
Uber confirms SoftBank has agreed to invest - heshamg
https://techcrunch.com/2017/11/12/uber-confirms-softbank-has-agreed-to-invest-billions-in-uber/
======
nopinsight
When I look at their runway and valuation going forward, IPO is the most
probable path they will take. But it might imply some risks to the overall
startup IPO scene in the future as well.

Apparently Uber is bleeding about $2 billion a year and have only $6.6 billion
in cash reserve. If this deal adds $1 billion more cash, then that would only
last 4 years.

Since full-scale self-driving cars launching across most major cities is
unlikely to happen within 4 years, they will need to either:

1) Charge more and lose even more market share to Lyft. This is unlikely.

2) Raise more cash. IPO seems to be the easiest channel for them now. (Maybe
SoftBank will provide it from their massive fund but they might also extract
concessions from existing shareholders and buy at a very ‘attractive’ price
(for SoftBank) but others will likely resist.)

IPO sounds like a good plan for Uber. But if the price drops precipitously at
some point afterward because it is outcompeted by other self-driving companies
(e.g. Waymo + Lyft expands self-driving fleets to highly profitable market
while Uber’s tech is still not ready) it may result in a chilling effect on
the overall startup IPO scene as they are the largest unicorn in existence,
and there are many startups that sell themselves as Uber for X. (Public
investors may not be as astute as VCs in discerning differences in business
models of similar sounding startups.)

~~~
loceng
IPO is good for Uber - not for society though, who will be the ones to capture
the losses.

Also, Tesla often is brought up in this competition - usually mentioned
between Uber and Lyft and Chinese companies - however Tesla is positioned to
dominate here. I wouldn't doubt that they're working on the apps internally to
create the shared vehicle system that Elon speaks of. How many vehicles could
Tesla create AT COST spending the $2B / year that Uber is burning? Where Tesla
has a fleet of assets on the road ...

~~~
kogepathic
_> How many vehicles could Tesla create AT COST spending the $2B / year that
Uber is burning?_

While I don't disagree, I think the major question here is "how many vehicles
can Tesla create" given their difficulties in scaling Model 3 production.

Tesla could have the best self-driving tech, but if it is exclusive to their
cars and they can't manufacture them fast enough, someone else will build
their own fleet and win all the market share.

Unfortunately I see Tesla's hurdle being manufacturing volume, and that's a
lot harder to solve quickly than fitting sensors to existing cars.

~~~
loceng
They're a new automotive manufacturing company - being a few months off
estimated production for Model 3 isn't a big deal. It's surprisingly good in
hindsight.

Their current capacity capability at the factory is 500,000 vehicles annually.
I suspect once they launch the Semi and get 500k+ pre-orders of it, they'll be
able to get a loan to build or acquire another factory.

As Elon has mentioned many times, designing the automation is magnitudes
harder than designing the vehicle itself. They're on an exponential growth
path and it's going to be amazing once they're pumping out millions of
vehicles annually.

------
rileymat2
If Uber was only a world wide Taxi company with virtually no capital costs,
wouldn’t this be incredibly profitable alone?

I am not clear on the impetus everyone sees for Uber creating self driving
cars. If developed by another company, can’t they just add them to the
service? Do they really want to be responsible for that capital?

~~~
timewarrior
Uber is valuable only because it has solved a two party network problem at a
city level. You need drivers and you need riders. If you don't have any
drivers riders won't come and vice versa.

Two party networks are much more difficult to solve than one party network
problems. Because with two party networks you have a chicken and egg problem.

Anyone who has solved self driving, has near unlimited scale on the driver
side. Their cars can autonomously be present to respond to peak demand - e.g
having thousands of cars at Burning Man.

In the autonomous car world, Uber has no place if it doesn't have that tech.
There is almost no reason for the company which has self driving tech to
license it to Uber, when they are easily run it themselves. The only value
Uber has right now is because it has crossed the critical mass on the two
party network. And some people thought they could solve self driving cars.

OTOH, a global two party network (e.g Airbnb) is exponentially tougher than a
city level two party network. Which is why Airbnb has almost no competition
(except some local players in China), while Uber has competition everywhere.
In fact, Uber has already lost and conceded a few major markets (China,
Russia).

Can Uber - even sustain what they already have. I have my doubts and theories,
but that's for another day.

~~~
rileymat2
Wouldn’t Running your own cars would mean incredible capital costs and
marketing costs to get people to switch from uber?

Additionally you need people maintaining them.

~~~
pfarnsworth
Whoever solved self-driving cars could buy 10,000 cars per city. Let's say
each car costs $100,000. That's $1B if paid upfront which is never the case,
but let's assume.

Now, each of those 10,000 cars could work 24x7. Assuming each ride is $10, and
you can do 50 rides in a day (2 trips per hour on average over the entire
day), that's $500 per day less electricity and maintenance. That's $5M/day
with no employee costs except for maintenance workers. You could scale up by
simply buying more cars, and whichever cars aren't needed could roost at
homebase, without people picketing or sending nasty tweets saying they don't
have enough work.

I doubt you have to pay for marketing costs at this point, word of mouth would
be strong enough, and you just develop an app.

~~~
marinman
While I'm bullish that self-driving will happen in our lifetimes, I think
there are a lot of challenges that many are underestimating. This includes the
actual technology—this is one of the most important and challenging
technological breakthroughs of all time. It's going to take time and be very,
very expensive to produce at scale (ie all-electric self-driving cars at $100K
a piece).

Even putting that aside, I have questions about the business side of things.
Demand for transportation has been pretty consistent with big lumps during the
morning and evening commutes.

One of the beauties of Uber's existing business model is that it can
theoretically spin up and down drivers as needed with Surge pricing. With a
fleet of cars, it's not guaranteed that supply will perfectly match demand
most of the time.

The counter to that, which I sort of buy, is that it will kind of be like
broadband Internet. We don't even know what demand and opportunities self-
driving cars will create. My hesitancy with fully embracing this is that
broadband was an acceleration of something new whereas self-driving is a leap
to an existing quantity of transportation. It will still change lots of things
but it will take longer for things like where you choose to live to change.

Finally, my main hesitancy is the human aspect. For self-driving to make the
impact that many want/believe, there's going to have to be a hard line in the
regulatory sand where human-controlled cars are outlawed or limited. I don't
see that happening in the United States for a long, long time.

~~~
malandrew
Great points. The other thing I might add, which your points support, is that
the longer the roll-out of self-driving cars takes, the less likely it is to
be disruptive to TNCs.

------
clusmore
So how is Uber's runway looking now? This article [1] from August suggests
they had just over three years of runway at the end of June ($6.6b burning at
about $2b/yr). So this extends the runway by only six months? Are they going
to survive long enough to see autonomous drivers? How will this deal affect
future funding?

[1] [https://venturebeat.com/2017/08/23/uber-is-still-burning-
cas...](https://venturebeat.com/2017/08/23/uber-is-still-burning-cash-at-a-
rate-of-2-billion-a-year/)

~~~
yeukhon
They might spin off the autonomous program into another company to raise fund,
prior to IPO, perhaps, just a thought. I think that's a better option
financially.

~~~
ttul
There is no future for Uber without automated cars. Think of it this way: as
soon as someone else has an automated fleet, Uber is finished unless it has
its own. This is an existential requirement.

~~~
gcb0
They can still live for 20+yrs very profitably on other markets.

Even US and high tech markets like japan and korea will take several years to
transition to self-drive cars. Specially because this will start either with
trucks or very high cost cars so they can offset support and iron out bugs.

And that's my guess assuming self-driving cars are ready tomorrow.

~~~
MichaelApproved
Self driving cars would be such a dramatic improvement to the public, it would
be adopted much sooner than 20 years after being implemented. Cars that
require a human driver would depreciate so quickly and the safety benefit
would be so clear, people would upgrade incredibly fast.

~~~
simias
We don't really know that though, do we? I mean, I can see this being true
eventually but I'm still very perplex that we'll see cars able to drive
autonomously in all conditions any time soon.

It's one thing to drive on the wide streets of american cities literally built
around cars. It's an other to navigate the narrow, crowded streets of many
european cities, with scooters and bikes zooming left and right, people
parking anywhere they can, passing where they shouldn't be etc... Let's not
even talk about some places in Africa and Asia where it seems that driving is
more art than science.

I'm expecting self driving cars to start on friendlier turf (large avenues,
highways connecting cities etc...) and then expand iteratively to "wilder"
areas. I'm sure it'll take a while to completely take over though.

------
gourou
Saudi Arabia owns half of Softbank's Vision Fund and they already put $3.5
billion in Uber (5.6%), why would they want to double down?

[https://www.nytimes.com/2016/06/02/technology/uber-
investmen...](https://www.nytimes.com/2016/06/02/technology/uber-investment-
saudi-arabia.html)

[http://money.cnn.com/2017/09/20/technology/softbank-
vision-f...](http://money.cnn.com/2017/09/20/technology/softbank-vision-fund-
saudi-investments/)

~~~
loceng
It's likely part of the exit strategy. They are confident they can get a maybe
even a small return on billions of dollars, and Uber likely is hoping it looks
like such a big 'positive signal' is a sign that Uber is a solid company to
invest in..

------
parito
It's interesting to note that just recently we had an article about taking
money from the countries with abysmal human rights record, especially when you
don't really need that money to survive.

Softbank is 50 % saudi arabia public funds money.

~~~
timewarrior
In this case, it probably doesn't matter.

Saudi Arabia is trying to buy all these assets to secure their future. Returns
will likely be reinvested or stashed abroad!

However with the dismal future of oil based economies and the unstable
situation in Middle East - only scenario their would be able to retain these
assets would be if they are somehow able to transition into a functioning
(hopefully democratic), educated and productive society - which would be
awesome! It's better for them and the world. I would love it if they are able
to use this money to achieve that!

If not they would descend into chaos and all assets would likely be seized by
whichever country hosts them. E.g. Gaddafi!

[1] [https://www.theguardian.com/world/2011/feb/28/us-treasury-
bl...](https://www.theguardian.com/world/2011/feb/28/us-treasury-blocks-libya-
assets)

[2] [https://www.theguardian.com/world/2012/mar/28/gaddafi-
assets...](https://www.theguardian.com/world/2012/mar/28/gaddafi-assets-
seized-italy)

[3] [https://www.theguardian.com/world/2011/feb/27/gaddafi-
family...](https://www.theguardian.com/world/2011/feb/27/gaddafi-family-
assets-frozen-queen)

------
muzani
That's interesting. SoftBank invested a similar amount into their rivals Grab
to head up against Uber.

[https://techcrunch.com/2017/07/23/grab-raises-2b-from-
didi-c...](https://techcrunch.com/2017/07/23/grab-raises-2b-from-didi-chuxing-
and-softbank/)

~~~
Carioca
Also in Brazil's "99", Uber's biggest competitor over here.

------
RileyJames
Can anyone explain why $1B is being invested at a $70B valuation, while
existing share holdings are being purchased at a lower/to be determined
valuation?

~~~
raiyu
The $1B that is being invested at the $70B valuation is direct from the
company and Softbank will be purchasing preferred shares like any other VC.
These preferred shares have extra rights, things like liquidation preference,
board seats, voting rights, etc.

What specifically they will receive is unknown, but at the very least they
will have a 1x liquidation preference on that $1B invested, which means if the
company sells for the total amount of money raised (well below $70B), the
investors get all of their money back.

So think of preferred shares like "insured" shares, which is why investors are
willing to pay more, because the likelihood of entirely losing their
investment is lowered significantly.

However, Uber may not want to raise more capital, take on extra dilution, etc,
so they are selling only $1B that will flow to their balance sheet.

The other $9B will be purchased from common shares, or employee shares. These
shares do not have these preferred rights and most significant they do not
carry a liquidation preference. Which means if the company sells for the
amount raised, or below that, you lose the entire $9B.

Since there is no downside protection and there is no liquid market, this is
usually used to negotiate a lower price than that of preferred shares.

If there had been considerable time between when the last priced round
happened and when secondary shares are purchased then the investor may have to
buy them above the last round price because the company has made significant
traction and the perceived value of the company is now higher.

But since the last two priced rounds are at the $70B mark and these shares are
unsecured, they will usually be bought at a discount.

How much varies but you can expect a 10-30% lower price.

However, since this is sponsored by the company early employees will most
likely be allowed to sell shares at a very large valuation compared to what
their strike price is.

~~~
hatred
Thanks for the detailed explanation. I am wondering if its ever possible to
board to later approve that those newly bought "common" stocks get converted
to "preferred" i.e., have the same liquidation preference?

~~~
raiyu
It is of course possible and just requires a board vote, but since the company
doesn't receive the funds and have them, it wouldn't be a good idea.

So it's possible of course, but isn't done 99.99999% of the time.

Now if they were purchasing $1B in preferred and another $100MM in secondary
maybe, but certainly not when the common shares amount is $9B would put the
other existing investors in jeopardy for their own preferred shares providing
their invested capital back should things go south.

------
econner
The secondary markets have Uber shares at an ~$50 billion valuation. So that
speaks somewhat to what the lower valuation is going to be for the tender
offer.

------
hatred
Couple of queries if anyone happens to know:

\- Would existing employees with stock options be allowed to sell or the ones
with RSU's are also eligible?

\- Would ex employees be eligible too?

~~~
tmh79
employees with options can sell, employees with RSUs cannot

~~~
hatred
Makes sense, Thanks.

------
foota
Is the share auction first come first serve? Or how is that done?

~~~
raiyu
It's an internally sponsored secondary which means that the buyer has already
been determined which in this case is Softbank and Uber will put together some
requirements around which share holders can sell and what amount of their
stake.

Something typical is if you have been at the company for X number of years,
you can sell X% of your vested equity.

They will have a large bank or some other third party as the underwriter for
the deal to figure out the correct pricing and then offer it to the employees
that are eligible to sell shares until they reach the buyer's total requested
amount, which in this case is $9B.

~~~
JumpCrisscross
> _They will have a large bank or some other third party as the underwriter
> for the deal_

Secondaries aren’t underwritten; they’re brokered. Underwriters purchase the
shares for their own account and then resell them. In a secondary, the buyer
and seller negotiate directly.

------
vikiomega9
So it sounds like the deal was to get Travis Kalanick back onboard/Benchmark
an exit?

~~~
yeukhon
Kalanick has always been on the board. He never left, but he has struggled to
appoint two new board members, which results in Benchmark suing Kalanick. It
is specualted SoftBank's investment is to reduce Kalanick's power on the
board. Also, I don't think anyone in their right mind would want Kalanick back
as CEO; perhaps in the future like Steve Jobs. But Kalanick has much to learn,
despite I do feel bad for him for losing his beloved mother while he was
ousted as the CEO, regardless of how he ran his company. He basically lost two
things he has loved a lot, accordingly to him, which I can understand from my
own experience.

In anyway, SoftBank is known for very acute investment, so with SoftBank
stepping in, the board won't allow any more fuck-ups. Though I am very
surprised SB didn't invest in Uber early on...

------
dreamdu5t
Investors have lost the plot.

Uber is nothing more than a taxi company using VC capital to undercut
competitors. There are no self driving cars. That’s just a story to get money
and make the brand bigger than its product. Come back to reality.

There is no futuristic mars colony with Uber robots driving everyone around.
It’s just a bunch of taxi drivers with dispatch replaced by an app.

~~~
Lordarminius
_There are no self driving cars_ \- yet. The time scale to realization is
measured in decades - longer than is currently promised but the tech companies
involved wont tell you that....

I agree with all you on all the other points.

------
vnchr
“SoftBank has been working with Morrison Foerster, known as MoFo.”

~~~
theDoug
No one wants the FOMO.

------
rmahindra
Awesome, this startup is capable of anything!

------
paulsutter
Tunnels are more important than Uber or self driving cars

“Without tunnels we’ll be in traffic hell forever” -Elon Musk

~~~
thomasfoster96
> Tunnels are more important than Uber or self driving cars

> “Without tunnels we’ll be in traffic hell forever” -Elon Musk

Public transport solves all the problems tunnels solve as well. Tunnels don’t
change the fact that cars (self-driving or not) are still an incredibly
inefficient use of space when they’re all going in the same direction to the
same place.

~~~
paulsutter
The Boring Company agrees with you. Tunnels are not just for cars. They will
be 200kph subways where you never need to change trains:

[https://static1.squarespace.com/static/5915617137c58104451ac...](https://static1.squarespace.com/static/5915617137c58104451ac5fb/5915632303596e4ba92724de/59261f6cf7e0ab55ef3e5102/1509233545268/Skate_5_23_2017_001%5B4%5D.jpg?format=1500w)

(Image of shared/public transport tunnel vehicle)

------
indescions_2017
Recall, Apple is also principle investor in Softbank Vision Fund. As Google
recently made its own $1B deal with Lyft. Feels like lines already drawn in
the sand, are turning into trenches.

Google’s Waymo passes milestone in driverless car race

[https://www.ft.com/content/dc281ed2-c425-11e7-b2bb-322b2cb39...](https://www.ft.com/content/dc281ed2-c425-11e7-b2bb-322b2cb39656)

~~~
tmh79
I somewhat disagree with your take on the "lines already drawn in the sand".
The world is bigger than google and apple, lyft and uber. The ridesharing
space in particular is fraught with seemingly strange investment partners.
Here is a bloomberg article a week ago with more info:

[https://www.bloomberg.com/gadfly/articles/2016-08-16/ride-
ha...](https://www.bloomberg.com/gadfly/articles/2016-08-16/ride-hailing-
investments-make-strange-bedfellows).

