In terms of venture deals in 2013, none so far * have been as interesting as the latest round by Uber. With $258M from Google Ventures and about $100M more from private equity powerhouse TPG (and existing investors with some pro rata, I’d imagine), Uber is on a trajectory very few startups get to. On top of this, Uber is bridging mobile to the offline world and handling a complicated range of interdependencies, whether it’s competition from peer-to-peer ridesharing options, reminding addicted customers who the boss is through dynamic surge pricing, pressures from local governments and taxi companies, coordinating ice cream trucks during the summer dog days and helicopters to the Hamptons ** (and a brilliant use of PR), or bolstering its already global brand for being the on-demand by fingertip search and delivery engine.
In this latest financing — technically a Series C, I suppose — there are so many interesting caveats, I had to list them below to keep track:
- Google Ventures invested $258M, roughly what Google rakes in over two days. Wow. I calculated that, based on the $50B gross receipts booked by Google in 2012, this investment amounted to about two (2) days worth of Google’s activity in exchange for ~7% ownership in Uber. I’ve heard from many people that GV’s LP (that’s Larry) wants them to invest even more, and this all dovetails nicely with Google’s ARD efforts in self-driving automation. Oh, and by the way, Larry and Sergey are both angel investors in Tesla. (Note that this “growth round” went straight to private equity, as we can’t consider this kind of investment from GV or TPG as pure venture. That is not meant to diminish it, but rather show how steep the company’s trajectory has been.)
- The Series A Round (led by Benchmark) and the Series B Round (let by Menlo Ventures) appreciated richly. Earlier, I used some numbers to calculate returns that didn’t account for the full rounds or dilution. Given that, I’ll just point out that Benchmark led the Series A ($60M valuation, post-money) and that Menlo led the B ($300M+, post-money). Therefore, in about 28 months for Benchmark and 18 months for Menlo, the potential returns to these funds will be very large, and as it’s early days, could continue to grow as the company grows.
- Google’s head legal honcho David Drummond joins the Uber Board. So, this means that any municipality thinking of messing with Uber (which seems to happen monthly) will now have to think twice about getting into fisticuffs with Google. Well-played, Uber, well-played.
- Uber gives Google a much-needed asset in the local war it will fight with Amazon. This will be like the Epic of Gilgamesh. Google and Amazon are on so many multiple collision paths, it’s scary. Local is obviously a big one. In the future, will you get what you order by human, by drones, by Buffer Boxes, or Amazon Lockers, or by Uber technologies? (A commenter below also keenly pointed out that Jeff Bezos is already an investor in Uber via his fund, Bezos Expeditions. Man, Jeff Bezos is everywhere!)
- Lyft, despite raising $60M from A16Z will now have to expand quickly. I’m a big fan of Lyft, too. Their market is slightly different and, in a way, potentially bigger. The vision is to create a scalable platform where people just share rides (and make payments). But, they are only active in a few places. Uber has a huge, huge headstart. I think Lyft will be fine, but I wonder about Sidecar, though Google Ventures also was in Sidecar’s round, so may be able to find a home through consolidation later on.
- Free cash flow is Uber-king. As Amazon and Google have demonstrated, not only is cash king, but free cash flows make for real kingship. Uber can now model how much it takes to open a new city and then discount the future proceeds it can rake from the new territory. This cash flows gives Uber the power to continue to expand without needing the dilution that comes with more private equity financing, and also empowers the company to make attractive acquisition offers for technologies or teams that may prove valuable down the road.
- The convergence of trends around transportation and car ownership are undeniable. More people are moving to cities. There’s less space for cars. Fewer people are going to buy cars or own them. There’s little appetite among the tax base (sadly) to invest in public transportation. The Postal Service is in slow decay. Mobile commerce and mobile payments are easier and spreading. And so on, and so on…Uber is one of those rare birds: the right idea, the right product, the right market, the right founder, and the right time.
* This will be the big venture deal of 2013. No 2 will remain SnapChat’s Series B. And sometime this fall, expect big news about AngelList (which will be the No 3 most important deal of the year), which is also just getting started and has already changed small-cap finance.
** Not only do I suspect Uber Chopper to be more of a reality from 2014 onward (think: Sand Hill to SF, by helicopter). There’s too much money, too much demand, and too little time. And, public transportation is not going to sort itself out. On top of this, one of Uber’s co-founders, Garrett Camp, has also created BlackJet, an Uber for private air travel. It’s not even fair to call this “early innings.” In the transportation space, it’s spring training, and there’s lots of customer segmentation and government disruption coming.