Uber Backers Face a Dilemma: To Sell or Not to Sell

Uber’s early backers are on a collision course with their own greed. Japan’s SoftBank and allied investors want to buy roughly one-sixth of the bumptious ride-hailing firm. Existing owners can sell at a $48 billion valuation, or about 30 percent below what Uber garnered in its last round of fund-raising. Even with a markdown, investors could make many times their money. The promise of more, however risky, will cloud the thinking.

Consider just one of the many rounds of funds raised under Uber’s now-deposed co-founder Travis Kalanick. A so-called Series B investment in 2011 judged Uber to be worth $300 million before an injection of $37 million of new cash, according to Crunchbase. A hypothetical seller would be exiting today at about 142 times the implied “post-money” valuation. Spread over about six years, that implies an incredible internal rate of return — a common measure of profitability — of about 130 percent.

That means a range of investors across Silicon Valley, Wall Street and beyond are in position to capture a career-defining return. They can take money off the table and stop worrying about Uber’s seemingly inexhaustible capacity for scandal.

Yet Uber could be turning a corner. It recently hired a promising new boss in Dara Khosrowshahi, a former Expedia chief. Sloppy governance is being cleaned up, even more so if the new offer secures enough sellers. And having SoftBank’s Masayoshi Son on its side would be valuable, with his deep pockets and ride-hailing holdings across the globe.

These are heady times for tech, however. There is a risk that Uber becomes a globally significant, and yet not very lucrative, service like Snap or Twitter, both of which have market valuations of about $16 billion. There is also the tantalizing possibility that Uber turns into a self-driving, logistics colossus that could rival Facebook or Tencent in terms of value.

If there was, say, a binary option of Uber’s having a one-in-four shot at becoming a $500 billion company or instead a $15 billion also-ran, it would imply a blended valuation of $136 billion. That could mean plenty of investors will be ready to buckle up for the ride.

Content originally published on https://www.nytimes.com/2017/11/28/business/dealbook/uber-softbank.html by QUENTIN WEBB