M each, if not more. Think what Facebook and Twitter did for its very early investors like Reid Hoffman, Peter Thiel, Marc Andreesseen, Naval Ravikant, Kevin Rose, Mark Pincus, and scores of others. Sure, they had their own wealth, but this put them into the silly-money category, and Uber — which is on a track to be worth more than Twitter for the time being — will create another set of individuals who could parlay this terrific bet into many different avenues.
VCs and Uber. Most VCs don’t want to talk about Uber for too long. It’s one of the unicorns that got away. After 2.5 rounds of exposure to traditional funds, a few microVC and two larger VC firms were able to invest, and then it was all larger private funds. There were more Valley funds involved in Facebook and Twitter (especially through small cap M&A). The appreciation on this Uber investment is so fast and steep that even though it is entirely a unicorn outlier, it is exactly this type of mega grand slam that large VC firms need to have in order to cement their survival over the long-term. This particular example illustrates the stakes — for a large VC, there’s two shots on goal — and then, that’s it.
A Potential PR Misstep. It’s tempting to think of Uber and Google synching up on driverless cars, but I do think it was a misstep for the company to even hint at this. Uber is a great story today because it creates a more true p2p market between those who demand transport and those who can provide it. Once Uber locks in the customer experience, the customer may be indifferent to having a manned or unmanned vehicle. While this stuff is not going to happen any time soon, having the company suggest it could cut into the minds of drivers today, and may encourage some to think twice about which company they throw their emotional allegiances to, especially as they begin to form their own unions and professionalize.
Horizontal Breadth Or Vertical Dominance? With all this money and big backers, they must expect Uber, at some point, to expand its breadth of services horizontally, which products like UberRush and the like. It will be interesting to see what tack the company takes. Will it continue to expand within its vertical and spread geographically (115 cities worldwide — and counting), or will it start to more aggressively layer in new services (either within their own app or by creating new apps)? The stakes and expectations as a $17Bn company are now very different.
There Are No Comps. I’ve read some posts where people say FedEx is worth X, so Uber could be worth some percentage or multiple of X. Take Hertz, for instance, or any other “comparable” company. The problem, however, is that Uber is truly a unique company with “no comps.” I have tweeted that it could become a $100Bn company. Google didn’t have any “comps,” and there are no real “comps” for Facebook. These companies are complete and utter outliers. They’re the type of companies that could actually reach one trillion dollars of value in market capitalization. Uber doesn’t hold inventory, and it is arbitraging a regulatory environment that protects the status quo at the expense of consumer utility. There’s nothing to compare Uber to.