14 ms·

Sincere question, can someone explain to me a plausible scenario at this point by which early investors actually receive a payout even slightly commensurate wit

• paulsutter 10y ago
  Uber has apparently raised $12.5 billion[1] and is valued at over $60 bilion. So seed investors are in fat city as long as the valuation holds. If the valuation goes down, it all depends on the preference multiples (which are likely greater than 1), and how low the value goes. Uber has very significant revenue and growth (see the new Mary Meeker presentation), so they are a very valuable company. It may not be wise the way they are burning cash in China but hey we're all just spectators. [1] Crunchbase says $9B and hasn't been updated to add in this money), https://www.crunchbase.com/organization/uber#/entity https://www.crunchbase.com/organization/uber#/entity
  • rexreed 10y ago
    It's only Fat city if there's an exit at that valuation. We're talking Theranos style valuations here that can disappear at any time. They better find an exit scenario before the music stops or it's a world of hurt, especially for the later stage investors.
    • supster 10y ago
      True, but those are the obvious risks you take as an investor. And late stage investors often negotiate downside protection in the form of liquidation multiples or ratchets.
      • rexreed 10y ago
        You can ratchet your way all the way to 100% of zero, but getting a greater percentage of negative is not the way to positive. I think what we're all sensing here is there's a colossal infusion of cash that's not supported by the business model and at some point, there won't be any more cash available. They better find a business model that's not so negative quickly.
      • CPLX 10y ago
        Yes precisely. But early stage investors almost never get those kind of protections. How can they possibly not be getting wiped out just a little more with every sky-high valuation round with a preference attached?
    • nugget 10y ago
      The only thing that can ''take out'' Uber is widespread adoption of autonomous vehicles, whereupon ride sharing becomes a physical-capital intensive business (cars) rather than the current human-capital intensive business (drivers/their driver network). Autonomous vehicles (and the infrastructure to support them) significantly reduce the amazing network efforts that Uber has enjoyed to date. An investment into Uber at these valuations is a bet that this future adoption (to the point where it would disrupt the massive revenue Uber realizes from places like LA, NYC, and SF) is decades further out than some futurists predict. Even transitioning into this brave new world Uber still has a lot of brand value, although there will be a ton of competition (all auto makers such as Tesla, GM, Ford, and new entrants such as Apple, Google, and Amazon), ultimately benefiting consumers: enjoy your $12.50 ride (est. 35% of which will be local and state taxes) from SFO to 3rd and Market.
      • cc439 10y ago
        >The only thing that can ''take out'' Uber is widespread adoption of autonomous vehicles Or their customers losing interest as driver/fare subsidies are slowly dialed back. I've already begun planning on Uber with hesitation as I have now twice been left "stranded" for ~30 minutes without an active driver available in my city. I'm fine with the surge pricing which comes along with that but Uber is becoming increasingly unattractive to drivers and that's a real problem alongside increasing fares. Most of the casual drivers who fuelled Uber's early explosive growth are long gone now that the true costs of using your personal vehicle as a taxi became clear. Even the dedicated drivers are staying in on weekdays because Uber oversaturated the driver pool in small markets while cutting back on payouts. There aren't enough riders on a Tuesday evening for more than 1-2 drivers to dedicate their time and when those 1-2 call it a night, there's no one willing to stay up for a single $7 fare.
        • deleted 10y ago
          [deleted]
        • nugget 10y ago
          What city do you live in? I've traveled all over the US in the past year and haven't experienced this. I can imagine in a relatively remote, low-density city with sub 50k population it could become an issue at the most off-peak hours.
• supster 10y ago
  Sure there is dilution, but the overall valuation has increased faster. I.e. the share of the pie is smaller but the pie has gotten a lot bigger, so you end up with a bigger piece.
• charlesdm 10y ago
  It's possible to sell those shares on a secondary market, i.e. seed investors might have already cashed out by now.
  • supster 10y ago
    Except in Uber's case where they are famous for keeping tight control on secondary sales. http://fortune.com/2014/06/20/uber-plays-hardball-with-early-shareholders/ http://fortune.com/2014/06/20/uber-plays-hardball-with-early...
    • charlesdm 10y ago
      Since I don't have Uber shares, I wouldn't know. But that's how it usually works.
      • toomuchtodo 10y ago
        Can someone who does have Uber shares chime in anonymously here?
    • patmcguire 10y ago
      I can't find the link because the huge media churn makes it impossible to find anything that isn't the most recent story, but didn't they ban Chris Sacca from the Uber office for hanging around and buying secondary shares from people? I think the lockdown happened after that.
      • mikeyouse 10y ago
        You're probably thinking of Sacca and Twitter: http://techcrunch.com/2011/02/27/jp-morgan-twitter-chris-sacca-10-percent-secondary/ http://techcrunch.com/2011/02/27/jp-morgan-twitter-chris-sac... He may have done the same for Uber, but I haven't heard anything about that at all.
        • stefanstokic 10y ago
• birken 10y ago
  As long as the valuation of the company is going up more than the dilution, the value of existing shares goes up. In an early stage company that might mean raising a Series A where the valuation of the company goes up 100% and shares are diluted by 35%. Value still going up. For an ultra late stage company like Uber that means ~5% dilution in this round and the total value of the company might go up 10-20%. The value of your shares is still going up. For simple back of the envelope math, assume you invested 10k into Uber's seed round valued at 3.5 MM. Then we'll simulate some excessive amounts of dilution, so let's say our 0.28% stake is diluted by 30% 10 times (which is a ton of dilution and way more than would have reasonably happened). You are now down to 0.007% of Uber. 0.007% of 65 billion is $5.1 MM. Not bad for a 10k investment. Based on more reasonable dilution estimates my guess is a 10k investment in Uber's seed round is worth somewhere between 25-50 million.
  • hkmurakami 10y ago
    You aren't taking into account multiple liquidation preferences, ratchets, and profit guarantees on a downround IPO that are in the term sheets for this round. Warning of such "dirty term sheets" is Benchmark's Bill Gurley. http://abovethecrowd.com/2016/04/21/on-the-road-to-recap/ http://abovethecrowd.com/2016/04/21/on-the-road-to-recap/ http://abovethecrowd.com/2016/04/21/on-the-road-to-recap/ http://abovethecrowd.com/2016/04/21/on-the-road-to-recap/
    • perbu 10y ago
      Did Uber accept any such preferences when taking investments? I thought only clueless entrepreneurs fell for such trickery.
      • hkmurakami 10y ago
        It is widespread suspicion that Gurley's post was directed at Uber's latest fundraising round (as an early investor, they take a hit from these dirty terms)
  • bogomipz 10y ago
• SilasX 10y ago
  I haven't worked out the specific numbers, but $60 billion is reasonable if you expect Uber to become a global near-monopoly on hired ride services and related logistical services they're branching out into. Whether that scenario is reasonable, is itself an open question, of course.
  • CPLX 10y ago
    It seems divorced from reality to me, though I claim no real special expertise. They seem to have no more ability to be a monopoly than any other logistics or transportation powerhouse. The market cap of UPS is ~$90bn, and FedEx ~$40bn. And those companies have a lot of real actual assets* and (arguably) much stronger network effects than a local taxi replacement company. It's not that it's so implausible it couldn't happen, it just seems to insert some very serious risk for a large swath of the equity holders, and makes me wonder why the company is so keen to assume that risk. [* UPS has over $40bn worth of stuff like airplanes, trucks, land, and buildings on their books.]
    • SilasX 10y ago
      Wow, you're right, hadn't thought of that. When you account for the (large) risk of Uber not reaching that stage, that should put them at $20 billion optimistically. In fairness, though, neither FedEx nor UPS count as a near-monopoly either, but the probability of a real one is correspondingly less probable anyway.
      • toomuchtodo 10y ago
        > In fairness, though, neither FedEx nor UPS count as a near-monopoly either True, but look through their annual reports to see their capital spending to compete against them. There simply is no other way then spending that money. For example, Amazon leased a fleet of cargo planes: http://www.seattletimes.com/business/boeing-aerospace/amazon-to-lease-20-boeing-767s-for-its-own-air-cargo-network/ http://www.seattletimes.com/business/boeing-aerospace/amazon...
    • gist 10y ago
• readme 10y ago
  Doesn't matter for Saudi Arabia. As long as their investment in Uber starts paying out before their oil runs out they'll be golden.
• tim333 10y ago
  >plausible scenario Uber becomes the cab of choice for 2.5bn people, the rough number who have cell phones. Value those at $50 each and you have a $125bn valuation for the floatation. Not sure it'll happen but that's probably the kind of thing the investors are thinking.
  • greenyoda 10y ago
    "Uber becomes the cab of choice for 2.5bn people, the rough number who have cell phones." I don't think they'll get anywhere close that number. - First, it assumes that Uber has no competition, but there's Lyft, Didi (in China) and lots of local cab companies, some of which even have apps of their own. - It's much easier to afford a cell phone than it is to be able to afford taking cabs on a regular basis. Many of the 2.5bn people who have cell phones live in poverty. - Many of the 2.5bn people who have cell phones own their own cars, and would only use a cab if they were on a business trip. - These 2.5bn people live in many countries, not all of which will agree that Uber drivers can be independent contractors. Uber might not want to enter markets under those conditions (they left Austin merely because of a dispute over background checks[1]). [1] https://news.ycombinator.com/item?id=11652614 https://news.ycombinator.com/item?id=11652614
  • brohee 10y ago
    Google Play Store says between 50 and 100M installations...
• pbreit 10y ago
  Plenty of people can envision a $100B to $1T valuation at some point. I don't understand your point about seed round investors since they are sitting on some of the biggest returns ever in the history of investing.
  • macspoofing 10y ago
    >Plenty of people can envision a $100B to $1T valuation at some point. $100B sure. $1T ... maybe if you wait a while to let inflation catch up.
    • eru 10y ago
      Alphabet, Google's parent and briefly the most valuable company on the planet has a market cap of 510.2B USD right now. And no debt to speak of, I think. Normally you need to add the equity market cap and the debt to get the total financial structure of the company. (I just googled, and I think that sum is called the `enterprise value', if you subtract any cash holdings.) See http://arstechnica.com/apple/2011/08/does-this-metric-make-my-company-look-big/ http://arstechnica.com/apple/2011/08/does-this-metric-make-m...
      • adventured 10y ago
        You're talking about one of the most successful companies in the history of business, in Google. Their speed to their present scale in terms of profit - from founding to now - is unprecedented. Add to that that they make most of their money from operating a hyper-margin software service in terms of costs (with nothing at all similar to Uber's drivers and regulatory problems), one that has been almost entirely unregulated (until now) and that also happens to be a quasi-monopoly. Using Google as the standard for what Uber could achieve, is extremely far fetched.
        • eru 10y ago
          Perhaps I was too subtle. That was exactly my point. (And if you discount my need to look smart, I think I got it across---you had exactly the thought I was intending to create in the reader.)