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Report: SoftBank Will Invest Billions in Uber; But Some Now See a Threat to the IPO Market

By NexChange
Venture Capital

The long-expected investment in Uber by SoftBank is now a reality as a spokesperson for the ride-sharing company confirmed the deal to TechCrunch on Monday.

The investment will presumably come from the SoftBank’s $100-billion Vision Fund, which the Japanese telecommunications giant launched with Saudi Arabia’s Public Investment Fund to invest in tech firms across the globe. These investments have been fast and furious, as the Vision Fund has been spending cash at a dizzying rate since it was launched.

 

In a statement sent to TechCrunch, Uber said it had “entered into an agreement with a consortium led by SoftBank and Dragoneer on a potential investment,” that “will help fuel our investments in technology and our continued expansion at home and abroad, while strengthening our corporate governance.”

Uber’s acknowledgement that SoftBank’s investment will not only help build out its technology platform and scale its business, but would also go toward “strengthening” its corporate governance is not surprising, given the very bad year the company had on the corporate governance front. Uber hired former Expedia chief executive Dara Khosrowshahi as its new CEO in August, following the ouster of co-founder Travis Kalanick.

Here is more on SoftBank’s big investment in Uber, via TechCrunch:

Uber has not yet elaborated on plans, but we’ve been told that it includes a $1 billion investment in the company at the last private valuation of nearly $70 billion. A source with knowledge of the deal told TechCrunch that the documents label this as an extension of its last Series G round.

The group led by SoftBank and Dragoneer Investment Group is also planning to invest a much larger amount by buying up to $9 billion in Uber shares from employees and other shareholders, likely bringing its total ownership to at least 14% of the company. These shares are expected to be purchased at a lower valuation, that has still not been determined.

Meanwhile, as SoftBank continues to ramp up its investments in the global tech market, some are wondering whether this could actually hurt the IPO market. Jason Calacanis, a technology investor who was an early backer of Uber, told CNBC last week that people in Silicon Valley are wondering why a company would file for an IPO when it could just stay private and take money from SoftBank.

Per CNBC:

Uber CEO Dara Khosrowshahi said this week that while he and his board want Uber to go public, SoftBank is a long-term investor with little interest in an IPO.

“Our bringing in SoftBank as a strategic investor at the right price would be a good thing,” Khosrowshahi said in an interview by New York Times columnist and CNBC anchor Andrew Ross Sorkin at The New York Times DealBook Conference.

However, some investors see SoftBank’s spending spree as creating potential problems for Silicon Valley. Oaktree Capital’s Howard Marks noted that the “willingness of investors to invest in a shockingly large fund for levered tech investing with a questionable structure is a further indication of an exuberant, unquestioning market,” according to CNBC.

Bill Gurley — another venture capitalist that invested in Uber — has long cautioned that a sparse IPO market and high private valuations could lead to recklessness from start-up founders and investors.

“Founders have come to believe that more money is better, and the fluidity of the recent funding environment has led many to believe that heroic fundraising is a competitive advantage. Ironically, the exact opposite is true. The very best entrepreneurs are relatively advantaged in times of scarce capital,” Gurley wrote in 2016, before SoftBank’s Vision Fund entered the scene. “Loose capital allows the less qualified to participate in each market.”

TechCrunch reports that the SoftBank deal with Uber will “likely to be the largest secondary transaction in history, with shareholders selling billions of dollars worth of shares.”

Photo: Getty iStock

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