5 things first-time investors should know about Uber’s IPO

Uber’s shares will be priced at $45. Consider this: Shares of Uber’s rideshare competitor Lyft LYFT, +0.33% are down almost 30% since the company …

Uber’s IPO is the most hotly anticipated since Facebook’s IPO in 2012. Are you up for the ride?

Think carefully before you decide to hop onboard. In recent months, financial experts have been listing the issues retail investors, especially newcomers to IPOs, should be aware of. Chief among them: Uber is losing money. Buckle up: In 2018, Uber UBER, -1.00% reported an operating loss of $3 billion on revenue of $11.3 billion, and its accumulated deficit reached nearly $8 billion at the end of last year.

1. Investing in Uber sounds like a no-brainer, right? Wrong

That may take the shine off this IPO as a sure thing for many first-time investors. MarketWatch columnist Howard Gold advises caution: “For individual investors who may be tempted by these shiny objects in hopes they’ll be the next Amazon AMZN, -1.38% or Alphabet GOOG, -0.62% I have one word of advice: Don’t. Most of these new companies are bleeding red ink by the billions. It will take years for them to get into the black — if they ever become profitable at all.”

Uber’s shares will be priced at $45. Consider this: Shares of Uber’s rideshare competitor Lyft LYFT, -3.61% are down almost 30% since the company went public in March. Uber plans to raise more than $8 billion, and that would make it the biggest U.S. IPO since Facebook FB, -0.81% which raised $16 billion in an IPO in 2012. The Chinese e-commerce conglomerate, Alibaba BABA, -1.59% had the biggest IPO ever in 2010, initially raising $21.8 billion in 2014, increasing to $25 billion after issuing an additional 48 million shares.

2. Many investors believe they should invest in what they know

Some novice investors may think they know Uber. Actually, they don’t. Knowing the brand and knowing the investment risks and rewards are two different things, said Monica Dwyer, vice president, wealth advisor at Harvest Financial Advisors in West Chester, Ohio. “People will invest in the things they know,” she said. But familiarity with the brand and emotion are not the best reasons to make an investment, she said.

Dwyer said her firm never invests client money in IPOs. Advisers at her firm would give it at least three years before putting money in a new company, and even then it’s not likely, she said. “For IPOs, you’re flying blind.” Eric Walters, the managing partner and founder at SilverCrest Wealth Planning in Greenwood Village, Colo., advises waiting one year. Of course, some IPOs take off. Facebook’s stock has soared in the seven years its been a public company and Beyond Meat BYND, -2.15% shares have increased 240% since the company’s IPO earlier this month.

See also: After Uber drivers’ protest, economists say labor strikes may soon be a thing of the past

3. The smartest investors have already made the big bucks

Friday likely won’t be your pay day, said T.J. van Gerven, the founder of Modern Wealth Builders in Woburn, Mass. He said people planning to invest in Uber on Friday should temper their expectations. Those who are most likely to make oodles of cash, should the IPO be successful, are the venture capital investors, executives and financial institutions who have already gotten in on the ground floor, investing in Uber when it was a public company.

It’s unlikely to work out that way for everyone else. “If you think you’ll buy Uber and Lyft and hold it, get ready for an extremely bumpy ride,” he said. Likewise, Walters said the first year is typically tough for companies that are fresh to the financial markets. “Historically, most IPOs do poorly in their first 12 months because of the significant selling pressure from corporate insiders, venture capital, and private equity investors who are looking to liquidate their illiquid holdings,” he said.

Don’t miss:Lyft stops providing key data after IPO, then insults investors’ intelligence

4. It’s hard for retail investors to buy shares at the IPO price

While smaller or individual investors are finding it easier to buy IPO shares through online brokerage firms, they may still find it difficult to buy IPO shares, according to the Securities and Exchange Commission. “Most underwriters target institutional or wealthy investors in IPO distributions,” it says. “Underwriters believe that institutional and wealthy investors are better able to buy large blocks of IPO shares, assume the financial risk, and hold the investment for the long term.”

“When an IPO is ‘hot,’ appealing to many investors, the demand for the securities far exceeds the supply of shares. The excess demand can only be satisfied once trading in the IPO shares begins. It is unclear how ‘hot’ the offering will be until close to the time when the shares start trading. Since ‘hot’ IPOs are in high demand, underwriters usually offer those shares to their most valued clients, the SEC adds. It describes IPOs as “risky and speculative.”

5. Unhappy taxi and rideshare workers can easily drop tools

Two days before Ubers IPO, thousands of rideshare drivers across America embarked on a day of strikes and rallies to protest their slim pay as the company’s founders, executives and investors are poised to make loads of money going public. But these drivers are bucking 50-year trend: The Bureau of Labor Statistics has long been counting work stoppages, which include strikes and lock outs. In 1969, there were 412 work stoppages involving at least 1,000 workers, the agency said. In 2018, there were just 20 — and that was a jump from 7 stoppages the year before.

Some argue that the biggest risk for Uber investors is the political clout of labor unions representing drivers. “Uber’s biggest obstacle has been politicians beholden to labor unions and industry incumbents,” according to an editorial in The Wall Street Journal published Thursday. “Taxi cartels have pushed local governments to restrain Uber. Members of San Francisco’s Board of Supervisors recently proposed a surcharge on ride-sharing trips. New York City has capped new licenses for on-demand cars. Seattle tried to let drivers collectively bargain but was blocked in court.”

If you don’t invest in Uber, what should you be doing with your money instead? Eat your veggies. Van Gerven likens investment choices to the food pyramid that advises a steady diet of whole grains and vegetables, with a sparing amount of fats and sweets at the top. Similarly, retail investors should focus on low-cost, diversified mutual funds and ETFs, he said. Take advantage of your employer’s 401(k) match if you are fortunate enough to have one. Stock picking is like dessert, he said. “If you want to speculate a little, that’s fine,” he said. But cover your basics.

(Quentin Fottrell contributed to this story.)

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The Second Order Consequences Of The Uber, Lyft And Beyond Meat IPO’s

These public listings include some of the biggest names from Silicon Valley such as Pinterest, Uber, Lyft and several other so-called “unicorns.”.

With the IPO’s of Uber & Beyond Meat, an entirely new wave of young startups may soon be attacking a wide range of “non-tech” industries. Credit: Getty

Getty

Over the last few months, the IPO window has opened in a significant way on Wall Street as a host of venture capital Startups have gone public on the New York Stock Exchange and NASDAQ.These public listings include some of the biggest names from Silicon Valley such as Pinterest, Uber, Lyft and several other so-called “unicorns.”

While this in itself is newsworthy, one aspect not being talked about enough is that several of the biggest IPO’s are not technology companies in the pure sense of being SaaS, Social Media or Enterprise Software. Instead, they are companies that are leveraging technology to innovate and disrupt traditional analog industries such as:

  • Transportation:Companies like Uber and Lyft pioneered ride-sharing as they compete with the taxi and automobile industries to redefine “mobility.”
  • Food:Beyond Meat and its “alternative protein” is trying to change how the world eats its hamburgers.
  • Retail:Luckin Coffee, which calls itself “China’s second largest and fastest-growing coffee network” is trying to beat Starbucks and Dunkin Donuts with a delivery-centric model that is UberEats meets coffee.
  • Home Entertainment: Sonos is redefining the home sound system with their smart wireless speakers as they compete against Sony, Bose, Samsung and a host of other home electronics companies.

Each of these IPO’s have been extremely successful in their offerings, generating significant demand on Wall Street. In just one day, Beyond Meat saw its value soar from $1.6 billion to $4.2 billion.Lyft, despite trading down since going public, is still valued near $20 billion. Meanwhile, Luckin is looking to raise over $500 million at north of a $4 billion valuation when it goes public in the coming days/weeks.

The part of the story that intrigues me as a brand marketer in these IPO’s will be the Second Order Consequences that come from them.If you aren’t familiar with the term, Benedict Evans of the venture firm Andreessen Horowitz touched upon the concept in a post about electric and autonomy in automobiles:

There are profound consequences beyond the industry itself. It’s useful, and perhaps more challenging, to think about second and third order consequences. What those consequences would be is much harder to predict: as the saying goes, it was easy to predict mass car ownership but hard to predict Wal-mart, and the broader consequences… will come in some very widely-spread industries, in complex interlocked ways. Still, we can at least point to where some of the changes might come. I can’t tell you what will happen – but I can suggest that something will happen, and probably something big.”

In this case, the Second Order Consequences will be the behavior around categories and industries that are just now feeling the impact of digital disruption.This behavior will come from two direct effects where the cause might just be the IPO of these digitally-enabled companies.

“The 2nd Order Consequences will be around industries that are just now feeling the impact of digital disruption.”

First, IPO’s have a cascading impact on how venture capital investors view certain categories – both positive and negative. The strong performance of an offering can have an impact on the entire category. This can lead to more investors being willing to consider a category as attractive from an investment standpoint, making it easier for early-stage companies to raise financing – or more difficult if a sector struggles like AdTech a few years ago. In this case, these IPO’s have the potential to show the financial visibility of certain non-technology categories that traditional venture investors may have shied away from in the past for any number of reasons.

Second, in addition to investors being more attracted to these industries, the IPO’s unleash founders that now have deep domain and subject matter expertise. These founders have seen first-hand what it takes to build high-growth companies. They also have the financial means thanks to profitable stock options to launch their own ideas or to back other founders. This exact scenario is what famously gave rise to the “PayPal Mafia,” which counts entrepreneurs and investors such as Elon Musk, Peter Thiel, and Reid Hoffman amongst its group. In today’s market, we now have a group of potential markets that have deep domain expertise in using digital to disrupt Blue Chips.

While the Second Order Consequences of these IPO’s are far from certain, the potential is one that Fortune 500 leaders need to consider. With investors and founders more comfortable in leveraging digital for traditionally analog industries, an entirely new wave of young startups may soon be attacking a wide range of industries in the very near future.

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Boston Tech Watch: MIT Solves, AltioStar Raises & Enel Scouts

—Boston-based open source website software company Acquia is buying marketing automation startup Mautic. Terms of the deal were not disclosed.

[Updated 5/9/19, 11:00 am. See below.] The week in Boston tech news saw the launch of a philanthropic venture fund at MIT, some large fundraising rounds, an open source acquisition, and more.

—MIT is raising a philanthropic venture fund to support social impact tech startups taking on some of the world’s biggest problems. The donor-advised fund operates by investing tax-deductible contributions from donors into companies with promising social impact. Returns from those investments are reinvested into the next round of startups, which will be selected by MIT Solve, a university unit that hunts for entrepreneurial teams tackling global problems and matches them with funding sources. Flagship Pioneering founder and chief executive Noubar Afeyan is seeding the new Solve Innovation Fund with a $3 million donation. MIT Solve says the fund will be led by MIT Solve Principal Casey van der Stricht, and will aim to raise $30 million from donors.

—The city council of Somerville, MA, has advanced a proposed ban on the city government’s use of facial recognition, making it the first East Coast community to bar the technology’s use, according to ACLU Massachusetts. City Councilor Ben Ewen-Campen introduced the anti-facial recognition measure, which stops the city and its officials from “obtaining, retaining, accessing, or using” a facial recognition system, as well as any information obtained from such a system. The passage of the measure Thursday night sends it to the another legislative committee of the council.

“Facial Recognition software is functionally equivalent to requiring every citizen or visitor in Somerville to carry and display a identification card in all public places,” Ewen-Campen wrote in a online petition. “This surveillance technology therefore represents a mass violation of privacy that is fundamentally opposed to Somerville values.”

ACLU Massachusetts says the surveillance tech is “unregulated, unreliable, and in its most dangerous forms, poses a profound threat to racial and gender justice, personal privacy, political and religious expression, and freedom of association.”[Added.]

—Tewksbury, MA-based 5G-ready networking software maker Altiostar has raised $114 million in a Series C round from investors Rakuten, Qualcomm Ventures, and Tech Mahindra. The money will be used to expand the market reach of Altiostar’s 4G and 5G software for telecom providers. Altiostar’s software lets telecom companies control their networks using software instead of with costly hardware that needs to be replaced as communications standards are updated.

—Cloud file storage company Nasuni has opened a third US office in Marlborough, MA, as it also expands its engineering staff there and in its headquarters in Boston’s Seaport district. Last fall, Nasuni opened an office in Durham, NC. The company lists about 30 open positions at those locations, or in Chicago or San Francisco, for roles in engineering, information security, marketing, professional services, and sales. Nasuni says its subscription revenue grew 52 percent in 2018. In February, Nasuni raised $25 million in venture funding from the venture arm of Australian telecom Telstra to beef up its marketing and sales machine.

—Italian power utility Enel has opened an innovation center at Somerville, MA-based greentech incubator Greentown Labs. The Boston-area footprint will help Enel scout for startups, partner with some of those ventures, and even test products at Enel’s plants and facilities. Companies at the incubator stand to benefit from Enel’s network of industrial partners and venture capital connections. Eight other corporations have a foothold in the greentech incubator. Greentown is Enel’s second innovation hub in the US, behind San Francisco, and its 10th globally, with three others in Italy and additional locations in Spain, Russia, Chile, Brazil, and Israel.

—Waltham, MA-based cybersecurity company Dover Microsystems has raised another $5.7 million, according to an SEC filing. The company’s security chip is hardwired into processors to monitor their activity and protect them against attacks. In February 2018, Dover Microsystems, a spinout of Draper Laboratory, raised $6 million in seed funding led by Hyperplane Venture Capital, alongside contributions from Draper, Qualcomm Ventures, and the Hub Angels Investment Group.

—Boston-based open source website software company Acquia is buying marketing automation startup Mautic. Terms of the deal were not disclosed. Acquia, based in Boston, develops open source tools to manage websites built using the open source content management system Drupal. Mautic, in Medford, MA, is an open source software firm that helps companies launch and manage marketing campaigns across the wide and growing field of platforms, from social media networks to email and websites.

Brian Dowling is a Senior Editor at Xconomy, based in Boston. You can reach him at bdowling [at] xconomy.com. Follow @be_d

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Cashing out in Uber’s IPO: China, Russia and the Middle East

Previously, Uber’s former chief executive Travis Kalanick spoke publicly about the need to raise large sums quickly to buy market share and find local …

SAN FRANCISCO (Reuters) – In 2015, Uber Technologies Inc went on a fundraising spree in China, tapping venture capitalists and state-backed corporations for cash and connections to try and navigate the Chinese regulatory environment.

Logo of Uber is seen on a smartphone screen as a picture of stock exchange graph is displayed on a computer screen in this illustration picture, May 7, 2019. REUTERS/Kacper Pempel/Illustration

Uber ultimately pulled out of China, but the investors it gained in the country became part of a gallery of far-flung Uber financiers that include U.S. geopolitical rivals under intense regulatory scrutiny by the U.S. government.

Uber’s investors come in all stripes: state-owned banks and corporations from China and Russia; sovereign wealth funds from Qatar, Singapore and Saudi Arabia; a Russian businessman arrested last year on embezzlement charges; venture capital funds from across Europe and the United Arab Emirates; and Indian conglomerates and a Malaysian public pension fund.

Many of these investors will likely have made a bundle this week in Uber’s long-awaited initial public offering. The company on Thursday priced its shares at $45 a piece, raising $8.1 billion in the largest U.S. IPO since 2014, and will begin trading on the New York Stock Exchange Friday.

The ride-hailing company’s aggressive pursuit of capital and international presence from early on gave executives greater access to foreign investors compared to other U.S. startups. Uber was also seeking cash at a time of frenzied growth, with global investment into U.S. startups jumping 50 percent from 2013 to 2014, according to PitchBook Inc data.

That helped it raise nearly $14 billion in venture capital, making it the fourth best-funded startup globally. Uber has also raised more than $6 billion in debt, according to PitchBook.

Uber, more than almost any other Silicon Valley company, symbolizes the glut of foreign money that has helped fuel a tech investing frenzy.

But replicating its feat today would be an improbable task in the current regulatory climate, analysts and legal experts say.

In August, U.S. President Donald Trump signed a law to expand the powers of a government group known as the Committee on Foreign Investment in the United States (CFIUS), which is tasked with reviewing foreign investments for potential national security and competitive risks.

It gives CFIUS a mandate to probe transactions previously excluded from its purview, including attempts by foreigners to purchase minority stakes in U.S. startups. It must approve deals between U.S. companies employing sensitive technology and foreign investors with influence over the startup, such as a board seat.

CFIUS has so far approved only about 10 percent of the deals submitted under the new law, according to attorneys’ estimates.

“What happened (with Uber) in 2015, you certainly could not do that again,” said an attorney who advises clients on CFIUS cases and who spoke on condition of anonymity because of the sensitivity of the matter.

A spokesman for Uber declined to comment. Previously, Uber’s former chief executive Travis Kalanick spoke publicly about the need to raise large sums quickly to buy market share and find local investors who would help smooth the regulatory path in different countries.

CRACKING DOWN

The lion’s share of Uber’s fundraising was completed prior to the new CFIUS law, and there is no indication any of these investments were in any way unlawful. Chinese state-backed funds have invested in dozens of Silicon Valley companies, from drones to self-driving cars and cyber security.

But the challenge of a tech company replicating Uber’s fundraising today highlights just how much U.S. regulators have cracked down on foreign investment.

Attorneys who work on CFIUS cases say a business like Uber’s would be highly scrutinized if fundraising today. The company has a trove of personal data on customers, including who they are and where they go, which CFIUS has indicated is a national security matter.

“The Uber product is its users,” said the CFIUS attorney. “So when you look at it from that way you can see why CFIUS would be interested in it.”

That’s not to say it is impossible to raise money from overseas, and investors from ally countries have an easier time getting clearance for their tech investments.

But state-owned or state-backed investors from China and Russia in particular would be a no-go for CFIUS, say attorneys.

CFIUS earlier this year unwound the acquisition by a Chinese gaming company of dating app Grindr, calling its ownership a national security risk. Grindr collects personal information on its users and data on their whereabouts.

Uber’s autonomous driving business would also likely cause problems with CFIUS today. Autonomous driving is considered important technology for the military, making it a national security concern for CFIUS.

Uber last month raised $1 billion for its autonomous vehicle unit from a consortium of investors including Japan-based SoftBank Group Corp and Toyota Motor Corp. It remains to be seen if that investment receives CFIUS’ blessing.

Reporting by Heather Somerville, Editing by Rosalba O’Brien

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