What's going on?
The Japanese telecoms giant and major tech backer SoftBank has invested over $7 billion in Uber, in a deal that values Uber almost 30% below its latest fundraising round – but that’s not the whole story.
What does this mean?
SoftBank and some co-investors are buying about 18% of Uber from existing investors, including early employees and venture capital backers. The deal values Uber at $48 billion – well below the $68 billion it was valued at most recently. However, it’s normal for such “secondary” shares to trade hands at a discount to a fundraising round. SoftBank is also investing $1.25 billion in Uber directly (i.e. the money is going into Uber’s bank account, not to investors selling their shares) at the $68 billion valuation. So while SoftBank is getting a discount, comparing its investment to Uber’s previous fundraising isn’t straightforward.
Why should I care?
The bigger picture: SoftBank will be an important strategic partner for Uber.
One of Uber’s biggest challenges is expensive battles with local ride-hailing operators in countries like India. SoftBank has already invested large sums in some of Uber’s Asian competitors, which should help Uber sign money-saving cooperation agreements. While putting a necessary lid on costs, the strategy does have drawbacks – including an implicit acknowledgement that Uber may not be able to replicate its US success globally (which would, arguably, make it a less valuable company).
For markets: Uber is likely paving the way for an IPO… in 2019.
Since Uber’s new CEO took over about six months ago, he’s just about steadied a ship rocked by board infighting, management vacancies and a heavily criticized company culture. As part of SoftBank’s investment, the power of existing board members is being diluted in a move seen as likely to reduce the squabbling. Cutting costs and showing it’s on a path to profitability are probably Uber’s major goals for 2018 – paving the way for the company to “go public” in 2019 (tweet this).