Quickly Unpacking The Uber “Softbank IPO” Exit
Whenever there’s a big startup exit, I try to quickly unpack it here on the blog. There’s been so much news about Uber for the past year and more that, frankly, I have tuned most of it out. It’s almost laughable now three years ago, I actually thought about writing a book on this company and sector. Ultimately, I started a weekly newsletter around it and still couldn’t keep up on all the news forming around this company.
With that backdrop as context, it almost slipped my mind that the tech startup world and the SF Bay Area, in particular, experienced a huge “exit” with the Uber-Softbank deal. I write “exit” in quotes, however, because it is not the type we are used to waiting for or dissecting or even the type we get to see up close. As Fred Wilson noted this morning, USV and other firms can be creative about when to “take money off the table” — for more on this, make sure to check out Fred’s interview at the 2016 Upfront Summit, which goes into more detail.
Alright then, let’s unpack this new, huge exit:
1/ An Unprecedented Transaction In Silicon Valley History? With Masa-san’s $9B “down-round” investment in Uber, which included a multi-billion dollar secondary for early shareholders, is this the single greatest secondary transaction for a technology startup ever? I am not a startup or Silicon Valley historian, but I have to think it is the largest and therefore truly historic. (If someone actually knows the history here, please LMK.)
2/ First Real Ecosystem Impact Of The Softbank Effect: It’s been a parlor game to date to talk about the impact of Softbank’s Vision Fund — well, now we know, and it is a major player. As I wrote about in my 2017 review, “The Softbank Effect” presents an entirely new way for early-stage shareholders to get liquid, assuming one of their investments reaches the bar for Masa-san. This isn’t a new normal, however — this is more of an outlier, like startup exits themselves, and therefore cannot be extrapolated from.
3/ Billions In Cash Flow Back To VCs and LPs: Here, early Uber shareholders were eager to liquidate (oversubscribed, per Connie Loizos’ sleuthy reporting), resulting in real meaningful liquidity in an exit environment which has been relatively dry of late. In reading Connie’s piece, we see big returns with fractional sales by First Round Capital, Benchmark, and Menlo Ventures, and there are likely others in the mix. This is overall good news for the ecosystem as LPs will book some returns to reinvest in VC, firms can take care of their own, and early shareholders, angels, and early employees (I’m hoping) can get some dough. This may also help break open the dam that used to clog secondaries at Uber.
4/ There’s Always A Liquidity Discount: As Uber’s valuations were always struck in private financing rounds, it became a parlor game to track its meteoric rise. Had Uber gone public on traditional stock markets, however, it is likely safe to assume it would’ve been trading at an even steeper discount Masa-san won in the deal with. This also begs the question: Will Uber ever go public? Given its strategic importance to various governments (which are LPs in The Vision Fund) as critical infrastructure and networks, it is not crazy to think the company could remain private for longer. My own prediction is I’m Dara Believer and feel he and his new team will make improvements (loyalty, fix the app, and a Priceline-like travel portfolio, etc) and restore Uber to what it should’ve been.
5/ An Up-Lyfting Development? To be fair, however, it is not crazy to think that Uber’s growth could also significantly slowly under the sheer weight of its historical baggage, board reshuffling, and executive changes. I wouldn’t have believed this a year ago. That means other global players in Masa-san’s network can prey on those weaknesses, and an asset like Lyft (which is now likely undervalued by the private market) now has an opportunity to partner with a variety of players. It will be interesting to watch Lyft in 2018, as well, as it has been successful in hiring great talent which also views the startup as having more “lift” in its valuation (pun intended).
6/ High-Stakes Poker Between Travis And Benchmark: Travis Kalanick is now out as CEO, cashed out for over a billion dollars. I honestly can’t keep track of whether he’s still on the Board of Directors. Now that Benchmark has dropped their lawsuit against him, it is clear to me (without any direct knowledge) that Benchmark had no choice but to use every tactic available — however unsavory — to boot Travis from his CEO role, and the cost of that was losing its Series A investor and longest-serving Board Member, Bill Gurley, in the fracas (Ben Thompson’s take on this here, as usual, was outstanding). As such, per Connie’s reporting, Benchmark still has more than 80% of its position locked up in Uber stock, cashing out enough to provide their LPs with 2x their fund size in one fell swoop, but lots of risks remain, and as Fred outlined earlier, a VC often can’t control when a liquidity opportunity comes by.