Uber Said to Raise $1.6 Billion in Convertible Debt to Expand

http://www.bloomberg.com/news/2015-01-21/uber-said-to-raise-1-6-billion-in-convertible-debt-to-expand.html

by applecore • 12 years ago

44 43 12 years ago

applecore• 12 years ago

Notably, this fundraising round is with Goldman Sachs' private wealth management clients, which sets the stage for Uber to go public in the next few years. (Goldman Sachs tried and ultimately withdrew a similar deal in 2011 for their private clients in the United States to invest in Facebook. Of course, this was prior to the enactment of the JOBS act.)

Gyonka2• 12 years ago

So is this a usual trend with companies seeking IPO in the future?

pbreit• 12 years ago

There is nothing usual about private companies raising $4b.

elberto342• 12 years ago

That's the way you get rich. Make apps, social networking..stuff like that. Or invest in already-successful, viral app companies like Uber, Snapchat, Tinder, etc. Why anyone would go the brick and mortar route is beyond me. I would rather invest $100k in successful web 2.0 companies (like the ones I listed) and double my money in 6 months than start a crappy regular business which has a 50% chance within five years of totally failing and taking all my money with it. Like the Dire Straits Song Money for Nothing, except it's apps and web 2.0 instead of music.

cylinder3• 12 years ago

I know far more people who are making lots of money doing traditional, un-sexy businesses, and I can't think of anyone I know personally making money with apps, web2.0 etc.

marjuk• 12 years ago

can you elaborate on how you are going to make investment of $100k to private app companies like Uber, Snapchat, and Tinder given that you didn't get to invest in their angel rounds and it was hard to tell that those apps were gonna succeed?

curiously2• 12 years ago

This is a pretty foolish and naive way to view internet startups. I'm sure you would've said the same thing about Zynga, Groupon, Digg, etc.

aetherson• 12 years ago

How do these kinds of deals affect existing institutional investors? Are they going to see their stakes diluted when the debt converts?

markvdb• 12 years ago

They need the money to grow their global network. They can afford to fight the regulators that are in the pocket of entrenched taxi businesses in the short to medium term.

In the not-so-far future, that resistance will be broken by the introduction of the robotaxi. Ueber will be spearheading that one. Too capital intensive for the current "big" taxi companies in the medium term. Too automated for the regulators to defend the taxi drivers working conditions.

adevine2• 12 years ago

I hear this a lot, but, given what I've read recently about the true state of self-driving cars, I think the "robocars as a replacement for taxis (especially in cities, Uber's main market)" is a REALLY long ways off, i.e a generation or more.

That is, it seems to me like the places fully self-driving cars will initially be most successful is places where access is limited or "messiness" is minimized - places like highways, where you could even have "self-driving car only" lanes - a huge boons for long commutes. In cities, though, there are a lot of Really Hard Problems, that from what I've read engineers are not even close to being able to solve, things like:

1. Following detour signs 2. Following a street cop when they are contradicting stoplights or other road rules. 3. Dealing with construction signs in traffic, like when a construction worker has those signs they flip back and forth between "stop" and "go" (or heck, they just drop the sign and wave you by). 4. Knowing the difference between stopped traffic where you should wait (i.e. traffic is just really slow) or move around (i.e. someone is unloading).

That is, it seems like the state-of-the-art will allow self-driving ASSISTED vehicles in the pretty near future, but completely self-driving vehicles, that can handle all the complex, messy urban situations that people can, is not on the near horizon.

sushid• 12 years ago

I can understand where you're coming from, but that's also failing to realize that there are technical workarounds to the problems you've presented. Regulatory measures will be key in making these transitions smooth (and AFAIK, lawmakers have been proactively involved).

Things like standardized signs for cars to process and construction workers to hold would already solve 3/4 of the problems you've already mentioned.

jp555• 12 years ago

You say 25 years (a generation) and you could be 100% right. But then half right is 12.5 years, and I would consider that within a near horizon. I totally agree highway driving, especially tractor trailers, will come much sooner. I like the idea of dedicated lanes.

EC1• 12 years ago

Maybe they can invest in teaching their drivers how to drive and learn the city. I've had nothing but AWFUL experiences with Uber. Always having to coach suburban drivers around the city like lost fucking cattle. 1 star every single time.

Invest in customer service. There has to be a way to train people to be better drivers.

threeseed4• 12 years ago

You mean people who are driving as a side job and are completely unregulated are bad drivers ?

I am shocked.

Animats• 12 years ago

"Convertible debt" - what a gimmick.

The bond Uber placed with Goldman Sachs’ private clients is a six-year bond that will convert into equity at a 20 percent to 30 percent discount to Uber’s valuation at the time of an initial public offering. ... The convertible bond carries a coupon that increases over time if Uber hasn’t gone public within 4 years.

The distinction between debt and equity is diminishing. Traditionally, debt has no upside, and in exchange, creditors are paid ahead of equity holders in bankruptcy. Convertible debt is secured debt if things goes bad, and equity if things go well. So, no matter what happens, convertible debt holders are at the head of the line.

They even get to deduct the interest paid up to the conversion. Then it's a long term capital gain. This is an argument for ending the deductibility of interest.

The question is, if Uber is so great, why do they need to raise so much cash? It's not an inherently expensive business to run. They don't hire the drivers or buy the cars. Uber is just an app, a scheduling back end, and a marketing operation. Is it that the original funders want to cash out?

beambot• 12 years ago

It's not an inherently expensive business to run.

Except for lobbying in almost every theater of operation they enter.

shubik• 12 years ago

Traditionally, debt has no upside

Not really--if interest rates decline (either in the overall economy or if a bond's issuer is seen as becoming less risky), the value of a bond will go up. The 10 Year US Treasury bond increased by over 10% last year, for example.

Also I agree with you about ending the deductibility of interest (for other reasons as well), but I'm not sure why you say the distinction between debt and equity is diminishing--convertible debt has been around for a long time.

dragonwriter• 12 years ago

Traditionally, debt has no upside

"Traditionally", perhaps, but, "tradition" aside, one upside relates to priority of claims against assets in the event of bankruptcy/dissolution/etc.

outside1234• 12 years ago

What am I misunderstanding about Uber's business model where it needs lots of capital to expand? It seems like it is just a middleman and doesn't need any capital assets to expand into a geography - what am I missing?

mattwad• 12 years ago

legal costs?

bfwi• 12 years ago

Look at Uber's job postings, and you can see what kind of employees are required for each new geography.

untog• 12 years ago

It needs to sell itself to drivers, for one. Manage drivers. Advertise...

gaius• 12 years ago

Raising a ton of VC and spending it on banner ads is sooooo 90s.

threeseed4• 12 years ago

At least in Australia, Uber is paying a ton of money in fine subsidisation to drivers.

They are quite sizeable so would be interested if Uber is even making a profit.

forrestthewoods• 12 years ago

They often bootstrap an area with cheap rates. They did -25% everywhere in the US last summer to compete with Lyft. Driver gets paid 100% but rider only paid 75%. I believe they eventually made a permanent -20% discount much to the chagrin of drivers who were suddenly making less money for the same work.

choppaface• 12 years ago

It's also probably a lot easier now to take on VC and sell debt than it will be in the next 1-2 years. VC funding is starting to decline, it's anticipated that a good amount of oil-related corporate debt will probably default in the coming year, and interest rates will probably go up a bit. The opportunity to take Goldman client cash will only diminish from here.

matthewowen• 12 years ago

Every time you take an UberPool and aren't matched to another rider, Uber pays out more to the driver than you pay to Uber (for unmatched UberPool rides riders get a 20% discount, but drivers get their full payout: this generally obliterates Uber's margin).

minimax• 12 years ago

https://www.uber.com/jobs/list

I count 680 open positions in 145 unique locations posted there. Pretty impressive.

threeseed4• 12 years ago

Smart move. If I were Uber I would be trying to siphon as much cash as possible from investors before the company starts hitting its inevitable roadblocks.

The fact is that government regulators will end up banning Uber in most countries. You can't continue to operate outside the law flouting vital safety regulations that protect the interests of consumers for long.

cylinder3• 12 years ago

Doubt it. Eventually, even in the US, they will adopt the New York model - require TLC licensed drivers, cars, etc. but not medallions. Basically black/limo cars. That's the way it should be IMO, I don't think Uber should have full discretion in deciding who gets to pick up passengers. The ratings system is really a small part of Uber and can't be relied upon to filter out bad/dangerous drivers.

threeseed4• 12 years ago

Sorry I should have clarified: UberX is the problem. It is already being banned in more and more countries as governments come to terms with the regulatory changes required.

And whilst Uber is popular in the US outside it still isn't a well known brand and what they do know is the questionable behaviour of its management team (there have been media reports). So I don't see them disrupting taxi services around the world to the same extent as the US.

johnsea• 12 years ago

+ more uber jobs - less taxi jobs

What's the point for an European city to change regulation?

nandemo• 12 years ago

Because the numbers aren't the same.

In a given year, the number of taxi jobs is pretty much fixed. The number of Uber (or generally, non-regulated) drivers is not.

faragon• 12 years ago

Uber will collapse, in my opinion. How much time will take for many others doing the same? Come on. Such investment is just nonsense.

curiously2• 12 years ago

can someone explain what happens when a company IPO vs being acquired? Which is more favorable?

Uber Said to Raise $1.6 Billion in Convertible Debt to Expand

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