UPDATE: Nov. 13, 2017, 12:59 p.m. EST Updated with a statement from SoftBank.
Uber is still a shiny unicorn per Silicon Valley standards, but the ride-hailing giant is nowhere near as magical as it used to be.
The latest development in a series of unfortunate events: Uber signed off on a new funding round that could total up to $10 billion. That cash infusion, led by Japan’s SoftBank Group and U.S. investment group Dragoneer, would be classified as a war chest to nearly every other company in the world. But to Uber, it’s a sad development in a long wave of painful setbacks.
“We believe this agreement is a strong vote of confidence in Uber’s long-term potential. Upon closing, it will help fuel our investments in technology and our continued expansion at home and abroad, while strengthening our corporate governance” an Uber spokesperson wrote in an email to Mashable.
Companies raise money all the time, and usually it’s cause for celebration. Not so much this time for Uber. This has to be the saddest $10 billion ever raised.
This has to be the saddest $10 billion ever raised.
Even SoftBank, the owner of the war chest, seems frustrated.
“After a long and arduous process of several months it looks like Uber and its shareholders have agreed to commence with a tender process and engage with SoftBank. By no means is our investment decided. We are interested in Uber but the final deal will depend on the tender price and a minimum percentage shareholding for SoftBank,” Rajeev Misra, CEO of SoftBank Investment Advisors, said in a statement.
Uber’s once-intimidating lead over its competitors has narrowed. Lyft is rapidly gaining market share. The rival service could secure one-third of the U.S. ride-hailing market by the end of the year, according to a private Lyft investor document obtained by Bloomberg. Outside the U.S., Uber has suffered a series of setbacks in major markets including China and Russia.
And then there’s the scandals. Uber has faced a rough year with scandals around its toxic workplace, numerous executive departures, a lawsuit with Google over stealing self-driving car trade secrets, and the CEO being ousted and sued by investors. It also has had to back out of several expansions in Italy (banned), Russia (partnered with Yandex), and China (merged business with Didi).
This has all led to a funding round that is less about boosting the company and more about letting some people cash out. Instead of giving SoftBank a new chunk of stock, Uber is allowing existing shareholders to sell to SoftBank. Earlier investors and employees are seemingly encouraged to cash out—and they may very well want to after a year in which Uber has at best treaded water.
Under the not-so-flattering terms, SoftBank is agreeing to a direct investment in the company while also purchasing back shares from Uber employees and other investors. The raise includes at least $1 billion at Uber’s previous valuation and could later add $9 billion of buying back stock.
And it’s not even a done deal. The way this works, SoftBank could walk away if certain goals aren’t met, including enough existing shareholders selling their shares.
It’s strange to keep seeing reports on how many dollars SoftBank will invest in Uber, when it hasn’t come up w/ price per share yet and has ownership minimum.
— Dan Primack (@danprimack) November 13, 2017
Even worse for Uber, SoftBank founder Masayoshi Son said last week it could choose to invest in rival Lyft instead.
If it does go through, Softbank projects to become Uber’s largest single shareholder. Uber would be able to maintain its valuation as it tries to fend off competition and figure out how to make money ahead of its expected debut as a public company.
The terms of this deal would seem unthinkable even just a year ago, when Uber was showing off its new self-driving cars in Pittsburgh, Pennsylvania—among other big ambitions. Uber released an app redesign with a News Feed-like stream that competed for people’s attention with Facebook. Users could order food, check out nearby attractions, and even take a Snapchat all via the Uber app.
With its growing customer base and its pitch as a tech-company-meets-logistics-company, some Silicon Valley investors came to view Uber as a possible competitor to the big four: Amazon, Apple, Facebook, and Google.
Facebook’s head of local partnerships Phillip Rather once said his company sees Uber as a “threat.”
“I think Uber is the most underestimated company to affect local businesses,” Rather said in March. “The supply chain and the marketing have converged.”
The terms of this deal would seem unthinkable even just a year ago.
And yet, Uber’s business is clearly not perfect. Uber has repeatedly leaked its financial reports, where it revealed the company lost $3 billion in 2016. Sure, Uber booked $20 billion in rides in 2016, but it still remains to be seen if Uber can justify its $69 billion especially with the rocky state of the last year and competitors growing.
There’s reason to believe Uber’s best days are ahead of it. The company still has tens of millions of users and is booking more rides than ever before. Now with new money, Uber will have the cash needed to prove that it can steer away from scandal. Uber’s new CEO Dara Khosrowshahi and Chief Brand Officer Bozoma Saint John are helping to move the conversation past the #DeleteUber movement.
“I think winning gives some excuses for bad behavior,” Khosrowshahi said last week at the New York Times Dealbook conference. “I think we were generally immature with how we deal and dealt with regulators.”
Since taking the CEO job in August, Khosrowshahi has been meeting with the thousands of stakeholders Uber has secured. That includes Uber drivers all over the world and government officials like those in London.
For Khosrowshahi, Uber’s new funding isn’t a quick way to cash out. It’s a necessary turn to get back into high gear. But compared to just a few years ago, it’s rather sad.
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