Benchmark is trying to cut their losses and limit their exposure to a complete Uber meltdown. If possible, they would probably offload the bulk of their shares to SoftBank at a loss just to wash their hands of the situation.
- Uber cannot support its operational business without massive VC subsidies (without drastically raising prices and losing their primary competitive advantage)
- It's too easy for small, local competitors to enter the market
- Uber has been trounced in two of the largest non-US markets
- Waymo legal mess
- The sheer volume/scale of scandal engulfing the company may be impossible to recover from
- Current valuation makes an IPO under less than perfect conditions very challenging.
If this was a well organized, planned round of funding, Benchmark wouldn't have gone behind the backs of the other board members & major shareholders to try and strike some shady deal.
This has got to be one of the most surface-level analysis of Uber that I have come across (even by HN's standard of near consistent animosity towards Uber and any other pre-IPO startups including FB in its day). To illustrate:
"Uber cannot support its operational business without massive VC subsidies (without drastically raising prices and losing their primary competitive advantage"
- As another poster replied, this is pure speculation that is outdated by a couple of years at this point. The VC subsidy point is essentially moot in most mature markets.
"It's too easy for small, local competitors to enter the market"
- Read up on GETT, Via and their struggles. You need massive operational investments to enter this industry which reduces the field to one or two competitors in all regions. Uber just appears to have so much competition given the amount of markets they are in.
"Uber has been trounced in two of the largest non-US markets"
- 36% stake in one large competitor and 20% in another is your definition of "trounce"? This puts them at a better position than even Google or FB who are non-existent in the very markets you talk about -- and it could provide them with their Alibaba moments where these stakes themselves carry parts of their valuation (Didi was valued at 50B recently marking Uber's stake at 10B)
"Waymo legal mess"
- Plenty of news about potential settlement not to mention the severe weakening of Google's position post Anthony's firing
"The sheer volume/scale of scandal engulfing the company may be impossible to recover from"
- For the most part only applies to the bay area bubble most of us are in. They still continue to be in a highly dominant position in US.
"Current valuation makes an IPO under less than perfect conditions very challenging."
a loss? are you joking? Benchmark investment in Uber is tracking to be one of the best VC investments ever made, 11 million series A + whatever money they put in pro rata and their stake is currently worth anywhere from 5 billion to 14 billion, 20% of Uber (Series A) + dilution
by cut their losses, I assume you mean lock in a portion of gains. to have an idea of returns Benchmark and other investors experience at Uber's most recent valuation (which doesn't mean that's exactly what SoftBank would pay, if at all), see Uber's Path to IPO: https://equityzen.com/path-to-ipo/uber/
These return estimates are net of liquidation preferences. Even if the transaction takes place and does so at a price slightly lower than the recent valuation, early investors are sitting on a healthy return on investment and internal rate of return.
Disclaimer: I work at EquityZen, the preparer of the estimates in the info graphic linked above.
Look, I know HN loves to hate on Uber, but much of what you say feels more like FUD than a rational explanation.
Let's break it down:
> Uber cannot support its operational business without massive VC subsidies (without drastically raising prices and losing their primary competitive advantage)
As they're not yet public, we have mostly speculation. We don't know this for sure.
> It's too easy for small, local competitors to enter the market
I completely agree, but are the small, local competitors not subsidized by investors like Uber? I don't understand how a competitor without backing could compete against an established super corp.
> Uber has been trounced in two of the largest non-US markets
From an investor's perspective, they came out ahead.
> Waymo legal mess
We'll have to wait and see, but I think everyone needs to take this with a grain of salt. Many, many large companies are in constant lawsuits with each other. Read the Amazon Investor's report, for example -- there are three pages of lawsuits, some of which have been ongoing for over a decade.
> The sheer volume/scale of scandal engulfing the company may be impossible to recover from
I think this is magnified by the Valley -- peers and friends outside of California seem to either not know, or not care deeply. I honestly don't think Uber's bottom line has been harmed.
> Current valuation makes an IPO under less than perfect conditions very challenging.
I think this was always the case. I don't see what's new now versus two years ago. I think Uber has just as hard a time as, say, AirBNB.
> If this was a well organized, planned round of funding, Benchmark wouldn't have gone behind the backs of the other board members to try and strike some shady deal.
At least in my circle, it's widely understood that Bill Gurley burned all his bridges to get Travis out. It's even been suggested he's been the leaker Mike Isaac of the New York Times has been getting his information from. I think Benchmark has destroyed their confidence with the rest of the board (which Travis is still on) and wants to rinse their hands -- I'm sure the feeling is mutual.
What does it say if Softbank takes the deal? Softbank is a huge, successful megacorp. They bought ARM! I would think that if Softbank buys shares in Uber, it's because they see future profits -- which is different than Benchmark's games. Not to mention that Softbank may be a great addition to Uber's board. If Benchmark exits at even 60% of the current valuation, they're out waaaay ahead.
This really seems like a win-win-win for all parties involved.
Uber has $7.2B sitting in the bank, with losses reducing ($708M) in the first 3 months of 2017. I'm sure they can get profitable or break-even in that time.
Zerohedge has an update.[1] So does NYT.[2] The loss rate is down a little, to $708 million per quarter. Uber claims to have $7.2 billion in cash. But that's not all investment capital; at least $1.15 billion of it is from debt. At their current burn rate, they have about two years of runway left before the investment capital runs out. So they can stretch things to mid-2019, if the investors are agreeable.
It seems the "Death Star" strategy is at least as flawed as its namesake, and really, can they keep selling a fantasy of just-around-the-corner level 5 automation to rich idiots?
A lot of people still seem to believe that fantasy. I find that a bit puzzling as many of those people would be more realistic about other engineering timelines. But there's nonetheless this belief in door-to-door automation that's relevant in a VC time horizon.
I don't even understand how self-driving cars would help Uber. It seems their biggest advantage is their experience with managing all the different ways human drivers can screw up.
The day Mercedes ships the first self-driving car, it will come with "Go make yourself useful"-mode where it shuttles other people from A to X. There'll be dozens of almost identical services that handle the transactions and insurance for 3%-4% of the revenue.
Nothing Uber has done so far will be helpful in such a world. Because you won't need to manage humans, to grope women, or to break workplace safety laws in such a business.
despite all the tabloids, i still use uber here in LA and i honestly dont see that changing much for most people as well. all this backlash feels a bit strange to me, do people get paid to hate somehere ? lol
Call me cynical, but perhaps - just perhaps - this was part of the reason for Benchmark's fallout with Travis. Perhaps they wanted to realize some of the gains in their shares of Uber and knew Kalanick would be (or already had been) opposed to it. Benchmark already made astronomical gains on their shares (at least on paper) and perhaps they were looking for a way to now cash in on some of those returns.
So, as a (sometimes) startup employee, how can I identify a setup such that when a major investor makes money off their stock, I too have the option of making money off my stock?
I've heard of setups like this, but I don't remember what they're called - something like, you own stock, and when someone sells a percent of their shares, you can sell the percent of your shares at the same rate to the same party (or back to the company? or something?).
What questions SHOULD you ask, and what kinds of answers are you looking for?
I think it's a specialist question. All of this assumes you have leverage to get what you ask for.
If you are concerned about a company you work for making a lot of money after lots of VC rounds: You would probably have to get warrants, written by someone* who is really smart.
If you think the company won't need to do many rounds: just look for stock (if you're in really early, e.g. grant+zero-value-83b election still applies) or options (if you're in after the really early stages of the company).
*Find a great accountant who internally has tax lawyers to help you negotiate.
Uber should have just gone public, now their future is too fragile because it depends on their small number of VC investors who probably are thinking that they will still make more money than breakeven if they exit now.
People criticize Uber for operating in a red ocean but this was the case for Amazon too. They just stuck around and survived while everyone else in the dotcom era died off.
But it's looking more like that kind of scenario is impossible now that their founder/CEO is out and the VCs are looking to get out.
[+] [-] joejerryronnie|8 years ago|reply
- Uber cannot support its operational business without massive VC subsidies (without drastically raising prices and losing their primary competitive advantage)
- It's too easy for small, local competitors to enter the market
- Uber has been trounced in two of the largest non-US markets
- Waymo legal mess
- The sheer volume/scale of scandal engulfing the company may be impossible to recover from
- Current valuation makes an IPO under less than perfect conditions very challenging.
If this was a well organized, planned round of funding, Benchmark wouldn't have gone behind the backs of the other board members & major shareholders to try and strike some shady deal.
[+] [-] njj023|8 years ago|reply
"Uber cannot support its operational business without massive VC subsidies (without drastically raising prices and losing their primary competitive advantage"
- As another poster replied, this is pure speculation that is outdated by a couple of years at this point. The VC subsidy point is essentially moot in most mature markets.
"It's too easy for small, local competitors to enter the market"
- Read up on GETT, Via and their struggles. You need massive operational investments to enter this industry which reduces the field to one or two competitors in all regions. Uber just appears to have so much competition given the amount of markets they are in.
"Uber has been trounced in two of the largest non-US markets"
- 36% stake in one large competitor and 20% in another is your definition of "trounce"? This puts them at a better position than even Google or FB who are non-existent in the very markets you talk about -- and it could provide them with their Alibaba moments where these stakes themselves carry parts of their valuation (Didi was valued at 50B recently marking Uber's stake at 10B)
"Waymo legal mess"
- Plenty of news about potential settlement not to mention the severe weakening of Google's position post Anthony's firing
"The sheer volume/scale of scandal engulfing the company may be impossible to recover from"
- For the most part only applies to the bay area bubble most of us are in. They still continue to be in a highly dominant position in US.
"Current valuation makes an IPO under less than perfect conditions very challenging."
- Fair point.
[+] [-] flylib|8 years ago|reply
[+] [-] atishd|8 years ago|reply
These return estimates are net of liquidation preferences. Even if the transaction takes place and does so at a price slightly lower than the recent valuation, early investors are sitting on a healthy return on investment and internal rate of return.
Disclaimer: I work at EquityZen, the preparer of the estimates in the info graphic linked above.
[+] [-] xyzzy_plugh|8 years ago|reply
Let's break it down:
> Uber cannot support its operational business without massive VC subsidies (without drastically raising prices and losing their primary competitive advantage)
As they're not yet public, we have mostly speculation. We don't know this for sure.
> It's too easy for small, local competitors to enter the market
I completely agree, but are the small, local competitors not subsidized by investors like Uber? I don't understand how a competitor without backing could compete against an established super corp.
> Uber has been trounced in two of the largest non-US markets
From an investor's perspective, they came out ahead.
> Waymo legal mess
We'll have to wait and see, but I think everyone needs to take this with a grain of salt. Many, many large companies are in constant lawsuits with each other. Read the Amazon Investor's report, for example -- there are three pages of lawsuits, some of which have been ongoing for over a decade.
> The sheer volume/scale of scandal engulfing the company may be impossible to recover from
I think this is magnified by the Valley -- peers and friends outside of California seem to either not know, or not care deeply. I honestly don't think Uber's bottom line has been harmed.
> Current valuation makes an IPO under less than perfect conditions very challenging.
I think this was always the case. I don't see what's new now versus two years ago. I think Uber has just as hard a time as, say, AirBNB.
> If this was a well organized, planned round of funding, Benchmark wouldn't have gone behind the backs of the other board members to try and strike some shady deal.
At least in my circle, it's widely understood that Bill Gurley burned all his bridges to get Travis out. It's even been suggested he's been the leaker Mike Isaac of the New York Times has been getting his information from. I think Benchmark has destroyed their confidence with the rest of the board (which Travis is still on) and wants to rinse their hands -- I'm sure the feeling is mutual.
What does it say if Softbank takes the deal? Softbank is a huge, successful megacorp. They bought ARM! I would think that if Softbank buys shares in Uber, it's because they see future profits -- which is different than Benchmark's games. Not to mention that Softbank may be a great addition to Uber's board. If Benchmark exits at even 60% of the current valuation, they're out waaaay ahead.
This really seems like a win-win-win for all parties involved.
[+] [-] capkutay|8 years ago|reply
Didn't Benchmark get in very early? If they got in Series A or B..there are no losses for them. They probably have at least a 10-20x payout already.
[+] [-] praneshp|8 years ago|reply
I assume one is China, which is the other one?
[+] [-] petraeus|8 years ago|reply
Uber is dead in 5 years.
[+] [-] unknown|8 years ago|reply
[deleted]
[+] [-] diebir|8 years ago|reply
http://www.mercurynews.com/2017/07/07/waymo-drops-most-paten...
[+] [-] atishd|8 years ago|reply
[deleted]
[+] [-] Animats|8 years ago|reply
Uber runs out of cash next year if they don't. If Softbank puts money in, it will probably be on terms very favorable to Softbank.
Uber's funding rounds: [1] The "undisclosed amount" round in 2017 was reportedly not big enough to change the fundamentals.
[1] https://www.crunchbase.com/organization/uber/funding-rounds
[+] [-] kartD|8 years ago|reply
According to this (Link: https://www.nytimes.com/2017/05/31/technology/uber-limits-lo...)
Uber has $7.2B sitting in the bank, with losses reducing ($708M) in the first 3 months of 2017. I'm sure they can get profitable or break-even in that time.
[+] [-] Kiro|8 years ago|reply
It has been echoed so many times that it's now fact on HN and gets repeated in every thread but is there any real source on this?
[+] [-] Animats|8 years ago|reply
Or maybe they can find another sucker.
[1] http://www.zerohedge.com/news/2017-04-14/cash-burning-machin... [2] https://www.nytimes.com/2017/05/31/technology/uber-limits-lo...
[+] [-] quintin|8 years ago|reply
[+] [-] QAPereo|8 years ago|reply
[+] [-] ghaff|8 years ago|reply
[+] [-] matt4077|8 years ago|reply
The day Mercedes ships the first self-driving car, it will come with "Go make yourself useful"-mode where it shuttles other people from A to X. There'll be dozens of almost identical services that handle the transactions and insurance for 3%-4% of the revenue.
Nothing Uber has done so far will be helpful in such a world. Because you won't need to manage humans, to grope women, or to break workplace safety laws in such a business.
[+] [-] jaequery|8 years ago|reply
[+] [-] imjk|8 years ago|reply
[+] [-] RangerScience|8 years ago|reply
I've heard of setups like this, but I don't remember what they're called - something like, you own stock, and when someone sells a percent of their shares, you can sell the percent of your shares at the same rate to the same party (or back to the company? or something?).
What questions SHOULD you ask, and what kinds of answers are you looking for?
[+] [-] sgs1370|8 years ago|reply
If you are concerned about a company you work for making a lot of money after lots of VC rounds: You would probably have to get warrants, written by someone* who is really smart.
If you think the company won't need to do many rounds: just look for stock (if you're in really early, e.g. grant+zero-value-83b election still applies) or options (if you're in after the really early stages of the company).
*Find a great accountant who internally has tax lawyers to help you negotiate.
[+] [-] nwatson|8 years ago|reply
[+] [-] toomuchtodo|8 years ago|reply
[+] [-] cocktailpeanuts|8 years ago|reply
People criticize Uber for operating in a red ocean but this was the case for Amazon too. They just stuck around and survived while everyone else in the dotcom era died off.
But it's looking more like that kind of scenario is impossible now that their founder/CEO is out and the VCs are looking to get out.
[+] [-] xbeta|8 years ago|reply
[+] [-] ThomPete|8 years ago|reply