
Uber’s underwater investors - spking
https://www.axios.com/uber-ipo-investor-losses-d9b01daf-ece4-47d2-8f68-fe56dd98321b.html
======
nknealk
Its weird they'd use Pitchbook as their source for funding when Uber disclosed
information in their S1 under the table titled "Redeemable Convertible
Preferred Stock". See page F-51 here:
[https://www.sec.gov/Archives/edgar/data/1543151/000119312519...](https://www.sec.gov/Archives/edgar/data/1543151/000119312519103850/d647752ds1.htm)

From that table, they didn't raise 15B at 48.77 but closer to 8B. The article
is off by 50%. Still a stunning amount of money under water.

What's also not highlighted in the article is that holders of that series G
preferred stock are entitled to a $3.90 annual dividend per share (again, see
the table in the S1). If you assume a 10% discount rate for 5 years of
dividends, that dividend is worth like $14 per share today. So maybe they
aren't as under water as the article claims. [EDIT:] if you read further
along, it looks like Series G got converted to common stock in 2018, so they
no longer get paid this dividend.

That said, people who bought common stock do not get dividends as of today.

------
SilasX
Sorry for the nitpick, but I've only heard "underwater" to refer to when you
own an asset worth less _than you owe on it_. I've never heard it used to
refer to all losses in value from investment. So it doesn't seem to be the
correct usage here. Am I wrong?

~~~
retube
generally in finance "underwater" simply means you've net lost on your
investment (it's worth less than you paid for it, or other costs such as
funding, legal etc more than offset any returns)

~~~
SilasX
Interesting. But I checked Investopedia and it only lists the case I gave,
plus out-of-the-money options:

[https://www.investopedia.com/terms/u/underwater.asp](https://www.investopedia.com/terms/u/underwater.asp)

~~~
Bartweiss
I've definitely heard the broader use, but I suspect it partly stems from the
fuzziness of "owes". If my mortgage exceeds the value of my house, I'm
definitely underwater. But if my pension fund owns a ton of CDOs on bad
mortgages and can't make payments, it's sorta-kinda underwater too. Broaden
things even more, and any institutional investor promising returns can be
'underwater' on a bad investment.

~~~
SilasX
Hm, I could maybe understand if a hedge fund (or other investment firm) were
operating on a "high watermark" standard (i.e. they have to get the fund's
holdings past their previous all-time-high to get paid at all), then I could
accept them being "underwater" in that sense.

------
rb808
This article was written before today's worse selloff - Uber is now less half
the expected value earlier in the year. I wonder if this is the end of the
current tech bubble. All those unlisted companies really aren't worth what
everyone assumes they are.

~~~
pradn
A few hyped companies with bad business models are not necessarily
representative of all tech IPOs. But the problem is that these few bad apples
can poison the perception of the entire sector for retail and institutional
investors. Nothing wrong with a $1 billion B2B SAAS company going public.

~~~
angstrom
Seems to be normal form. I don't have enough fingers to count the number of
times companies go public, primary investors exit, stock slumps. Employees who
have been with the company several years get stuck waiting 6 months to sell
any shares at which point the stock is well under water preventing an exodus
of talent. It's completely by design.

It would be more concerning if these stocks were spiking after IPO because it
means the underwriters messed up and the market is irrational.

~~~
btilly
My experience is that employees who are underwater get demotivated and
eventually just quit. That is why companies are switching to RSUs.

However for AMT (Alternative Minimum Tax) purposes, the price as of your IPO
is money you earned, even if you couldn't sell. Which during the dot com crash
lead to a lot of people owing more in tax than they made, and with shares that
couldn't be sold to cover it. I personally knew several who didn't have to pay
taxes for several years afterwards because they were able to carry forward the
losses from that disaster.

~~~
angstrom
The long term capital gains loss is funny. I think I ended up with something
like 30 years worth of LTCG losses I'll be able to carry forward. It's like a
reminder that just keeps on reminding year after year how badly you can get
shafted.

------
asdf21
As I said in the other thread a few days ago, Uber should obviously be
shorted, both in the short and the long-term.

Their investors are simply trying to hedge their losses by bringing this stock
public.

Uber's entire valuation hinges on the idea that they will be in the big three
of autonomous driving, and I simply don't think they A) Can sustain long
enough to achieve this, B) have a large enough Moat to prevent outside
competition from jumping in (which already happened to their ride-sharing all
over Asia) and C) They bet on the wrong horse with LIDAR, vision (camera
arrays) will be the future of Autonomous driving.

~~~
warp_factor
Why is Lidar the wrong horse? Because Elon Musk made a slideshow and you drank
the Koolaid?

I don't like Uber but as far as autonomous driving is involved, Uber and Waymo
use Lidar AND camera arrays versus Tesla only using camera arrays. I don't see
at all how that is a deal breaker.

~~~
leesec
Fundamentally, if a product can exist without an expensive component, it will
beat solution's that contain that expensive component.

~~~
Uhhrrr
> it will beat solutions that contain that expensive component

It will beat _comparable_ solutions that contain that expensive component.

------
smachiz
I mean... paper losses. It's going to take more than a few days of trading to
figure out whether anyone lost money here.

I'm sure none of those institutional investors were looking at the IPO as
their liquidity event.

~~~
onetimemanytime
Paper loses...if the stock increases. Uber already was valued at $80 BILLION,
it takes a lot of money and feet in the ground to increase revenue and share,
it's different from Google and FB.

~~~
pmart123
I think that is part of the big disconnect between private and public markets.
The public market has been valuing simplicity in business models lately with
old conglomerates like GE, Honeywell, Phillips, and UTX selling or spinning
off units. The private market has been valuing potential and multi industry
domination to some extent. Some companies like Apple, Amazon, and Microsoft
have been able to have multiple avenues, but this has come after multiple
successes, and what I would classify as cleaner underlying objectives.

At this moment in time, Uber and Lyft would be better served proving the
underlying unit economics work to receive a better public market price. I
think if both could show meaningful progress in this regard, it would help
stabilize their stock prices.

------
gpapilion
I'm a bit surprised to see it stated that large investors ended up underwater,
simply because they usually protect themselves first. Maybe the demand in Uber
was so high they could skimp on their normal protections.

A year or two from now, I'd love to see what the actual paper losses were at
this moment.

~~~
sjg007
Yeah I thought they had liquidation preferences. Would they not have some deal
where Uber has to make them whole by issuing them more stock up to the
valuation price? Maybe that all goes away at the IPO, but surely to get sign
off to have the IPO they must have gotten some guarantee.

~~~
kijiki
Liquidation preferences go away at an IPO because the preferred shares convert
to common.

~~~
sjg007
Right, but if the value was $42 a share at IPO and that is less than what the
late stage investors expected, then why would they sign off on the IPO without
extra shares being issued?

~~~
sk5t
The late investors aren't forced to liquidate and any liquidation preference
is extinguished at IPO... the terms of the IPO having been properly
authorized, the formerly-preferred holders simply have no special say in the
matter anymore.

------
arbuge
> To make billions of dollars out of Uber, like Benchmark Capital did, the
> secret is to invest millions of dollars in the Series A and then allow other
> investors to invest the extra billions needed to scale the business and fund
> ongoing losses.

They missed a step there. The first thing is to get your fund to have
Benchmark's reputation to have a chance to look at and invest in a deal like
Uber early on.

For those not familiar with Benchmark, they made their name on Ebay. They go
way back.

~~~
imjk
It's funny you're saying this about Benchmark. Didn't they have a bitter
lawsuit with some founders they invested in?
[https://venturebeat.com/2005/01/25/epinions-founders-sue-
ben...](https://venturebeat.com/2005/01/25/epinions-founders-sue-benchmark-
august-et-al/)

------
HillaryBriss
> _Uber is the ultimate minotaur — a company where billions of dollars of
> private-market funding were supposed to create a self-fulfilling prophecy of
> dominance and market power. It hasn 't worked out like that._

Ok, ok, so the strategy doesn't work for "the ultimate minotaur" because it's
in a commodity business: transportation. It's sorta like airlines, which,
taken as a whole industry, also lack dependable high profits.

------
FactolSarin
I wonder if Uber is going to turn out to be a MoviePass

~~~
Bartweiss
My favorite startup metaphor (originally applied to Groupon) is that the basic
"get users, then improve margins" model would justify selling dollar bills for
$0.50. After all, there's tons of demand, and it's clearly a real business
opportunity because the users all stick around as you move towards
profitability! Then you hit that final price hike to $1.00, and discover just
how nonlinear demand can be...

------
dhfromkorea
A question: if you can make one assumption about Uber (or fix one thing about
it) such that Uber will be sustainably profitable in the future. What will it
be? Why do you think the assumption implies sustainable profitability in high
probability?

~~~
fullshark
I feel like you are fishing for "autonomous driving" but I think the real
answer is: Lyft going out of business.

~~~
dhfromkorea
I was just curious, not expecting anything particular---I wondered if Uber's
business and its problem space are fundamentally bad as some of the comments
here suggest. Re: your opinion, I think it's a good news for Uber. If it just
takes Lyft going out of business for Uber to surface above water, I would bet
there's a realistic chance.

------
swarnie_
I'd like to thank all the VCs who have been subsiding my travel needs for the
last 4 years. I would also like to extend a future thank you to the retail
investors who will be picking up the mantle going forwards - Much obliged!

------
systemBuilder
If 99% of the company's growth has been received pre-ipo, then the word IPO =
It's Peaked Forever. Decacorn is short for "greater fool investment".

~~~
warp_factor
I wish but unfortunately I think Uber became "too big to fail". When there is
that much VC and corporate money behind an entity you can be sure that the
rules of the game will be bent so that the big players don't lose to much of
their chips.

------
olivermarks
'Uber loses more money than any other company to ever go public.' Says it all.

------
rixrax
Somewhat related, how is the strike price for the employee option holders
determined?

~~~
greglindahl
Presumably Uber followed US securities law, which are pretty strict in regards
to giving employees options. Or RSUs.

------
User23
It’s the Greater Fool theory taken to its logical conclusion.

~~~
warp_factor
the whole deck of cards is crumbling and the ones losing money right now are
the little investors that bought Uber on IPO day because of the hype.

~~~
kgwgk
From TFA: "IPO investors have lost $655 million, while investors from 2016 and
2018 have between them lost $2.27 billion."

------
sexisfun
At least the consumers benefitted by having their rides subsidized.

~~~
shereadsthenews
Consumers did not benefit in the long term if Uber nuked their local taxi
industry and wrecked the efficiency of their local bus service before suddenly
ceasing operations.

~~~
hylaride
In my city (Toronto) taxis actually upped their game in response to Uber/Lyft,
though not before fighting it tooth and nail. Before, you'd often get an
ancient cab that the driver was (illegally) smoking in before you arrived and
would often (illegally) refuse shorter trips. Half the time, the the
electronic payment machines were "broken" and you'd get drivers threatening
you if after arriving at your destination you refuse to go to a bank _with the
meter still running_.

In most of North America, the taxi industry is notoriously corrupt and has
been that way to protect their medallion systems. While I do feel for some
individual cab ower/operators, I don't feel bad for the industry as a whole
despite Uber being a horrible company.

~~~
neilv
I don't feel very bad for any taxi medallion owners who were exploitive, as
I've heard some have been, nor for officials who let medallions become capital
assets, but at least they were playing within the current local regulations.
(And, even within the worst taxi medallion systems I've heard of, you'd
occasionally hear of a driver who'd been saving up for a medallion, which they
saw as their ticket to the American Dream, so they could keep more money from
their fares.)

Then Uber comes in, knowingly ignores regulations everyone else played by,
spews "sharing" nonsense, pricedumps on fares, temporarily attracts drivers
and gets many hooked on loans for the recent-year cars Uber demanded, uses
money and popularity of pricedumping rates to lobby politicians for official
acceptance, then IPOs to keep the scheme going (and so some people can cash
out).

~~~
hdpq
>spews "sharing" nonsense

People forget that is how Uber got into this business - they started skirting
medallions (which was an artificial market in the first place) by telling
regulators that these drivers were headed in a particular direction and just
picked up a fare.

