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Falling knife: At $40 billion, Uber would still be overvalued

By Sarah Lacy , written on August 7, 2017

From The Travis Shrugged Desk

Back in April, we predicted that the next time Uber raised capital, it’s valuation would fall so far that it would go from the highest valued startup in Silicon Valley history and the highest valued startup in the heady ride-sharing space.

Four months later, that appears to be bearing out. The Information reports that the rumored Softbank deal would come at a steep discount from Uber’s near-$70 billion valuation, valuing the company between $40 billion and $45 billion. This is the first numbers based argument for the board’s decision to shove CEO Travis Kalanick out of his job.

Either you believe he was talented enough to build a company legitimately worth $70 billion, in which case, he also gets “credit” for rapidly eroding nearly half that value. If you believe (as we do) that Uber was never worth anything like that amount, Kalanick’s ability to fundraise at any price-- long considered one of his greatest strengths-- starts to look like a weakness.  

Momentum is what matters in startups, and Uber is now damaged in the minds of investors and employees. Kalanick could clearly raise at nearly any price, what he lacked was the judgement over whether he should have done so. This is pretty much what Bill Gurley argued was a danger when companies raise mega deals from sources like Sovereign Wealth Funds and foreign governments. At the time we called Gurley’s manifesto an open letter to Uber. It’s telling that Gurley and Kalanick are no longer speaking, and Benchmark’s seat on the board has been replaced by the more Kalanick-friendly Matt Cohler.

A new $40 billion-ish valuation for Uber is notable for a few more reasons. It would put Uber $10 billion behind Didi in valuation, some $18 billion behind Tesla, and some $30 billion behind what analysts say Waymo could be valued at as an independent company. From first to fourth.

It would also be some $10 billion lower than the $50 billion valuation that was behind some rumored secondary sales of Uber stock several months ago, also according to The information. There’s no reason to believe this would be the end of Uber’s drops in valuation either.

More evidence to that point is widely reported accounts that early investors want to sell in this round. If they had any confidence that Uber could be worth it’s past valuation in a near-term IPO…. why sell now at nearly half the price?

Absent any change in momentum, there tends to be inertia to tech company investments… particularly those that were priced for absolute perfection in terms of performance. My guess is we haven’t yet found the true price Uber is worth.

I wrote just after Kalanick’s ouster the company should immediately re-cap itself at a more realistic valuation-- find a new, reasonable floor from which it can hopefully begin to grow again. So if you are determined to find a bullish twist on this news, maybe it’s that.

But remember: In the last 20 years only seven publicly traded tech companies have managed to IPO and stay valued at north of a $30 billion valuation. So Uber at $40 billion-- a company engulfed in lawsuits, scandals, that still lacks much of a C-level team-- is still an extraordinary gamble. This company-- the one that has an ousted CEO still meddling in day-to-day affairs, plotting his own egocentric comeback-- the markets think this organization is in the same league as eBay, Google, Facebook, Amazon, VMWare, Netflix, and Salesforce?

Product alone isn’t what made those companies great. It was leadership. Uber has a commodity product and effectively no leadership right now.

Which brings me to one more silver lining in the weekend flurry of Uber news: Apparently no women want the CEO job.

That shouldn’t be a surprise, because no one who has other options, frankly, should want a job at a company dropping half its valuation price, engulfed in a major lawsuit over stolen trade secrets, and run by a board where at least one director wants that new CEO set up to fail so he can steal the job back.

But it is a surprise, because of the Glass Cliff. We’ve written about the Glass Cliff a few times: It’s a phenomenon by which women are only offered jobs at damaged companies. They get less control over the board and are more likely to be targets of activist shareholders. When the fail at a job that set them up for failure, they are rarely ever offered another Fortune 500 CEO job again.

Marissa Mayer-- long one of the most ascendant women in tech-- was a textbook case of the Glass Cliff.

Sheryl Sandberg is now the most widely admired female leader in tech, according to at least one survey. It’s frustrating that the most admired female leader in tech isn’t a CEO, and plenty of sources close to Sandberg have said she wants a top job at some point. But given the copious data on the Glass Cliff, she’s been wise not to grab a CEO job for the sake of grabbing a CEO job.

It’s a tough spot for the most impressive female leaders: Take a poisoned-chalice CEO job and risk it destroys the career you’ve carefully built against all odds or remain a powerful number two?

The person whose arguably played it the best is YouTube’s Susan Wojcicki, who stayed put and became a CEO when Google split into separate units with a common holding company. It was more like Sandberg’s playbook, with a lucky twist of a change in company structure. (Wojcicki was one of many who was reportedly not interested in replacing Kalanick.)

As the plight of women in tech has become so much more visible, it may be possible that Uber’s inability to hire a woman isn’t merely a sign of how uniquely undesirable that job is. It’s possible that top women in the Valley simply believe they deserve better and are no longer willing to jump at any shot to be a high-profile CEO.