
Uber Backers Discuss Stock Sale to SoftBank, Others - petethomas
https://www.bloomberg.com/news/articles/2017-07-14/uber-backers-are-said-to-discuss-stock-sale-to-softbank-others
======
joejerryronnie
Benchmark is trying to cut their losses and limit their exposure to a complete
Uber meltdown. If possible, they would probably offload the bulk of their
shares to SoftBank at a loss just to wash their hands of the situation.

\- 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.

~~~
xyzzy_plugh
Look, I know HN loves to hate on Uber, but much of what you say feels more
like FUD than a rational explanation.

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.

~~~
matt4077
I'll just pick two of these many points:

> 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.

~~~
x0x0
I dunno, getting an app on people's phones and amassing both sides of a market
(critical mass of users and drivers) is no small trick. Uber and Lyft had to
massively subsidize each new market to bootstrap it.

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...](https://www.curbed.com/2017/6/14/15803138/austin-uber-lyft-
transportation-ride-hailing-return)

~~~
wybiral
I still prefer to use RideAustin. The drivers I've talked to seem more into it
and given the choice I'd rather give my money to them than to Uber or Lyft.

------
Animats
Must ... find ... new ... sucker ... and ... feed.

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](https://www.crunchbase.com/organization/uber/funding-rounds)

~~~
kartD
Am I missing something?

According to this (Link: [https://www.nytimes.com/2017/05/31/technology/uber-
limits-lo...](https://www.nytimes.com/2017/05/31/technology/uber-limits-loss-
to-708-million-in-first-quarter.html))

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.

~~~
sillysaurus3
I think the concern is that the value of each rider is actually negative, and
till now this cost was hidden by VC subsidy.

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.

------
Kiro
The "Uber runs out of money 2018" thing looks like it originated from this
popular comment:
[https://news.ycombinator.com/item?id=13793406](https://news.ycombinator.com/item?id=13793406)

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?

~~~
Animats
Zerohedge has an update.[1] So does NYT.[2] The loss rate is down a little, to
$708 million per quarter. Uber claims to have $7.2 billion in cash. But that's
not all investment capital; at least $1.15 billion of it is from debt. At
their current burn rate, they have about two years of runway left before the
investment capital runs out. So they can stretch things to mid-2019, if the
investors are agreeable.

Or maybe they can find another sucker.

[1] [http://www.zerohedge.com/news/2017-04-14/cash-burning-
machin...](http://www.zerohedge.com/news/2017-04-14/cash-burning-machine-uber-
opens-its-books-shows-staggering-losses) [2]
[https://www.nytimes.com/2017/05/31/technology/uber-limits-
lo...](https://www.nytimes.com/2017/05/31/technology/uber-limits-loss-
to-708-million-in-first-quarter.html)

~~~
tmh79
The thing about becoming profitable is that it extends your runway as you do
it. So they may have 10 months of runway in q2, and 10 months of runway in q3
and 10 months of runway in q4 and 12 months of runway in q1 '18 and and 16
months of runway in q2 '18 and 48 months of runway in q3 '18 and profitable q4
2018.

------
QAPereo
It seems the "Death Star" strategy is at least as flawed as its namesake, and
really, can they keep selling a fantasy of just-around-the-corner level 5
automation to rich idiots?

~~~
matt4077
I don't even understand how self-driving cars would help Uber. It seems their
biggest advantage is their experience with managing all the different ways
human drivers can screw up.

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.

~~~
apendleton
Your model assumes most people still own general-purpose cars, and farm them
out on the side. Uber's assumes it will become more possible for people not
to, and that they will instead rely on trip-optimized vehicles available
centrally on a case-by-case basis. I think they have reason for optimism
there...

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.

~~~
sqeaky
People don't give up luxuries or quality of life.

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.

------
jaequery
despite all the tabloids, i still use uber here in LA and i honestly dont see
that changing much for most people as well. all this backlash feels a bit
strange to me, do people get paid to hate somehere ? lol

------
imjk
Call me cynical, but perhaps - just perhaps - this was part of the reason for
Benchmark's fallout with Travis. Perhaps they wanted to realize some of the
gains in their shares of Uber and knew Kalanick would be (or already had been)
opposed to it. Benchmark already made astronomical gains on their shares (at
least on paper) and perhaps they were looking for a way to now cash in on some
of those returns.

------
RangerScience
So, as a (sometimes) startup employee, how can I identify a setup such that
when a major investor makes money off their stock, I too have the option of
making money off my stock?

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?

~~~
sgs1370
I think it's a specialist question. All of this assumes you have leverage to
get what you ask 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.

~~~
RangerScience
I imagine I will use this information somewhere in the "either stock that I
can ensure some of the value of, or _actually_ fair market wages". I had a
conversation like this that could have benefited from this info not so long
ago; I did end up walking away and no-one was happy.

------
nwatson
Bye bye Common Stock options.

~~~
toomuchtodo
I forsee many a bitter Uber engineer on the horizon when those options end up
worthless.

~~~
xyzzy_plugh
TBH I don't understand this perspective. If you sign on to a startup as risky
as Uber, you have to understand that there is a large chance your shares will
be worth nothing. The fact that anyone might not understand this is everything
wrong with Silicon Valley.

~~~
khazhoux
With all due respect: bullshit

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.

~~~
xyzzy_plugh
But this is Silicon Valley, and we have Hacker News, and lo your comment aptly
describes the risks involved when working for a startup.

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.

------
cocktailpeanuts
Uber should have just gone public, now their future is too fragile because it
depends on their small number of VC investors who probably are thinking that
they will still make more money than breakeven if they exit now.

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.

~~~
xbeta
I am not sure what to say with your comment on this, but how do you expect any
companies going public with a loss on a balance sheet ?

