August 16, 2017

Breakingviews: Take The Money and Run is New Uber Benchmark

by Breakingviews.

Take the money and run is the new Uber Benchmark. The ride-hailing firm, valued at nearly $70 billion in its most recent funding round, is beset by multiple controversies, managerial turmoil and huge losses. Early investor Benchmark may be loath to give in to demands to sell its 13 percent stake. But it would help restore some stability and let the venture-capital firm rake in billions.

Benchmark, which led Uber’s series A funding round in early 2011, has injected nearly $30 million into the company, according to fellow shareholders. Now, though, it has turned to the courts to try to stop the app’s co-founder and former Chief Executive Travis Kalanick from participating in board business.

Kalanick stepped down in June after a series of scandals and has not yet been replaced. The firm is also looking for a chief operating officer, finance chief and general counsel, meaning it’s ostensibly being run by more than a dozen top employees. Trouble is, Kalanick is still on the board, can stack it in his favor thanks to his super-voting stock and company bylaws, and is on the committee trying to find a new leader.

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Meanwhile, Uber is bleeding red ink, losing more than $700 million in the first quarter. That’s despite controlling, with some $20 billion of bookings last year, around a fifth of the global taxi and limousine industry, according to Breakingviews estimates.

Benchmark’s lawsuit, though, adds to and prolongs the chaos and will make it even harder to find people willing to join the company either as executives or directors.

All things considered, that ought to make selling out appealing. Three other shareholders are already demanding Benchmark leave the board and offload at least 75 percent of its holding. SoftBank, among others, may be waiting in the wings. It may be valuing Uber at $45 billion. That’s a 35 percent discount to Uber’s current official worth. But it would still allow Benchmark to make $5.8 billion, almost 200 times its investment.

Sure, Benchmark claims Uber could easily be worth over $100 billion in two years. Given the ride-hailing company’s travails, though, that’s a stretch. And it’s a VC firm, not an activist investor. Cashing in and driving off in search of the next big thing has a lot of appeal.


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