Uber Backers Discuss Stock Sale to SoftBank, Others
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- 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.
"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- As another poster replied, this is pure speculation that is outdated by a couple of years at this point.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.
Amazon or Google or any other cloud provider could spin up a service that pairs drivers with ride-seekers. This kind of software is no longer a secret sauce and they have the infrastructure to scale instantly and the customer base to market it easily.
I'm not sure I've ever seen the difficulty of starting a marketplace company with built-in network effects so vastly underestimated.
Take a smaller margin (or subsidize more, if the margin is already negative), build the driver side to be aware of and compatible with the reality that drivers are going to be driving for multiple services at once (with the exception of your seed drivers, maybe)
Now there's a reference I have not heard in a long, long time.
Google doesn't still do that, do they?
Source: I work there
maybe you guys don't like to talk about it anymore though...
Reasonable answers include:
- Google and friends don't perceive the ride-sharing market to be a profitable market to enter, in which case Uber may have problems, but competition from Google, Amazon, et all is not one of them.
- It actually isn't so simple to just "spin up" such a service. It would require a large investment in terms of development, regulatory hurdles, and marketing just to get a foot in the door, with a high level of risk that the effort doesn't succeed (see most all business ventures ever).
Uber has many problems. But competition from Google, Amazon, et all is not one of them. Lyft? Yes. Google, Amazon, Apple, Facebook, and so on? No.
Most tech companies have made their billions by automating processes and undercutting the old school competition. If you can't automate driving you can't build a strong competitive advantage against traditional taxi businesses.
Uber realizes this and they're willing to do anything, no matter how unethical, to get self driving vehicles first. That will be the true market disruption, and likely winner-take-all because you will instantly have such a gigantic cost advantage.
That's why you see Ubers competitors all working on self-driving. They're trying to leapfrog the next obvious evolution of the transport business.
Why wouldn't they develop their own self-driving technology while at the same time assisting in the building of using ride sharing as a habit, and simply wait until uber goes out of business or retreats even further into "profitable" markets before unleashing their low cost self-driving fleet into those markets previously dominated by a heavily subsidized uber?
oh wait a minute ...
People said the same thing about Google Plus and yet they completely failed. Its not so easy as it looks even if you have billions in the bank.
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.
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.
> 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.
The small local competitors were doing this long before Uber came along. They're called taxis. Sure, they did a good job increasing competition in this market. But by and large, all they've done is transferred money from poor drivers and rich investors to middle-class customers.
All they do is collect payments, coordinate dots on a map, and provide driver rating. And any competitor starting now has the advantage of not being $8 billion below water.
?> 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.
Uber has many stakeholder that are more important than customers: they need their drivers' motivation, they need employees (valley!), the need politicians and judges, and they need investors. All of these groups differ from their customers that they're much better informed, and engaging with Uber is a much bigger risk for them than just using their service.
Per http://sanfrancisco.cbslocal.com/2016/11/07/number-of-uber-l... in SF there are 1.8k taxis and 45k Uber/Lyft drivers. That's 4% taxi vs. Uber/Lyft.
Barring changes in the law, number of taxis is limited by number of medallions. Number of Uber/Lyft is limited only by demand, which we probably are not even close to meeting (surge pricing during rush hours is still a thing).
If anything, the reports are that number of taxi rides went down and some taxi companies literally went bankrupt.
So taxis are not a competition.
You claim it's easy to compete with Uber/Lyft. Where is this competition in SF?
How do you explain what happened in Austin? When Uber/Lyft stopped service in Austin, several local competitors emerged.
When Uber/Lyft came back, they all folded within weeks. They just couldn't compete on price or availability.
Furthermore, if you claim that Uber, at their scale, has to subsidize to stay in business, how does that not apply to any other competitor.
Either this can be profitable business, in which case Uber has significant advantage due to their scale, existing user base and marketing presence, or it's not, in which case no-one can make money.
This is spoken like someone who hasn't lived in a city that only had a taxi monopoly before Uber arrived. It's like saying all the iPhone did was take an iPod and put it in a Nokia. It completely misses all the little nuances and subtleties that made Uber successful and makes people keep coming back to them.
Before Uber, in New York City:
* To get a taxi, I had to be physically near a taxi (and before the outer borough cabs, I had to be basically in Manhattan or Brooklyn right next to the East River). Good luck getting a lift home from south Brooklyn at 2:30 in the morning.
* I had to be physically near the street to hail a cab. With Uber, I can get a car moving towards me while I'm still indoors. This is huge when it's raining in the city. It's huge when you're in a shady area and you don't want to stand outside waiting around, asking to be mugged.
* I was vulnerable to someone walking in front of me and grabbing the cab I was getting the attention of
* I had to be in the cab with the door closed before telling the driver where to go. And if he huffed and said he didn't want to go there, I'd have to threaten him with a call to 311. Great start to a trip where you're stuck in someone's backseat - threatening them after they told you they don't feel like driving somewhere you need to go.
* I often had to carry cash because (even though it's illegal to have a non-working card reader) many taxi's card readers just "stopped working man." I don't even need to have my wallet with me to take an Uber.
* I've had cab drivers get out of the cab and yell at me on the street because he didn't think my 15% tip was enough. Similarly I'm sure some people don't tip. Uber helps both drivers and passengers by providing ratings for both.
And, I don't want to speak for anyone but I imagine plenty of black New Yorkers have some experiences with cab drivers and hailing a cab and the difficulty of getting a ride somewhere. I wonder if any black folks who've dealt with racist cabbies agree with you that all Uber does is collect payments and coordinate dots on a map.
The real test is how all the competitors in Austin are doing. We'll find out in a year or so.
https://www.curbed.com/2017/6/14/15803138/austin-uber-lyft-t...
> 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.
----- I believe there have been enough anecdotal data points and shared financials to strongly support my viewpoint, but I guess it could be argued the other way as well.
> 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.
----- Small, local competitors are much better than Established Super Corp at meeting the needs of the local market. They also don't need nearly as much capital as they're just trying to dominate the local market, not the entire world. A proliferation of small, local competitors may be Uber's ultimate undoing - i.e. death by a thousand cuts
> Uber has been trounced in two of the largest non-US markets
-- From an investor's perspective, they came out ahead.
----- But Uber is not in the investment business.
> 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.
----- Yes, who knows what will happen here - probably some settlement that doesn't have a long term effect on either company. But it's just one more crappy thing to have to deal with
> 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.
----- I think the largest impact of the scandals will be Uber's ability to attract and retain key talent. With all of the other awesome tech companies in the valley, why would I choose to work at Uber? At the very least, they'll have to overpay for talent.
> 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.
----- You are correct, but today is much further from "perfect conditions" than two years ago
> 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.
----- fair enough, maybe another reason Benchmark wants to move on from their relationship with Uber.
You are 100% correct. The moment Uber and Lyft left Austin, competitors sprang up. The moment Uber and Lyft came back, the competitors are getting crunched.
Once the VC subsidies dry up, however, Uber and Lyft have no barrier to entry.
[ADDED: Of course, I don't get the VC subsidies that way. But, in general, cab into city from airport hasn't been a particularly broken system relative to getting cabs in other places.]
And many people don't have the same attitude as you. Some with avoid uber because of ethical concerns, some will install every rideshare app and carefully consider prices before getting a ride and others will just install whatever and do whatever else.
At that point there really is no moat to protect Uber's business from competitors of all sizes.
And until then, I think most of us will gladly take 30s to install a new app for a better fare.
And then spend 20 minutes signing up with a username/password, storing it to your password manager, adding credit card details, adding customer information to the app, setting privacy settings, etc. etc. No thanks.
I'm with OP here. It is a huge barrier of entry for me to install an app. Mostly because exceedingly few apps should actually be apps (this is why we invented web browsers, but it seems everyone lost their collective minds lately) and I don't need a 50MB thing to invade my privacy to display what effectively is a web application written in html5 and javascript.
Uber is one of those apps that makes it onto my phone solely because it's universal. I have less than zero interest in installing a few dozen apps on my phone for my travels - how the hell would you even know which to use where? Yet another "30s" google?
Amen!
How did people live before flushing toilets? I guess we will never know because life is uber. If uber doesnt provide it it must be impossible.
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.
I assume one is China, which is the other one?
They are not leaving India.
Uber is dead in 5 years.
http://www.mercurynews.com/2017/07/07/waymo-drops-most-paten...
> Waymo, Alphabet’s self-driving car division, dropped three of four patent infringement claims in its lawsuit against Uber Technologies over the startup’s autonomous vehicle program.
> Waymo’s decision to include patent claims in its lawsuit against Uber was a surprise move for Google parent Alphabet, which normally prides itself on limiting patent fights. The bulk of Waymo’s case is not over patents, but trade secrets.
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
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.
There are several ways this could play out. One possibility is that if Uber raises their rates, people will mass-migrate to Lyft. Whoever survives that war of attrition may monopolize the space.
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?
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...
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.
For one, many times when Uber is in highest demand are also times when car owners most want to use their own vehicles (say, rush hour), so this notion that an Uber-like service can rely entirely on spare hours of personal vehicles is a little silly; sure, there are tons of idle cars at 4am on a Tuesday morning, but who needs to use them all then?
For another, I can totally foresee a future where we move away from this idiotic practice of having the typical vehicle on the road by a five-seater with one person in it, which is hugely inefficient. Commuting alone? Have a tiny car. Going on a trip with the family? Enjoy this self-driving SUV. Need to get from DC to Florida? Enjoy this self-driving bed, and wake up at your destination in the morning. Etc., etc.
Everyone knows smoking kills people, its gone down with that knowledge but leveled off at millions of smokers who do it for the pleasure and damn the consequences. Now that vaping is a thing that is going down again.
Americans don't reduce power consumption, recycle in meaningful quantities or take shorter showers. What is making our grid more clean is more renewables (I see a new wind turbine almost everytime I drive on I-80). Recycling is still an issue but sort it from the automatically and that would fix our problem. Water starved areas would rather pipe and truck water in that let their lawns die.
Public transit seems to work best in areas were being faster or more convenient is a car is the luxury. It will never happen in Omaha or any other widespread city. I can get to anywhere in this city in 20 minutes on I-80, I might spend that long waiting for Uber or Lyft. Flip it around and look at Manhattan to that same 10 or 20 miles might take more than an hour by car once you factor in parking and other hassles, the subway, buses and taxis are omnipresent (so you don't need to find your own inconveniently placed vehicle) and often faster then you don't need to park it.
Traffic is just like any other human problem we will have to create hard solutions for problems that would be easy if we could all just pull back a little.
I strongly doubt it. The first properly self-driving Mercedes will be an S-class, and posh people don't buy $100,000 limousines just to rent them out for $14.99 an hour.
No one is downloading apps for dozens of other fragmented services.
Car manufacturers will not want to do this themselves. They will want to partner with an existing player who will manage their fleet.
It also depends on there being 'existing players to manage their fleet'.
Size of dealership matters too, a large dealership means that a manufacturer could take the vertical integration route that bit easier than the manufacturer that licenses some third party AI and only has a few dealers.
The app to monetize the self driving cars is very easy to write compared to the 'app' required to do the self-driving. Why would this 'book your ride' front end be given away to anyone from Uber to Hertz?
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?
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.
When a SV startup goes belly-up, the first to get fucked are the employees. Even employee #1 and even if you started a week after incorporation, your equity is the first to disappear. And add to that, the fact that many startups have allowed founders and key executives (but not rank and file) to sell options and take money out pre-exit.
In my experience, startup employees are largely not aware of the drastic difference in equity distribution and protections. They know, of course, that founders and investors have a bigger share than they do, but they don't realize how lopsided it is, and that founders can walk away with multimillions as they drop to zero themselves.
In fact, in cases where large numbers of employees got rich (>$1M... Google, FB, etc) from an exit, the founders did not become just "rich", but rather became multibillionaires, and the wealthiest people on the planet.
You know this, and I know this, and frankly anyone who is going to sign an offer letter should know this, but they often don't, and people often don't understand predatory loans either.
If you're an SV engineer making six figures I have no sympathy if you don't understand how your options work. You can afford a personal financial advisor.
Now, good poker players do talk a lot about not being "results-oriented" (even if your AA is rivered by KK, you played the hand well if you got the money in before that), and many players will tell you that the way to do this is to cultivate a sense of detachment about money coming in and out. I certainly try to avoid being sad when I lose a big hand; such is life. But being sad isn't the end of the world, so long as you got the money in good and continue to do so.
Now it's been 5 years, the company looks to be cratering quickly, and you're burnt out. You've been hanging in there because it would be financially insane to quit when you've got a very high likelihood of walking away with millions.
Take that last bit away, and you're telling me you can't understand why engineers might start walking away in droves?
If a Silicon Valley engineer goes and buys a house, planning on a big payout on their options, then they're a fool.
Take that incentive away and you don't have anything to offset the burnout from the work environment there.
Or, put another way, if Uber's shares in 2013 should be estimated at zero, should anyone's shares not? Anyone substantially more stable than Uber is either paying you actual cash, or giving you something with a liquid market and a clear market price (e.g., RSUs on post-IPO stock, which you can just sell as soon as you get them) instead of ISOs.
The entire point of ISOs is to avoid paying your employees a competitive salary entirely in cash by giving them something that you're claiming has more expected value than the difference between their base salary and what they're worth. If you're lying to them, then it's unsurprising that they'll be bitter.
But yes, working for, or investing in, a pre IPO company is risky and if you want to avoid risk you should just make sure you're getting a bi-weekly salary you're happy with.
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.