The Cash Party Is Almost Over for Unicorns Like Uber

There are now more than 340 of them, according to CB Insights, compared with the 18 unicorns identified in 2013 by investor Aileen Lee when she …
ByShira Ovide | Bloomberg

April 11 at 1:25 PM

Uber Technologies Inc.’s coming IPO is a moment to reflect on the oodles of investment cash that have resulted in a herd of “unicorns,” the awful but convenient shorthand for tech companies that reach valuations of at least $1 billion while they’re private.

There are now more than 340 of them, according to CB Insights, compared with the 18 unicorns identified in 2013 by investor Aileen Lee when she coined the term. (Her list had 39 companies, but many of them had already gone public or been acquired. Uber was on Lee’s list even back then.)

This unicorn proliferation is a result of changes in technology and investing, including a decade of low U.S. interest rates that pushed investors to hunt for better returns in riskier, high-growth assets including tech startups. Last year was the first time since 2000 that U.S. venture investments in tech startups topped $100 billion, according to figures from the National Venture Capital Association and PitchBook. It was the capstone — so far— to what has been several years of eyebrow-raising amounts of capital going into startups worldwide.

A defining characteristic of the unicorn years is the importance of investment cash. Winners and losers are determined in part by which companies can raise the most money, not necessarily the ones that create the best product or service.

Uber is the perfect encapsulation of this trend. Money was a big way Uber differentiated itself from Lyft Inc. Its big bank account dictated Uber’s strategy of going global and splurging into adjacent categories such as restaurant food delivery and freight handling, while Lyft stuck mostly to on-demand rides in North America. There would be no Uber, or at least not one of this size and breadth, at any other time in history.

That’s not to say that Uber’s product or its strategy is inferior to Lyft’s, but the company was able to dream bigger because it had more access to capital. At some point, availability of cash becomes self-fulfilling. The startups that look like winners get more capital, which ensures they win.

Whether that’s good or bad is up for debate. The elite startups of the 2010s including Uber, Didi Chuxing Inc. and SpaceX are bigger, more disruptive and potentially more lasting companies because they had limitless access to cash to grow.

But the venture capitalist and Lyft investor Keith Rabois recently told my colleague Emily Chang that a large amount of investment money “usually creates more problems than it solves” for startups. This is not a new idea. There’s a Silicon Valley axiom that the best young companies tend to grow up during recessions, which forces them to spend wisely and make sure they’ve honed their products.

Regardless, now that some of the biggest unicorns such as Snap Inc., Lyft and Uber are starting to go public, it may be the beginning of the end of the period in which startups differentiated themselves on fund-raising ability.

Not the end-end, of course. Electric scooters continue to be a capital-raising race. So does restaurant food delivery, in which Uber is playing the role of market share-grabbing, cash-burning entrant.

One thing that won’t change as the elite unicorns go public: They’re still wildly unprofitable and will be for some time. But from now on, fewer unicorns will be able to rely on the gushers of investor cash on which they’ve built their lush magical forests.

A version of this column originally appeared in Bloomberg’s Fully Charged technology newsletter. You can sign up here.

To contact the author of this story: Shira Ovide at sovide@bloomberg.net

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Shira Ovide is a Bloomberg Opinion columnist covering technology. She previously was a reporter for the Wall Street Journal.

©2019 Bloomberg L.P.

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Uber Board Seats for SoftBank Imperiled by US National Security Review

When SoftBank Group arranged a $9 billion (roughly Rs. 62,000 crores) purchase of Uber Technologies stock in late 2017, the company negotiated …

When SoftBank Group arranged a $9 billion (roughly Rs. 62,000 crores) purchase of Uber Technologies stock in late 2017, the company negotiated for two seats on the board. Since then, foreign investment in the US has come under heightened scrutiny. Those spots were never filled, and there’s a good chance they never will be.

The Japanese technology conglomerate will lose its claim to those board positions when Uber goes public, people familiar with the matter said. At that time, the company’s bylaws will change, erasing old agreements like the one it had with SoftBank.

The reason for the holdup: SoftBank has yet to secure approval from officials who review deals between American companies and foreign investors. Although the massive investment in Uber was completed and the money was wired more than a year ago, SoftBank spent most of last year sorting through its own accounting and investor approvals of the investment, a person familiar with the process said.

SoftBank didn’t initiate the US review process for the board seats until late last year and still hasn’t formally filed with the Committee on Foreign Investment in the US, the inter-agency panel known as Cfius that reviews corporate deals for national security risks, the person said.

The initial public offering, which seemed like a faraway prospect when the deal was made, is fast approaching. Uber will file a public prospectus as soon as Thursday and start its IPO road show later this month, said people familiar with the plans, who asked not to be identified because the information are private. It’s seeking to raise about $10 billion (roughly Rs. 70,000 crores) and would begin trading next month.

With the board seats in jeopardy, SoftBank would lose its ability to influence the direction of the world’s largest ride-hailing operator. The episode highlights the uncertainties for overseas investors doing business in the era of President Donald Trump. The status of SoftBank’s Cfius submission and the potential for the firm to lose its claim to the Uber board haven’t been previously reported. Spokesmen for SoftBank and Uber declined to comment. Cfius doesn’t comment on its reviews.

Cfius is a powerful and secretive body run by the Treasury Department. It gained expanded authority last year and pays particular attention to deals involving technology companies and those that control data on US citizens. Cfius can impose conditions on a deal or recommend to the president that a transaction be blocked. Often, companies unable to address the committee’s concerns abandon their acquisitions rather than go to the White House.

The panel played a key role in Trump’s decision last year to terminate what would have been the largest technology deal in history, the takeover of San Diego’s Qualcomm by Singapore’s Broadcom Ltd. In a smaller instance reported recently, Cfius told the Chinese owner of Grindr, a gay dating app based in California, that the relationship is a national security risk. The parent company is now looking for a buyer, according to Reuters. The committee also voiced concerns about Chinese ties to a social network that connects people with similar health conditions, and the owner is holding a “fire sale” of the assets, CNBC reported.

SoftBank is no stranger to the Cfius process. It won approval from the panel to buy Sprint and UK chip designer ARM Holdings. But the committee put conditions on its ownership of Sprint and restricted control of Fortress Investment Group when SoftBank bought the alternative-asset manager.

In the case of Uber, SoftBank needed to get approvals from its own investors first. The company took ownership of its sizable Uber stake in January 2018. Then it underwent a process to transfer the shares from SoftBank’s corporate portfolio to the $100 billion tech fund it manages, called the Vision Fund. That wasn’t completed until late last year and was the primary reason for postponing a Cfius submission, a person familiar with the matter said.

The biggest backers of the Vision Fund are based outside the US, including those associated with the governments of Abu Dhabi and Saudi Arabia, as well as Foxconn Technology Group, the Taiwanese assembler of iPhones. SoftBank and its affiliated entities now own roughly 15 percent of Uber, making them the largest shareholder.

Even without SoftBank, Uber has a crowded board. There are currently a dozen directors, with several other seats yet to be filled. In an interview Tuesday on Bloomberg TV, SoftBank Chief Operating Officer Marcelo Claure said there’s “no hurry” for the company to take a place on the Uber board. “They already have quite a sizable board,” he said.

Directors could elect a SoftBank representative after the company goes public, but the nomination at that point would be subject to shareholder approval. Dara Khosrowshahi, Uber’s chief executive officer, has privately expressed other priorities. According to a person familiar with internal discussions, the CEO has said he wants to bring on more independent directors who aren’t executives or major shareholders.

© 2019 Bloomberg LP

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Lyft’s stock slide casts long shadow on Uber’s IPO

Lyft’s IPO priced at the top end of its upwardly revised range last month, assigning it a valuation of more than $24 billion in an offering that raised $2.34 …

By Joshua Franklin and David Randall

(Reuters) – Uber Technologies Inc may face a cooler reception from investors than expected when it prices its initial public offering next month since smaller U.S. ride-hailing rival Lyft Inc’s aggressive stock launch and subsequent fall.

Lyft’s IPO priced at the top end of its upwardly revised range last month, assigning it a valuation of more than $24 billion in an offering that raised $2.34 billion. But the stock has languished since debuting on the Nasdaq on March 29, as concerns about the startup’s potential for profitability have become more prominent.

Lyft shares ended on Wednesday down 11 percent at $60.12, well below their $72 IPO price. Lyft was the first in a string of technology IPOs expected this year, including food delivery service Postmates and smart exercise bike Peleton.

Lyft’s poor stock performance bodes ill for these IPOs, especially for companies like Uber with no profits to show.

“There’s no discernable way these companies are valued. What you’re really buying into is the long-term ability of the company to capture lots of sales and hopefully get profitable at some point,” said Brian Hamilton, founder of data firm Sageworks.

“I’m sure that the Lyft debut is going to affect both Uber and Pinterest,” Hamilton added.

Uber filed for its IPO in December with the U.S. Securities and Exchange Commission during the same week as Lyft. But it let Lyft go first with its offering, partly because it was working on a new private fundraising round for its autonomous driving unit.

Uber is now paying the price of going second. It is planning to seek a valuation between $90 billion and $100 billion, short of the $120 billion investment bankers previously told the company it could be worth in an IPO, Reuters reported on Tuesday.

Image sharing app Pinterest Inc this week also set the terms for its IPO which would value the company at up to $11.3 billion, below its latest fundraising round which valued it at $12 billion in 2017. Prior to Lyft going public, Pinterest had been weighing a valuation at or near the last fundraising round, according to a source familiar with the matter. Pinterest declined to comment.

Uber is expected to make its detailed financial results public on Thursday. It lost $3.3 billion last year, excluding one-off gains, while Lyft lost $911 million for 2018. Pinterest also lost $62.97 million in 2018.

Uber declined to comment.

GETTING GREEDY

Investors and analysts said technology unicorn IPOs are losing their luster, not just because more investors are asking tough questions about their prospects, but because the startups overestimated pent-up demand for their offerings.

“Lyft wanted to be first… and it got to a point where they got so aggressive with their pricing and they got kind of greedy,” said Catherine McCarthy, an Allianz Global Investors research analyst.

The pressure to become profitable will ratchet up once these companies become public, said Jordan Stuart, a portfolio manager for Federated Kaufmann funds who often purchases companies’ stock in the IPO.

“The pace of change is happening so quickly that you have to show that you can become profitable quickly,” Stuart said.

“Some of these companies could go away tomorrow because it’s just an app on my phone and I can find another one in a second to get to work or have food delivered.”

(Reporting by Joshua Franklin and David Randall in New York; Additional reporting by Jennifer Ablan in New York; Editing by Cynthia Osterman)

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Japan’s Primary Financial Regulatory Seeks to Amend Its Cryptocurrency-Related Business Law

Japan is taking up some changes to its existing cryptocurrency law. In light of the growing acceptance of cryptocurrencies in the country, the FSA is …

The Japanese FInancial Services Agency (FSA) is submitting a bill to Diet to amend the Payment Services Act and the Financial Instruments and Exchange Act. The changes are meant to strengthen protections for investors and introduce new restrictions for issuers and sellers.


Japan is taking up some changes to its existing cryptocurrency law. In light of the growing acceptance of cryptocurrencies in the country, the FSA is proposing some tweaks to existing legislation. The new additions to the law will further clarify existing regulations and offer extra protection for investors. This will all be a part of the government’s effort to build trust between investors and token issuers.

The Proposed Changes

The FSA’s legislative efforts will rely on a few key aspects of the legal situation regarding cryptocurrencies.

  1. The FSA is proposing that cryptocurrencies be considered a “Crypto Asset” rather than as “virtual currencies.” The regulator views the term “virtual currency” as misleading since most crypto-assets are not to be used as currency.
  2. Particular types of tokens will fall under the category of securities. These will be monitored by the FIEA and will fall outside the jurisdiction of “Crypto Assets.”
  3. All cryptocurrency custody services now become the subjects of the PSA and have to register as a “Crypto Asset Exchange Service Provider.”
  4. Advertisements regarding “speculative investments” in the cryptocurrency space will be banned.
  5. Every time an exchange expands its Crypto Assets offered, it will have to notify the FSA. The proposed law also places more stringent regulations on these exchanges, requiring them to register and be more visible in their practices.

These are just a few of the proposed changes the FSA is putting forward. Although it still has yet to be voted on in the Diet, it is expected to go through without much pushback.

Will these proposed changes have a serious impact on the Japanese cryptocurrency market? Should they be welcomed? Let us know your thoughts below.


Image courtesy of Reuters.

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Factbox: Four measures to watch for in Uber’s IPO filing

(Reuters) – Uber Technologies Inc’s initial public offering (IPO) filing on Thursday will draw inevitable comparisons to its smaller ride-hailing rival Lyft …

(Reuters) – Uber Technologies Inc’s initial public offering (IPO) filing on Thursday will draw inevitable comparisons to its smaller ride-hailing rival Lyft Inc, which completed its initial public listing last month.

FILE PHOTO: Uber’s logo is displayed on a mobile phone in London, Britain, September 14, 2018. REUTERS/Hannah Mckay/File Photo

Following Lyft’s poor stock market performance of late, investors will be scrutinizing Uber’s financial results and projections closely.

Not only is Uber much larger than Lyft, but it is also more complex, with operations that go beyond its core ride-hailing business and extend into areas such as food delivery and freight transit.

The following are four key financial metrics which investors will be watching for:

REVENUE

Uber is a much larger company than Lyft, with operations in markets ranging from the United States to Latin America to North Africa. Lyft operates entirely in North America.

Uber also has a broader array of business lines, including a food delivery service and a platform for commercial freight.

As a result, Uber clocks much higher revenues than Lyft. Uber reported net revenues of $11.4 billion in 2018. That is in comparison to $2.2 billion for Lyft during the same year.

If one considers revenue growth, however, Uber may take a back seat to Lyft. Lyft has been rapidly gaining market share relative to its larger rival, meaning that its revenue growth has been outpacing Uber’s.

Lyft’s revenue more than doubled between 2017 and 2018, from just over $1 billion to more than $2.1 billion. Uber’s, meanwhile, grew 43 percent, to $11.4 billion.

ADJUSTED EBITDA

This common measure of profitability will look similar to Lyft’s in one major respect: both Uber and Lyft are loss-making companies.

Uber reported an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) loss of $1.8 billion in 2018, compared to around $950 million for Lyft.

But expect Uber to argue to investors that its scale will give it a significant advantage in terms of profitability over the long run, allowing it to more effectively hold down costs.

It will also likely point out that its year-over-year losses are down, from $2.2 billion in 2017. Lyft’s ticked up over the same timeframe.

CONTRIBUTION MARGIN

This lesser-known financial metric will likely play a big role in Uber’s pitch to investors. It is designed to show whether Uber’s operations in individual markets are profitable on a standalone basis by ignoring company-wide costs like marketing or technology investment.

Expect Uber to make a case that positive contribution margins in many of its markets mean that, fundamentally, its business model works.

Uber has a different method of calculating contribution margin than Lyft, so the two companies’ figures cannot be directly compared, a person familiar with the matter said.

MONTHLY ACTIVE USERS

Uber generates more rides than Lyft in large part due to its wider, global presence. Lyft had 18.6 million monthly active riders as of the fourth quarter of 2018.

Reporting by Carl O’Donnell in New York, editing by G Crosse

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