Softbank, a Japanese investment institution started negotiations with Uber two months ago and around two weeks since Ariana Huffington, and Uber director, stated that the SoftBank deal would be completed shortly. The investment package includes $10 billion, the high end of the expected investment that was initially discussed.
Investment Recap:
During September 2017 we reported the new joint venture group comprised of Dragoneer (USA), SoftBank Group (Japan) and Didi Chuxing (China). These investors came together around August 2017 to discuss a possible injection of cash as well as buying out employee shares too.
Bloomberg reported that Uber was seeking to raise from the investor group between $2 billion and $10 billion in total and the venture capital group has around $100 billion to use for investments via its Vision Fund. There is also talk of Vision Atlantic joining in. This investor group will most probably form a special construct (legal framework) for this investment project.
This particular round of investment will be large due to Uber's current market value set at $70 billion. Uber is also quite market ready after the recent executive board shakeup and in house cleaning. With new direction focusing on providing a more profit-making approach, such as closing Uber's Xchange leasing program that cost the company close to a third of a billion in one year and by increasing driver centered services to improve the driver-Uber relations. This new deal allows employees and other investors to cash out, which had been restricted until now. In fact, Uber has been buying back shares from employees during the year. The new CEO Dara Khosrowashahi stated that an IPO was also being considered, but that would only be viable after at least 18 months.
November 2017
The question is, what is delaying Softbank from completing the deal? The uptake is that SoftBank wants to gain 14 to 20% of all company stock as well as get two board seats. They are also haggling over the value of Uber, since it is the most expensive private company, valuing it is harder as well as factoring in the profitability based only on losses. The company is valued anywhere between $50 billion to $60 billion, and this makes $10billion seem trivial, but that delta is more than the gross worth of Lyft, Ubers main North American rival.
Softbank representative Jeff Housenbold stated; "We're very valuation sensitive. We've walked away from a number of deals recently because we didn't like the valuation," and continued to say, "In the grand scheme of things, if we have a belief that this could be the next $400-billion company, arguing over a pre-money valuation of $1.8 billion or $1.9 billion isn't really that relevant to us."
Haggling over value is always a major stumbling block in corporate stock evaluation negotiations. Especially when discussing venture capital that has yet to prove its profitability. There are thousands of companies making losses and claiming to be the next techno messiah but in the end, all fall down through continual losses. Uber is only staying afloat due to the sheer size of its worth. If SoftBank doesn't invest, then the probability of Uber reaching their IPO is slim. This is one of the major strengths that SoftBank can use in its negotiations of value.
Uber and Kalanick
Kalanick still sits on the board of Uber and is still very active behind the scenes. While he might not manage the company on a daily basis, he still affects its presence from his ownership percentage and the three seats he controls on the board. This has led Benchmark to sue Kalanick for fraud, claiming that the recent addition of three board seats to placate Softbank is in direct violation of their presence on the board.
Benchmark was the instigator for ousting Kalanick from the board, and with their 10% holdings have a lot to say in the daily decision making process. Once SoftBank comes online, their status drops considerably. Some claim that if SoftBank does invest, Benchmark will drop its lawsuit.
The in-house fighting is another reason for SoftBanks hesitancy, and some sources state hat one of the provisions for the investment will be settling the issue between Benchmark and Kalanick and further restraining Kalanick from exerting more control over board decisions.
Here is a review of all the investments made with Uber since it's starting capital back in 2009.
Table courtesy of: https://www.crunchbase.com/funding_round/uber-series-unknown–fc34230a
This table presents us with two facts; the amount that SoftBank will invest is close to the entire investment portfolio that Uber received since its founding date in 2009.
Uber is proof that you don't need to be profitable, you only need to sell a dream and people will run to finance it, like a black hole, the sheer gravitational pull of Uber now sucks in money from many sources, but will never release it out after it is in.
Projection: Even if Uber reaches IPO, it is not Microsoft or Google, it does not provide either a product or reach billions of users. It is a glorified taxi service that used an app before anyone else, and juts like the great IT bubble back in the 1990's when so many internet companies were valued at crazy prices, so too will the Uber bubble explode. Lyft is a classic example of how money should be spent. Lyft might only have 11% of the North American market, compared to Uber's 56%, but Lyft hasn't even spent 10% of what Uber has lost.
Uber is a classic example of Finance Markets controlling company value with total disregard of the actual service provided. Uber is just a framework to leverage profit out of shares that are not worth the paper they are printed on or electricity used to digitize them on screen.