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> Uber can’t be worth $69B unless the values of all the shares (including the common) add up to $69B This deal is effectively a one-time secondary market for e

> Uber can’t be worth $69B unless the values of all the shares (including the common) add up to $69B This deal is effectively a one-time secondary market for existing investors to sell their stock. If I'm an early employee who has been wearing golden handcuffs for the last eight years, I'd probably accept a lower purchase price than "what they're worth" for the sake of that liquidity. That doesn't reflect upon Uber, or Uber's value. What you're saying might be true if this were a perfect market, but there's externalities in that market (like liquidity) which you're not considering. > valuation = number of shares times last preferred price, but that’s a convenient fiction. Fiction as it may be, it's the best instrument the public has to work out the value of a private company. Investors have access to internal numbers, apply due diligence (we assume, since it's their money), and give their best guess as to future returns. That doesn't mean we shouldn't scrutinise the valuation investors accept during a round, but let's not pretend it's not a good marker. > $48B (or whatever it may be) is a spectacular success by any measure I doubt existing investors would see it that way, if $21B were wiped off the valuation as reported. > I’m not sure what you’re so defensive about My apologies if that's the way it came across. I stand by the criticism I made of the article.

yellow_postit 9y ago
There are some much better models out there for valuation though not quite as simple. Discussion from about 6 months ago https://news.ycombinator.com/item?id=14467869 https://news.ycombinator.com/item?id=14467869 I see nothing wrong with Bloomberg’s reporting here, as described this would, and should, lower Uber’s valuation but as the other poster points out it isn’t a straight 30% drop.
- simonrobb 9y ago
  Good reading. Thanks for the link. I don't understand how this model can be applied to private companies. It seems to require a cap table, which isn't publicly available until after the company goes public. I understand that in the example given (Square), the analysis calculates the fair market value at the time of their Series E, but it was performed after they went public, with the benefit of the cap table. Can this actually be used by the public in place of a funding valuation? I agree there are flaws in using that number as a representation of a company's value, and to be clear: I'm not arguing that Uber's $69B valuation is not inflated. I'm arguing that it's inaccurate to report Uber was worth $69B at their last round, and now that SoftBank intends to buy common stock at $48B, Uber are valued at $48B (or some dramatically reduced value in-between). I'm arguing that because SoftBank is not offering $X/share to Uber in exchange for newly issued shares, as is the case in a funding round. This is a transfer of ownership between existing shareholders, and if they can strike a deal in this secondary market then so be it. It doesn't affect Uber in the way a funding round does: they've allowed the deal to go down, but they a) receive none of the money changing hands (that goes to the shareholders who are selling), and b) take no dilution. So it's unfair to say that this sale price is indicative of the company's valuation in the same way a new funding round would be - they are entirely different beasts.
- simonrobb 9y ago
  I'll also add that liquidation preference is to reduce risk for investors in case things don't pan out well in a liquidation event. If all goes well and money starts raining from the sky, the payout will be equal for the common stock and preferred stock alike. I can't quite work out how that risk should be accounted for in financial value. Certainly the preferred shares are worth more, in that one should be prepared to pay more in order to buy them, but I'm not convinced that those disparate buy prices should be incorporated into the value of the company as a whole, since a preferred share and a common share represent the same percent ownership of a company. Perhaps somebody with more understanding than I could comment.
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marcopolitik 9y ago
> What you're saying might be true if this were a perfect market, but there's externalities in that market (like liquidity) which you're not considering. It is absurd to claim that liquidity in Uber shares would result in a 30% discount. A far better explanation is that preferred has rights that add most of that value. > Fiction as it may be, it's the best instrument the public has to work out the value of a private company. It's consistently wrong and in the same direction. As such, it's absurd to pretend that it shouldn't be discounted. It's fun for PR and headlines, but that's it. The real summary here is that you, for whatever reason, are looking at a market transaction and claiming it's not the real market price. That's not just stupid, it's ludicrously arrogant of you. You are essentially claiming that you are smarter and better informed than the participants in a large financial transaction. The rest of us are simply arguing that maybe we should trust the market a bit more, and be a bit less arrogant than you.
- simonrobb 9y ago
  > It is absurd to claim that liquidity in Uber shares would result in a 30% discount. I'm not sure that it is (as aaavl2821 has commented down the thread, "The liquidity discount that private equity investors use is typically 20-30%"), but more to the point this price is either accepted or rejected by Uber shareholders, not Uber's board. It's the shareholders who will decide if they will take that discount for the sake of liquidity, not some mystical market force you're alluding to. Given many of them are employees who may well just want to get their returns and buy a family home, I think we'll see a lot of them taking the offer up. They're just offloading their risk, and gaining liquidity. > A far better explanation is that preferred has rights that add most of that value. I did in fact note that in my original comment. But this only explains why SoftBank is willing to pay different prices for two different classes of shares. It doesn't mean Uber is suddenly worth $21B less because SoftBank was able to strike the deal, which is what I'm arguing against. > You are essentially claiming that you are smarter and better informed than the participants in a large financial transaction No, I'm not. I'm claiming that something a media outlet published is a distortion of the deal. They were not participating in the transaction. We'll have a better discussion if you can leave the ad hominems out in the future.

yellow_postit 9y ago

There are some much better models out there for valuation though not quite as simple. Discussion from about 6 months ago https://news.ycombinator.com/item?id=14467869 https://news.ycombinator.com/item?id=14467869 I see nothing wrong with Bloomberg’s reporting here, as described this would, and should, lower Uber’s valuation but as the other poster points out it isn’t a straight 30% drop.

simonrobb 9y ago
Good reading. Thanks for the link. I don't understand how this model can be applied to private companies. It seems to require a cap table, which isn't publicly available until after the company goes public. I understand that in the example given (Square), the analysis calculates the fair market value at the time of their Series E, but it was performed after they went public, with the benefit of the cap table. Can this actually be used by the public in place of a funding valuation? I agree there are flaws in using that number as a representation of a company's value, and to be clear: I'm not arguing that Uber's $69B valuation is not inflated. I'm arguing that it's inaccurate to report Uber was worth $69B at their last round, and now that SoftBank intends to buy common stock at $48B, Uber are valued at $48B (or some dramatically reduced value in-between). I'm arguing that because SoftBank is not offering $X/share to Uber in exchange for newly issued shares, as is the case in a funding round. This is a transfer of ownership between existing shareholders, and if they can strike a deal in this secondary market then so be it. It doesn't affect Uber in the way a funding round does: they've allowed the deal to go down, but they a) receive none of the money changing hands (that goes to the shareholders who are selling), and b) take no dilution. So it's unfair to say that this sale price is indicative of the company's valuation in the same way a new funding round would be - they are entirely different beasts.
simonrobb 9y ago
I'll also add that liquidation preference is to reduce risk for investors in case things don't pan out well in a liquidation event. If all goes well and money starts raining from the sky, the payout will be equal for the common stock and preferred stock alike. I can't quite work out how that risk should be accounted for in financial value. Certainly the preferred shares are worth more, in that one should be prepared to pay more in order to buy them, but I'm not convinced that those disparate buy prices should be incorporated into the value of the company as a whole, since a preferred share and a common share represent the same percent ownership of a company. Perhaps somebody with more understanding than I could comment.

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marcopolitik 9y ago

> What you're saying might be true if this were a perfect market, but there's externalities in that market (like liquidity) which you're not considering. It is absurd to claim that liquidity in Uber shares would result in a 30% discount. A far better explanation is that preferred has rights that add most of that value. > Fiction as it may be, it's the best instrument the public has to work out the value of a private company. It's consistently wrong and in the same direction. As such, it's absurd to pretend that it shouldn't be discounted. It's fun for PR and headlines, but that's it. The real summary here is that you, for whatever reason, are looking at a market transaction and claiming it's not the real market price. That's not just stupid, it's ludicrously arrogant of you. You are essentially claiming that you are smarter and better informed than the participants in a large financial transaction. The rest of us are simply arguing that maybe we should trust the market a bit more, and be a bit less arrogant than you.

simonrobb 9y ago
> It is absurd to claim that liquidity in Uber shares would result in a 30% discount. I'm not sure that it is (as aaavl2821 has commented down the thread, "The liquidity discount that private equity investors use is typically 20-30%"), but more to the point this price is either accepted or rejected by Uber shareholders, not Uber's board. It's the shareholders who will decide if they will take that discount for the sake of liquidity, not some mystical market force you're alluding to. Given many of them are employees who may well just want to get their returns and buy a family home, I think we'll see a lot of them taking the offer up. They're just offloading their risk, and gaining liquidity. > A far better explanation is that preferred has rights that add most of that value. I did in fact note that in my original comment. But this only explains why SoftBank is willing to pay different prices for two different classes of shares. It doesn't mean Uber is suddenly worth $21B less because SoftBank was able to strike the deal, which is what I'm arguing against. > You are essentially claiming that you are smarter and better informed than the participants in a large financial transaction No, I'm not. I'm claiming that something a media outlet published is a distortion of the deal. They were not participating in the transaction. We'll have a better discussion if you can leave the ad hominems out in the future.