7 ms·

Uber Said to Raise $1.6 Billion in Convertible Debt to Expand

44 points by applecore 12y ago

applecore 12y ago
Notably, this fundraising round is with Goldman Sachs' private wealth management clients, which sets the stage for Uber to go public in the next few years. (Goldman Sachs tried and ultimately withdrew a similar deal in 2011 for their private clients in the United States to invest in Facebook. Of course, this was prior to the enactment of the JOBS act.)
- Gyonka 12y ago
  So is this a usual trend with companies seeking IPO in the future?
  - deleted 12y ago
    [deleted]
    - vecter 12y ago
      Can you expand on this?
  - pbreit 12y ago
    There is nothing usual about private companies raising $4b.
    - Gyonka 12y ago
      I meant raising money from Goldman Sachs' private wealth management clients specifically, I think the OP implied there was a pattern.
- elberto34 12y ago
  That's the way you get rich. Make apps, social networking..stuff like that. Or invest in already-successful, viral app companies like Uber, Snapchat, Tinder, etc. Why anyone would go the brick and mortar route is beyond me. I would rather invest $100k in successful web 2.0 companies (like the ones I listed) and double my money in 6 months than start a crappy regular business which has a 50% chance within five years of totally failing and taking all my money with it. Like the Dire Straits Song Money for Nothing, except it's apps and web 2.0 instead of music.
  - cylinder 12y ago
    I know far more people who are making lots of money doing traditional, un-sexy businesses, and I can't think of anyone I know personally making money with apps, web2.0 etc.
    - elberto34 12y ago
      but regular business takes work and risk of total loss of capital. I can double my money buying Snapchat and then do nothing but watch TV and eat Cheetos for the next 6 months as VCs bid it into the stratosphere
      - ghshephard 12y ago
        As many, many, many people have discovered - investing in startups has as great a risk of losing all your capital (actually, a much greater risk) than investing in a bricks and mortar - the major difference is that there is also a much greater chance of huge returns. The reality is only 1 in 100 people are likely capable of building a great startup (in the PG sense of "Startup") that succeeds - but there is a huge part of the population that can build out a brick and mortar traditional company. To put things into perspective, On the App Store, about 3,000 of the 1mm or so apps are capable of supporting a developer in the United states with the Median US Income ($53,800/year).
      - cylinder 12y ago
        you're not a top VC firm - nobody is selling you Snapchat shares, so your argument is moot. if you want to invest in every startup looking for a seed investment, you are going to have to invest in a lot of them before one becomes the next snapchat. most VC funds have poor returns or even losses.
- aetherson 12y ago
  How do these kinds of deals affect existing institutional investors? Are they going to see their stakes diluted when the debt converts?
markvdb 12y ago
They need the money to grow their global network. They can afford to fight the regulators that are in the pocket of entrenched taxi businesses in the short to medium term. In the not-so-far future, that resistance will be broken by the introduction of the robotaxi. Ueber will be spearheading that one. Too capital intensive for the current "big" taxi companies in the medium term. Too automated for the regulators to defend the taxi drivers working conditions.
- adevine 12y ago
  I hear this a lot, but, given what I've read recently about the true state of self-driving cars, I think the "robocars as a replacement for taxis (especially in cities, Uber's main market)" is a REALLY long ways off, i.e a generation or more. That is, it seems to me like the places fully self-driving cars will initially be most successful is places where access is limited or "messiness" is minimized - places like highways, where you could even have "self-driving car only" lanes - a huge boons for long commutes. In cities, though, there are a lot of Really Hard Problems, that from what I've read engineers are not even close to being able to solve, things like: 1. Following detour signs 2. Following a street cop when they are contradicting stoplights or other road rules. 3. Dealing with construction signs in traffic, like when a construction worker has those signs they flip back and forth between "stop" and "go" (or heck, they just drop the sign and wave you by). 4. Knowing the difference between stopped traffic where you should wait (i.e. traffic is just really slow) or move around (i.e. someone is unloading). That is, it seems like the state-of-the-art will allow self-driving ASSISTED vehicles in the pretty near future, but completely self-driving vehicles, that can handle all the complex, messy urban situations that people can, is not on the near horizon.
  - sushid 12y ago
    I can understand where you're coming from, but that's also failing to realize that there are technical workarounds to the problems you've presented. Regulatory measures will be key in making these transitions smooth (and AFAIK, lawmakers have been proactively involved). Things like standardized signs for cars to process and construction workers to hold would already solve 3/4 of the problems you've already mentioned.
EC1 12y ago
Maybe they can invest in teaching their drivers how to drive and learn the city. I've had nothing but AWFUL experiences with Uber. Always having to coach suburban drivers around the city like lost fucking cattle. 1 star every single time. Invest in customer service. There has to be a way to train people to be better drivers.
- threeseed 12y ago
  You mean people who are driving as a side job and are completely unregulated are bad drivers ? I am shocked.
Animats 12y ago
"Convertible debt" - what a gimmick. The bond Uber placed with Goldman Sachs’ private clients is a six-year bond that will convert into equity at a 20 percent to 30 percent discount to Uber’s valuation at the time of an initial public offering. ... The convertible bond carries a coupon that increases over time if Uber hasn’t gone public within 4 years. The distinction between debt and equity is diminishing. Traditionally, debt has no upside, and in exchange, creditors are paid ahead of equity holders in bankruptcy. Convertible debt is secured debt if things goes bad, and equity if things go well. So, no matter what happens, convertible debt holders are at the head of the line. They even get to deduct the interest paid up to the conversion. Then it's a long term capital gain. This is an argument for ending the deductibility of interest. The question is, if Uber is so great, why do they need to raise so much cash? It's not an inherently expensive business to run. They don't hire the drivers or buy the cars. Uber is just an app, a scheduling back end, and a marketing operation. Is it that the original funders want to cash out?
- beambot 12y ago
  > It's not an inherently expensive business to run. Except for lobbying in almost every theater of operation they enter.
- deleted 12y ago
  [deleted]
- shubik 12y ago
  > Traditionally, debt has no upside Not really--if interest rates decline (either in the overall economy or if a bond's issuer is seen as becoming less risky), the value of a bond will go up. The 10 Year US Treasury bond increased by over 10% last year, for example. Also I agree with you about ending the deductibility of interest (for other reasons as well), but I'm not sure why you say the distinction between debt and equity is diminishing--convertible debt has been around for a long time.
- dragonwriter 12y ago
  > Traditionally, debt has no upside "Traditionally", perhaps, but, "tradition" aside, one upside relates to priority of claims against assets in the event of bankruptcy/dissolution/etc.
outside1234 12y ago
What am I misunderstanding about Uber's business model where it needs lots of capital to expand? It seems like it is just a middleman and doesn't need any capital assets to expand into a geography - what am I missing?
- mattwad 12y ago
  legal costs?
- bfwi 12y ago
  Look at Uber's job postings, and you can see what kind of employees are required for each new geography.
- untog 12y ago
  It needs to sell itself to drivers, for one. Manage drivers. Advertise...
  - gaius 12y ago
    Raising a ton of VC and spending it on banner ads is sooooo 90s.
- threeseed 12y ago
  At least in Australia, Uber is paying a ton of money in fine subsidisation to drivers. They are quite sizeable so would be interested if Uber is even making a profit.
- forrestthewoods 12y ago
  They often bootstrap an area with cheap rates. They did -25% everywhere in the US last summer to compete with Lyft. Driver gets paid 100% but rider only paid 75%. I believe they eventually made a permanent -20% discount much to the chagrin of drivers who were suddenly making less money for the same work.
- choppaface 12y ago
  It's also probably a lot easier now to take on VC and sell debt than it will be in the next 1-2 years. VC funding is starting to decline, it's anticipated that a good amount of oil-related corporate debt will probably default in the coming year, and interest rates will probably go up a bit. The opportunity to take Goldman client cash will only diminish from here.
minimax 12y ago
https://www.uber.com/jobs/list https://www.uber.com/jobs/list I count 680 open positions in 145 unique locations posted there. Pretty impressive.
threeseed 12y ago
Smart move. If I were Uber I would be trying to siphon as much cash as possible from investors before the company starts hitting its inevitable roadblocks. The fact is that government regulators will end up banning Uber in most countries. You can't continue to operate outside the law flouting vital safety regulations that protect the interests of consumers for long.
- cylinder 12y ago
  Doubt it. Eventually, even in the US, they will adopt the New York model - require TLC licensed drivers, cars, etc. but not medallions. Basically black/limo cars. That's the way it should be IMO, I don't think Uber should have full discretion in deciding who gets to pick up passengers. The ratings system is really a small part of Uber and can't be relied upon to filter out bad/dangerous drivers.
  - threeseed 12y ago
    Sorry I should have clarified: UberX is the problem. It is already being banned in more and more countries as governments come to terms with the regulatory changes required. And whilst Uber is popular in the US outside it still isn't a well known brand and what they do know is the questionable behaviour of its management team (there have been media reports). So I don't see them disrupting taxi services around the world to the same extent as the US.
chappi42 12y ago
+ more uber jobs - less taxi jobs What's the point for an European city to change regulation?
- nandemo 12y ago
  Because the numbers aren't the same. In a given year, the number of taxi jobs is pretty much fixed. The number of Uber (or generally, non-regulated) drivers is not.
faragon 12y ago
Uber will collapse, in my opinion. How much time will take for many others doing the same? Come on. Such investment is just nonsense.
curiously 12y ago
can someone explain what happens when a company IPO vs being acquired? Which is more favorable?

44 points by applecore 12y ago

Notably, this fundraising round is with Goldman Sachs' private wealth management clients, which sets the stage for Uber to go public in the next few years. (Goldman Sachs tried and ultimately withdrew a similar deal in 2011 for their private clients in the United States to invest in Facebook. Of course, this was prior to the enactment of the JOBS act.)

Gyonka 12y ago
So is this a usual trend with companies seeking IPO in the future?
- deleted 12y ago
  [deleted]
  - vecter 12y ago
    Can you expand on this?
- pbreit 12y ago
  There is nothing usual about private companies raising $4b.
  - Gyonka 12y ago
    I meant raising money from Goldman Sachs' private wealth management clients specifically, I think the OP implied there was a pattern.
elberto34 12y ago
That's the way you get rich. Make apps, social networking..stuff like that. Or invest in already-successful, viral app companies like Uber, Snapchat, Tinder, etc. Why anyone would go the brick and mortar route is beyond me. I would rather invest $100k in successful web 2.0 companies (like the ones I listed) and double my money in 6 months than start a crappy regular business which has a 50% chance within five years of totally failing and taking all my money with it. Like the Dire Straits Song Money for Nothing, except it's apps and web 2.0 instead of music.
- cylinder 12y ago
  I know far more people who are making lots of money doing traditional, un-sexy businesses, and I can't think of anyone I know personally making money with apps, web2.0 etc.
  - elberto34 12y ago
    but regular business takes work and risk of total loss of capital. I can double my money buying Snapchat and then do nothing but watch TV and eat Cheetos for the next 6 months as VCs bid it into the stratosphere
    - ghshephard 12y ago
      As many, many, many people have discovered - investing in startups has as great a risk of losing all your capital (actually, a much greater risk) than investing in a bricks and mortar - the major difference is that there is also a much greater chance of huge returns. The reality is only 1 in 100 people are likely capable of building a great startup (in the PG sense of "Startup") that succeeds - but there is a huge part of the population that can build out a brick and mortar traditional company. To put things into perspective, On the App Store, about 3,000 of the 1mm or so apps are capable of supporting a developer in the United states with the Median US Income ($53,800/year).
    - cylinder 12y ago
      you're not a top VC firm - nobody is selling you Snapchat shares, so your argument is moot. if you want to invest in every startup looking for a seed investment, you are going to have to invest in a lot of them before one becomes the next snapchat. most VC funds have poor returns or even losses.
aetherson 12y ago
How do these kinds of deals affect existing institutional investors? Are they going to see their stakes diluted when the debt converts?

markvdb 12y ago

They need the money to grow their global network. They can afford to fight the regulators that are in the pocket of entrenched taxi businesses in the short to medium term. In the not-so-far future, that resistance will be broken by the introduction of the robotaxi. Ueber will be spearheading that one. Too capital intensive for the current "big" taxi companies in the medium term. Too automated for the regulators to defend the taxi drivers working conditions.

adevine 12y ago
I hear this a lot, but, given what I've read recently about the true state of self-driving cars, I think the "robocars as a replacement for taxis (especially in cities, Uber's main market)" is a REALLY long ways off, i.e a generation or more. That is, it seems to me like the places fully self-driving cars will initially be most successful is places where access is limited or "messiness" is minimized - places like highways, where you could even have "self-driving car only" lanes - a huge boons for long commutes. In cities, though, there are a lot of Really Hard Problems, that from what I've read engineers are not even close to being able to solve, things like: 1. Following detour signs 2. Following a street cop when they are contradicting stoplights or other road rules. 3. Dealing with construction signs in traffic, like when a construction worker has those signs they flip back and forth between "stop" and "go" (or heck, they just drop the sign and wave you by). 4. Knowing the difference between stopped traffic where you should wait (i.e. traffic is just really slow) or move around (i.e. someone is unloading). That is, it seems like the state-of-the-art will allow self-driving ASSISTED vehicles in the pretty near future, but completely self-driving vehicles, that can handle all the complex, messy urban situations that people can, is not on the near horizon.
- sushid 12y ago
  I can understand where you're coming from, but that's also failing to realize that there are technical workarounds to the problems you've presented. Regulatory measures will be key in making these transitions smooth (and AFAIK, lawmakers have been proactively involved). Things like standardized signs for cars to process and construction workers to hold would already solve 3/4 of the problems you've already mentioned.

EC1 12y ago

Maybe they can invest in teaching their drivers how to drive and learn the city. I've had nothing but AWFUL experiences with Uber. Always having to coach suburban drivers around the city like lost fucking cattle. 1 star every single time. Invest in customer service. There has to be a way to train people to be better drivers.

threeseed 12y ago
You mean people who are driving as a side job and are completely unregulated are bad drivers ? I am shocked.

Animats 12y ago

"Convertible debt" - what a gimmick. The bond Uber placed with Goldman Sachs’ private clients is a six-year bond that will convert into equity at a 20 percent to 30 percent discount to Uber’s valuation at the time of an initial public offering. ... The convertible bond carries a coupon that increases over time if Uber hasn’t gone public within 4 years. The distinction between debt and equity is diminishing. Traditionally, debt has no upside, and in exchange, creditors are paid ahead of equity holders in bankruptcy. Convertible debt is secured debt if things goes bad, and equity if things go well. So, no matter what happens, convertible debt holders are at the head of the line. They even get to deduct the interest paid up to the conversion. Then it's a long term capital gain. This is an argument for ending the deductibility of interest. The question is, if Uber is so great, why do they need to raise so much cash? It's not an inherently expensive business to run. They don't hire the drivers or buy the cars. Uber is just an app, a scheduling back end, and a marketing operation. Is it that the original funders want to cash out?

beambot 12y ago
> It's not an inherently expensive business to run. Except for lobbying in almost every theater of operation they enter.
deleted 12y ago
[deleted]
shubik 12y ago
> Traditionally, debt has no upside Not really--if interest rates decline (either in the overall economy or if a bond's issuer is seen as becoming less risky), the value of a bond will go up. The 10 Year US Treasury bond increased by over 10% last year, for example. Also I agree with you about ending the deductibility of interest (for other reasons as well), but I'm not sure why you say the distinction between debt and equity is diminishing--convertible debt has been around for a long time.
dragonwriter 12y ago
> Traditionally, debt has no upside "Traditionally", perhaps, but, "tradition" aside, one upside relates to priority of claims against assets in the event of bankruptcy/dissolution/etc.

outside1234 12y ago

What am I misunderstanding about Uber's business model where it needs lots of capital to expand? It seems like it is just a middleman and doesn't need any capital assets to expand into a geography - what am I missing?

mattwad 12y ago
legal costs?
bfwi 12y ago
Look at Uber's job postings, and you can see what kind of employees are required for each new geography.
untog 12y ago
It needs to sell itself to drivers, for one. Manage drivers. Advertise...
- gaius 12y ago
  Raising a ton of VC and spending it on banner ads is sooooo 90s.
threeseed 12y ago
At least in Australia, Uber is paying a ton of money in fine subsidisation to drivers. They are quite sizeable so would be interested if Uber is even making a profit.
forrestthewoods 12y ago
They often bootstrap an area with cheap rates. They did -25% everywhere in the US last summer to compete with Lyft. Driver gets paid 100% but rider only paid 75%. I believe they eventually made a permanent -20% discount much to the chagrin of drivers who were suddenly making less money for the same work.
choppaface 12y ago
It's also probably a lot easier now to take on VC and sell debt than it will be in the next 1-2 years. VC funding is starting to decline, it's anticipated that a good amount of oil-related corporate debt will probably default in the coming year, and interest rates will probably go up a bit. The opportunity to take Goldman client cash will only diminish from here.

minimax 12y ago

https://www.uber.com/jobs/list https://www.uber.com/jobs/list I count 680 open positions in 145 unique locations posted there. Pretty impressive.

threeseed 12y ago

Smart move. If I were Uber I would be trying to siphon as much cash as possible from investors before the company starts hitting its inevitable roadblocks. The fact is that government regulators will end up banning Uber in most countries. You can't continue to operate outside the law flouting vital safety regulations that protect the interests of consumers for long.

cylinder 12y ago
Doubt it. Eventually, even in the US, they will adopt the New York model - require TLC licensed drivers, cars, etc. but not medallions. Basically black/limo cars. That's the way it should be IMO, I don't think Uber should have full discretion in deciding who gets to pick up passengers. The ratings system is really a small part of Uber and can't be relied upon to filter out bad/dangerous drivers.
- threeseed 12y ago
  Sorry I should have clarified: UberX is the problem. It is already being banned in more and more countries as governments come to terms with the regulatory changes required. And whilst Uber is popular in the US outside it still isn't a well known brand and what they do know is the questionable behaviour of its management team (there have been media reports). So I don't see them disrupting taxi services around the world to the same extent as the US.

chappi42 12y ago

+ more uber jobs - less taxi jobs What's the point for an European city to change regulation?

nandemo 12y ago
Because the numbers aren't the same. In a given year, the number of taxi jobs is pretty much fixed. The number of Uber (or generally, non-regulated) drivers is not.

faragon 12y ago

Uber will collapse, in my opinion. How much time will take for many others doing the same? Come on. Such investment is just nonsense.

curiously 12y ago

can someone explain what happens when a company IPO vs being acquired? Which is more favorable?