[jdh]

Another point: it would help to know the terms associated with this investment to decide if it was smart.

Author treats stock as if it was a public company, which is understandable. i.e. these investors bought $1.2B of stock at a $17B valuation, and would need to see massive market growth, massive share, and margin stability to make 2x their money.

However, it's reasonable to assume they got preferred stock. So their return profile looks like: if Uber is worth anything more than a couple billion dollars (which they may view as near-certain), they get their money back + interest. Then they hold an option should Uber execute like Amazon, as others have suggested, and dramatically exceed their near-term market potential.

Valuing this is quite tricky: presumably the people who invested $250M less than a year ago thought: I only have to clear ~$400M to get my bait back, now that number is 3-4x higher.

While it is highly likely that the new investors have some sort of preferred return, it's possible (though less likely) that have a participating preferred or some other more complex instrument. Maybe the market price for straight preferred was "only" $12B valuation, and the company said: "How about we 'guarantee' you a 2x return, with a participating preferred instrument, but we want a 50% higher price, so in an upside case we are diluted less?"

This stuff is pretty common in these later rounds, though admittedly more on the "bubble unicorns" than the true unicorns, who have utmost market leverage. But you can see how even just the vanilla preferred stock would really change your personal calculation of whether you want to put your nest egg into Uber at this price.

[digz]

This is an important point. Further to that, Uber should be a company with very clearly understood ROI. They put X number of dollars into a new city and get Y number of users and make Z number of dollars over a few years. Because they've done this in dozens of cities, they've got these numbers down. From Uber's perspective, any money they raise should look as much like debt as possible. Why? Debt means existing shareholders won't be diluted. If a growth company can safely issue debt, it always will. Probably not realistic for Uber to issue 1.2B in straight debt today (interest on that would amount to roughly 20-40% of their current revenue), so they would seek as much of the economics of the raise to resemble debt as possible. The more it resembles debt, the less we learn from the headline numbers about implied valuation.

[gojomo]

This is a true and important point from the new investors' perspective. However, it is also the case that the insiders, taking the dilution and granting the preferences, believe a greater-than-$17B whole-enterprise valuation is attainable or even likely.

That is, they are committing to take an extra dilutive hit for any exit less than $17B, but they expect, especially with the new capital, that won't happen, and that instead, the investors will wind up converting to common at IPO/etc.

And, since the insiders know the business better than anyone, that revealed valuation should also have some weight.