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Will Softbank Own Silicon Valley?

Posted on Thursday, Dec 14th 2017

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The highest valued Billion Dollar Unicorn Uber recently approved SoftBank’s offer to invest $10 billion in a package deal that values it at a tiered valuation of $48 billion and $68.5 billion. SoftBank this year has invested over $25 billion in companies all over the world through its $98 billion Vision Fund, the largest tech fund ever.

Uber’s Financials

Founded in 2009 by Travis Kalanick and Garrett Camp in San Francisco, Uber has now grown to nearly 500 cities in 76 countries. It earns revenues in the form of transaction fees for every ride booked through its app. Analysts estimate that it charges a 20% fee on the fare.

Uber does not disclose its financials publicly. However, according to a Bloomberg report based on a tender offer document sent to shareholders, Uber’s net revenue in the third quarter of 2017 was $2.01 billion, up 20% q-o-q and gross bookings were up 11% q-o-q to $9.71 billion. GAAP loss was $1.46 billion, up from $1.06 billion in Q2 2017. Non GAAP gross profit was $749 million. Uber’s net revenue in 2016 was $6.45 billion while net loss was $319 million. Loss from operations was $3 billion with total cost and expenses at $9.42 billion.

Uber has raised $11.5 billion so far in venture funding from investors including Saudi Arabia’s Public Investment Fund, Morgan Stanley, AITV, Baidu, Benchmark, Bennett Coleman and Co, BlackRock, CrunchFund, Cyan Banister, Data Collective, Fidelity Investments, First Round, Foundation Capital, Founder Collective, Garrett Camp, Goldman Sachs, GV, HDS Capital, Innovation Endeavors, Jeff Bezos, Kleiner Perkins, Lone Pine Capital, Lowercase Capital, Menlo Ventures, Microsoft, New Enterprise Associates, Sherpa Capital, Summit Partners, Techstars Ventures, TPG Growth, Tusk Ventures, Valiant Capital Partners, and Wellington Management. Its valuation has grown astronomically from $3.5 billion in 2013 to $68.5 billion in June 2016 when it had raised $3.5 billion.

The Softbank Angle

Uber’s recent agreement with SoftBank, investment firm Dragoneer, and other investors is for an investment of $1 billion at its current valuation of $68.5 billion and another $9 billion for at least 14% stake from existing shareholders. Softbank has offered to purchase shares at $33 at a valuation of $48 billion, 30% less than the current valuation. The deal is contingent on there being enough interested sellers.

Uber this year has seen several scandals regarding the company culture and practices that have led to the lower valuation. Co-Founder and CEO Travis Kalanick was forced to resign in June. It is fighting several lawsuits including a patent lawsuit with Alphabet’s self-driving car division. However, the latest blow comes from a lawsuit regarding a data breach that affects 57 million passengers and drivers around the world. Uber admitted to paying hackers a $100,000 ransom to keep it a secret.

The SoftBank deal could help Uber overcome these issues and prepare for an IPO in 2019. SoftBank, through its Softbank Vision Fund, is a major investor in Uber’s rivals Ola from India, Grab from Southeast Asia, and Didi Chuxing from China.

Softbank Vision Fund is the brainchild of its CEO Masayoshi Son. It was formed to realize a 300-year corporate plan to conquer the future by investing in 5,000 cutting-edge tech companies by 2040. Softbank has invested $28 billion in the fund and raised $1 billion from Apple and $45 billion and $15 billion from the sovereign wealth funds of Saudi Arabia and Abu Dhabi, respectively. Other investors in the fund include Qualcomm, Foxconn Technology, and Larry Ellison’s family office.

Apart from ride hailing companies, Softbank Vision Fund has also invested $8.2 billion in ARM Holdings, $5 billion in NVIDIA, $4.4 billion in WeWork and its branches in China Japan, and Pacific, $2.5 billion in Flipkart, $1 billion each in Fanatics and SoFi, and $1.2 billion in OneWeb, among many others.

These huge investments into these Billion Dollar Unicorns mean they can stay away from the sluggish IPO market. But at the same time, Softbank offers at least a decent exit for the investors, even for the over valued Unicorns out there.

This begs the question: Are we looking at SoftBank acquiring large stakes in the vast majority of the later stage technology companies in Silicon Valley (and elsewhere), and therefore, effectively owning Silicon Valley?

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

Photo Credit: Núcleo Editorial/Flickr.com 

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