An Update on the Uber Softbank Deal


(Preet) #1

It seems that there is no end to the speculation around the success of Softbank's $10 billion investment in Uber. Dara Khosrowshahi, Uber's CEO has to battle survival and needs this money to act as a lifeline that will carry Uber successfully to an IPO within the next two years.

What has put a spanner in the works is Kalanick's continuous in-house bickering with benchmark and other investors. 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, Uber 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 obstacle 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 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.

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 SoftBank's 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. Kalanick is still standing behind his request that the provision set that requires a majority vote to make any of his director appointments valid or be void. This is just one of his provisions that is causing problems.

A word about founders and ego's; Kalanick is providing a classic example of a founder with a great idea but a terrible management skill set trying to steer the company even when his powers are reduced. Many founders don't realize that the idea they had was great, but managing a multi-billion dollar corporation is not developing a service or an appliance. Managing large corporations takes teamwork efforts of skilled professionals that work under the direction of an executive board and not just one man's ideas of what should be done. Vision is a great asset, but it must be harnessed by practicality and operated with restraint. Th biggest killer of any good idea is ego and Kalanick have plenty of that. Another killer is fear, Kalanick is frightened that his hold on the company will also damage his hold on his assets. This is partially true, but if he would wisely step aside, he could negotiate with the company a clause that stipulates his minimum holdings even after an IPO. This would, in fact, be a better course then the one where he tries to maintain control of decision making, which until now has led the company to a global position but at the same time has not provided a solid foundation to support its future. Basically, Uber is a big house of cards and the wind is now blowing.


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