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No liquidity, no voice: The agony and the ecstasy of the Uber shareholder

By Sarah Lacy , written on July 22, 2016

From The Travis Shrugged Desk

Being a shareholder in Uber is both the most brag-worthy and emasculating thing you can be in Silicon Valley right now.

It’s the highest valued private company, not only of the mobile first era, but in Silicon Valley history.

And yet, no one can sell their shares, and no one has a voice as they sit and watch this company raise more and more capital, putting off going public as long as it possibly can. That might just be an exercise in patience if there wasn’t a huge inflection point coming up: Self driving cars. Right now Uber dominates in US ridesharing. It’s already losing the global ridesharing battle. When self driving cars hit, it’ll compete with Google, Apple and Tesla.

And just this week Elon Musk made it clear in part two of his Tesla master plan how serious he is about competing with Uber:

Sharing

When true self-driving is approved by regulators, it will mean that you will be able to summon your Tesla from pretty much anywhere. Once it picks you up, you will be able to sleep, read or do anything else enroute to your destination.

You will also be able to add your car to the Tesla shared fleet just by tapping a button on the Tesla phone app and have it generate income for you while you're at work or on vacation, significantly offsetting and at times potentially exceeding the monthly loan or lease cost. This dramatically lowers the true cost of ownership to the point where almost anyone could own a Tesla. Since most cars are only in use by their owner for 5% to 10% of the day, the fundamental economic utility of a true self-driving car is likely to be several times that of a car which is not.

In cities where demand exceeds the supply of customer-owned cars, Tesla will operate its own fleet, ensuring you can always hail a ride from us no matter where you are.

Even Naval Ravikant (one of many Uber investors) noted where Tesla was clearly going here:

Look no further than Uber board member and investor Bill Gurley’s blog, Twitter account, and any words he’s uttered in the last year to see the internal screams of a man who can do nothing to unlock what should have been a grand slam home run. He even commiserated about the forces allowing private companies to keep raising money IPO-free in a recent conversation with Warren Buffett. As recounted on Twitter:

One of the biggest reasons that Uber needs to -- and justifies-- raising billions and billions more in private capital is its war with Didi Chuxing in China. Uber is spending well over $1 billion a year to have low double digit market shares. Meanwhile, Didi says it is profitable in half of Chinese cities it operates in and is sitting on a lot of the capital its raised. And as we wrote earlier this week, Didi is making savvy moves to look like a more communist-party friendly alternative too, should the government decide to crack down.

Uber’s investors want out of this crazy plan, want Uber to get its head back in a game it can win and for fuck’s sake get public. I know this because I’ve heard it from investors since we started reporting about how badly things were going for Uber in China a year ago.  One investor at the time who’d just been in China and tried both services told me the best possible return of the billions of dollars Uber has sunk into this market would be just to invest it in Didi directly.

(Worked for Yahoo and Alibaba…)

The drumbeat appears to only be growing louder. This week Bloomberg wrote a very carefully worded story about Uber’s investors pushing for a “truce” in this costly and doomed fight. From the piece:

Uber Technologies Inc. investors have a message for management: It’s time to wrap up the costly fight in China.

Several institutional investors are pushing the ride-hailing company to ink a partnership agreement with China’s market leader Didi Chuxing, according to people familiar with the matter, stemming the billions of dollars Uber is spending to expand in the region.

The story was careful to say actual executives in the companies have not held any talks. The same way Bloomberg and others speculated that Qatalyst was representing Lyft and could be selling the company, based on the fact that…. Qatalyst is a bank that sometimes sells companies. It also -- and more frequently-- negotiates private placement deals. 

The tricky thing about saying “investors” on either side want a truce is that Uber has 58 investors. Didi has 17 investors. A tiny percentage are on the board. Most of them are ill-informed about anything going on at these companies. Travis Kalanick doesn’t even speak to Uber investor Chris Sacca anymore. Almost none of these investors would have any jurisdiction to negotiate a deal on Uber’s behalf.

My sources have told me this was a story planted by desperate investors, and that there’s no actual deal being negotiated here, which seems backed up by the fact that Bloomberg itself says the companies aren’t talking. It’s hard to imagine Didi would be in any hurry to bail Uber out, since it has plenty of capital, dominant market share, a local advantage with the communist government, and is profitable in half of its markets. Not to mention, Didi has investments and partnerships in Uber competitors around the globe. Uber’s distraction and cash burn in China is good for all of those players.

So like that rumored Lyft acquisition: This may be happening, sure. But there seems no actual evidence -- on or off the record-- that it actually is.

What it is a sign of is how frustrated Uber’s shareholders are with the total lack of agency they have to influence this company or sell their shares if they disagree with major strategic moves its making.

This concern-trolling strategy worked when it came to, say, bullying Dick Costolo to leave Twitter, because it was publicly held and there was a way to exert pressure. But Uber execs likely just shrug when they see stuff like this. Which-- of course-- only solidifies Kalanick’s determination not to go public.