4 ms·

Yes, but they should pay market rates for the stock. The article made it sound like they were trying to buy it up at $4 billion evaluation when they knew they'd

Yes, but they should pay market rates for the stock. The article made it sound like they were trying to buy it up at $4 billion evaluation when they knew they'd be auctioning some off for $10+ billion.

skizm 12y ago
Is there any reason for them to pay more? I mean sure, it is a bit of a dick move but they seem like they aren't exactly trying to buy back the stock. They just don't want too many people selling. So either they get cheap stock or they block the sale. Win win for Uber, right?
- opendais 12y ago
  It is an abuse of monopoly power in this situation to pay below market rates. You don't screw people who had faith [investors; early employees with equity] in you. They shouldered a good deal of risk and you knifed them in the back by paying below market rates.
ganeumann 12y ago
Not that I think Uber is handling this constructively, but there's a valid reason why they would not offer the valuation bandied about in the press: they are not buying the same equity as the $17 billion+ equity. The venture investors bought Preferred equity, the shares being sold by the employee are almost certainly Common equity. Common equity is worth less than Preferred equity. The times I have seen offers to buy Common shares in connection with a Preferred round, the discount has been as high as 50%. This makes sense: assume you are an investor putting $1.2 billion into a company that has previously raised $300 million (this is roughly the recent Uber situation.) You are investing at a $17 billion valuation. Now assume that you were very, very wrong on the valuation and the company ends up selling for 90% less: $1.7 billion. You still get your money back. If the company goes on and sells for $34 billion, you double your money. This asymmetrical payout is one reason venture firms are comfortable taking the risk of such a high valuation. Now assume you bought $10 million of Common shares from a former employee. If the company ended up selling for $1.7 billion, you would get back roughly $100,000 (assuming the preferred owns half the company.) You don't really have an asymmetrical payout: you stand to lose money if the valuation is wrong. A wider the spread between the Preferred price and the Common price implies less confidence in the Preferred valuation. The actual valuation is the Common valuation, and the extra amount paid for Preferred stock is a kind of option value. So an alternative explanation to Uber short-changing its Common shareholders is that they believe the expected value of the company is closer to $4 billion than $17 billion and the Preferred buyers think the range of possible outcomes has an extremely large standard deviation.
- lotp 12y ago
  "At the same time that it was restricting the aforementioned employee from selling, Uber also was preparing to raise new outside funding that ultimately would value the company at more than $18 billion." Read carefully, this was prior to that round closing. Assumably they'd offer more now. (~5x)
- cpwright 12y ago
  They shouldn't have paid for a $17 billion valuation, but if there was a firm offer of $200 a share, they should have had to match the $200 a share instead of offering $135 (which was quoted as a $4B valuation). This would imply a valuation of around $6B.
  - ganeumann 12y ago
    That would certainly seem fair.
- opendais 12y ago
  If they had an offer for $200 per share, they should get $200 per share even if Uber is the one buying it instead. > Two months ago, an early Uber employee thought that he had found a buyer for his vested stock, at $200 per share. Sorry I wasn't clear by what I meant by "market rates".

skizm 12y ago

Is there any reason for them to pay more? I mean sure, it is a bit of a dick move but they seem like they aren't exactly trying to buy back the stock. They just don't want too many people selling. So either they get cheap stock or they block the sale. Win win for Uber, right?

opendais 12y ago
It is an abuse of monopoly power in this situation to pay below market rates. You don't screw people who had faith [investors; early employees with equity] in you. They shouldered a good deal of risk and you knifed them in the back by paying below market rates.

ganeumann 12y ago

Not that I think Uber is handling this constructively, but there's a valid reason why they would not offer the valuation bandied about in the press: they are not buying the same equity as the $17 billion+ equity. The venture investors bought Preferred equity, the shares being sold by the employee are almost certainly Common equity. Common equity is worth less than Preferred equity. The times I have seen offers to buy Common shares in connection with a Preferred round, the discount has been as high as 50%. This makes sense: assume you are an investor putting $1.2 billion into a company that has previously raised $300 million (this is roughly the recent Uber situation.) You are investing at a $17 billion valuation. Now assume that you were very, very wrong on the valuation and the company ends up selling for 90% less: $1.7 billion. You still get your money back. If the company goes on and sells for $34 billion, you double your money. This asymmetrical payout is one reason venture firms are comfortable taking the risk of such a high valuation. Now assume you bought $10 million of Common shares from a former employee. If the company ended up selling for $1.7 billion, you would get back roughly $100,000 (assuming the preferred owns half the company.) You don't really have an asymmetrical payout: you stand to lose money if the valuation is wrong. A wider the spread between the Preferred price and the Common price implies less confidence in the Preferred valuation. The actual valuation is the Common valuation, and the extra amount paid for Preferred stock is a kind of option value. So an alternative explanation to Uber short-changing its Common shareholders is that they believe the expected value of the company is closer to $4 billion than $17 billion and the Preferred buyers think the range of possible outcomes has an extremely large standard deviation.

lotp 12y ago
"At the same time that it was restricting the aforementioned employee from selling, Uber also was preparing to raise new outside funding that ultimately would value the company at more than $18 billion." Read carefully, this was prior to that round closing. Assumably they'd offer more now. (~5x)
cpwright 12y ago
They shouldn't have paid for a $17 billion valuation, but if there was a firm offer of $200 a share, they should have had to match the $200 a share instead of offering $135 (which was quoted as a $4B valuation). This would imply a valuation of around $6B.
- ganeumann 12y ago
  That would certainly seem fair.
opendais 12y ago
If they had an offer for $200 per share, they should get $200 per share even if Uber is the one buying it instead. > Two months ago, an early Uber employee thought that he had found a buyer for his vested stock, at $200 per share. Sorry I wasn't clear by what I meant by "market rates".