Category: investors

Actions and decisions of Uber’s investors

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Demanded harsh terms for Google Ventures investment

Mike Isaac’s Super Pumped reports harsh terms Uber demanded when Google Ventures wanted to invest:

Google Ventures staff had to come to Uber’s headquarters to pitch, rather than Uber traveling to Google to solicit funds.

Google Ventures had to fund the entire round of investment, $250 million — the largest amount Google Ventures had ever invested in any company, with no prospect of sharing with other firms.

Google Ventures had to accept Uber’s valuation at $3.5 billion.  (A larger valuation meant their investment would buy a smaller slice of the company.)

Google Ventures would not receive a voting seat on the board and would not receive regular, detailed information about Uber.

(pp. 133-134)

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Withheld information from investors

Mike Isaac’s Super Pumped (p. 131) describes Kalanick’s effort to reduce rights of investors:

Private companies aren’t obligated to make their internal statistics public, but investors with a significant ownership stake are generally given insight into the company’s financials. Kalanick, however, over time stripped some major investors of all “information rights,” and limited the degree of detail offered to others.

Isaac (p. 342) explains Kalanick’s response when investors demanded more information:

“So sue me,” he told [the investor]. “What’s your rep going to be in this industry if you sue your own company?”

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Kalanick’s prior company, Scour, helped users download illegal files, and ended in bankruptcy

After dropping out of college, Travis Kalanick started a company called Scour, which helped users find online files to download. Scour was primarily used to help download illegal files.  Mike Isaac’s Super Pumped reports: “Soon, Scour was competing head-to-head with Napster for file-sharing dominance.” Later, Scour’s investors announced being “uncomfortable” with “the copyright implications” of Scour’s business, leading the company to be sold for parts in bankruptcy court. (pp.45-49)

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Overlapping investor SoftBank sought to reduce competition

As Uber announced its sale of Southeast Asia assets to Grab, some flagged the overlapping investor that facilitated the transaction. In particular, SoftBank (a Japanese investment firm) held shares in both Grab and Uber. Owning part of both companies, SoftBank stood to profit no matter which one prevailed in the markets where both operated — but stood to lose if the firms engaged in continued competition with each other.

Furthermore, SoftBank specifically sought to broker peace between Grab and Uber: When investing in Uber in December 2017, SoftBank sought a discount exactly because it could influence Uber’s competitors across Asia.

Similar concerns arose from SoftBank holding shares in both Uber and Ola, a ride-hailing competitor in India. Discussing those overlapping holdings, SoftBank told the Economic Times of India: “we are hoping that we make peace between them at some point.” Such a “peace” could raise competition concerns in so far as it entailed competitors agreeing not to compete.

See Edelman’s critique of SoftBank’s role as well as economist Martin Schmalz’s tweet on the impact of cross-ownership.

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Tensions between Kalanick and mega-investor Bill Gurley

Benchmark Capital general partner Bill Gurley and Travis Kalanick started off thinking highly of each other and working closely, but their relationship deteriorated. Business Insider offers details:

Initially, Gurley saw Kalanick as young and inexperienced, needing guidance and not always listening to advice. Gurley pressed Kalanick to find a mentor and hire an experienced CFO. Later, Gurley wanted Kalanick to stop losing so much money, reduce growth plans, and increase profits.

BI describes Kalanick’s response:

Kalanick, meanwhile, began to see Gurley as a drama-filled drag, perpetually appearing on CNBC to whine about a possible tech bubble. He pushed communications with Gurley off to his wingman, Michael; it was a cold-shoulder strategy Kalanick had used with others, including Whetstone, when he felt he didn’t need them anymore.

Eventually, Gurley worried that his investment in Uber could be worthless. Worried about Uber’s culture and the many lawsuits and government investigations, he said he had trouble sleeping; he gained weight and took up yoga. His concerns reflected worries about both his own investment and funds from Benchmark’s other partners and investors.

See also Mike Isaac’s Super Pumped (p. 160-161), reporting Kalanick calling Gurley “chicken little” for his supposedly-unfounded concerns.

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SoftBank valued Uber at a 30% discount from prior valuation

Japanese holding company SoftBank offered to purchase shares of Uber at a $48 billion valuation, a 30% discount from Uber’s most recent valuation of $68.5 billion. The key news causing the discount was the set of scandals that arose during 2017 — broadly, those summarized on this site.

The transaction ultimately went forward at the 30% discount.

Mike Isaac’s Super Pumped (p.387)reports what he called “sleight of hand” to “prop[] up” the official value of Uber: SoftBank also purchased additional newly-issued shares of Uber at the company’s prior valuation of $68.5 billion. This allowed Uber and some investors to claim that Uber’s value was stable.

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Texas firemen retirement fund claims Uber misled them about risks and law-breaking

In a lawsuit, the Irving Firemen’s Relief & Retirement Fund alleges that Uber and its former CEo Travis Kalanick knowingly misled them while raising funds, including failing to disclose that the company had broken laws.

The lawsuit chronicles a variety of Uber improprieties including “Greyball” evasion of law enforcement, “Hell” tracking of rivals, allegations of intellectual property theft from Google, sexual harassment and other human resources violations, knowingly renting out recalled and unsafe vehicles, and theft of a passenger’s medical records.

The lawsuit seeks class-action treatment for Uber investors.

complaint

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