Who is REALLY responsible for Uber's failed IPO? Uber.
At what point does the Valley in-crowd stop making excuses for this company?
By Uber’s own standards, its IPO -- valuing it at some $82.4 billion at the time it started trading -- was already an abject failure. And then two days of heavy selling ensued.
The debate in the financial press today is who is responsible for setting “an incorrect IPO price” for the highest priced private deal in Silicon Valley history.
Here’s a novel hot take: Uber is. And like most things in Uber’s history, it was entirely self-inflicted and entirely unnecessary.
Let’s review for a moment. That “incorrect price” -- which was reportedly propped up by the underwriters using an unusual tactic called a “naked short”-- was a massive haircut from the hoped for range, which was itself a massive haircut from the Uber-floated $120 billion price Uber expected to fetch last year. And, as co-Time Person of the Year and famed whistleblower Susan Fowler reminded us on Twitter, even that price would have been a disappointment for those recruited to the company:
The Uber IPO news reminds me of an email I received from them in 2015, when they offered me a job: "while a $51B in pre-IPO valuation is great, we are no ways looking to IPO here. If we do not make it to a $200B valuation, I think most at Uber would feel as though we failed."— Susan Fowler (@susanthesquark) May 13, 2019
Uber’s market cap is now in the low $60 billion range, “low” only because of the expectations it set for itself. For all the hype about Dara Khosrowshahi turning Uber around, that’s less than the company was worth when Travis Kalanick was ousted. As the Financial Times put it, anyone buying Uber’s IPO price got $3 off the price some private investors paid three years ago.
This was -- like most Uber messes in the last ten years-- an entirely self-inflicted wound, and largely born out of the bro-economy’s version of fragile masculinity, where chasing valuations was as much about chasing manhood as it was actual dollars. (FWIW, my advice at the time was for Khosrowshahi to do a painful recap as his first order of business to inject some reality into Uber’s valuation before an IPO would be an inevitable failure.)
Perhaps this is why Kalanick was so panicked about Uber missing out on self driving cars and was willing to burn so many billions of dollars trying to lock up larger markets like India and China. He once called it “existential” if Uber didn’t lead in autonomous vehicles. He was later accused of massive trade theft to make that happen. Perhaps-- as Pando long surmised-- Kalanick himself knew that these valuations would never hold up if Uber had to be assessed on the merits of its core business. It was always one long fake-it-til-you-make-it bluff.
But it isn’t just the slumping price that was so notable about Uber’s IPO. As Uber apologists will point out, Facebook too had a botched IPO. But Facebook’s team was united, other founders were (then) happy to sell to Facebook, and users loved the service.
Compare that to what we saw on Uber’s IPO day. Its drivers-- Uber’s very touch point to its millions of customers-- were picketing outside the exchange as Uber rang the opening bell, that opening bell that Uber’s founders were not even allowed to get near. Since 2014, we’ve provided extensive evidence that Uber was a company built on misogyny, top to bottom. But to put it more bluntly, it’s just a company built on fights. What was long an “us versus them” culture has turned, “us versus us” as well.
So what does it mean for the future of pattern-obsessed Silicon Valley that its darling is now trying to battle back from an us against the world, us against the markets, us against our drivers, us against us, and us against reality defensive crouch?
Well if a lot of the tech press is any indication, there’s still a mass Uber delusion. No sooner did stocks fall than did the Silicon Valley faithful trot out thought pieces and defenses of Uber as a misunderstood “next Amazon.” If anyone is with Uber, it’s the Valley elite. Perennial outsiders like Mark Cuban and Roger McNamee were two of the only ones saying that the company had a botched IPO because of its own actions and its own underlying fundamentals. Much of the rest of the world was desperate to blame someone else for Uber’s fall. Anyone.
Today, the conversation switched to blaming underwriter Morgan Stanley. But perhaps the most outrageous “poor Uber” narrative was a suggestion on Axios that President Donald Trump may have timed his trade war with China just to mess with Uber. Nevermind, Uber’s shares stayed down even as the markets turned up last Friday, and that it lost another $7 billion in market cap on Monday.
“Uber the victim” is a fascinating and ironic hot take for so many respected business journalists, VCs and Valley insiders to be taking. A company that played fast and loose with rider safety, gaslighting its own customers when they reported assaults. A company that allegedly stole billions of dollars in trade secrets from rivals. A company that pioneered a “disruption” ethos of breaking laws in order to remake them. A company that a Federal judge said engaged in “possible criminal actions” against critics. A company that has continually baited-and-switched drivers when it comes to pay. A company that allegedly obtained medical records of a customer sexually assaulted using its service in order to attempt to smear her. A company that refused to buy leather jackets for its female employees because they didn’t employ enough of them to get a price break. A company that, yes, threatened my family to silence Pando exposing all this and more. A company that-- despite all of this-- broke all known records of private company money raised by a startup.
How do you raise that much capital from that many investors, get that many second chances, and still get to play the victim? Put another way: If Uber is David, who the hell is Goliath?
If there were anything funny about Uber’s treatment of employees, critics, and drivers, the jokes would write themselves. “Oh, you were told you’d make one amount of money at the end of your journey but actually made far less? What’s that like?”
We’ve written before about the strange infantilization of powerful, “genius”, white male tech founders. They are granted almost unimpeachable divine rights to lead their companies no matter what when they are on their game, and yet, when they stumble, the excuse is that they are too young, too impetuous, they just didn’t know any better. Somehow the lack of a COO/Nanny was the problem, not the founder’s actions. Powerful billionaires do the darndest things!
It’s one thing to continue to infantilize Facebook’s Mark Zuckerberg, a father and a man in his 30s who has run one of the largest public companies for a decade with almost unprecedented control. At least Zuckerberg came to public attention when he was young. It was another thing when the Valley infantilized Kalanick as simply “needing a Sheryl” to keep him inline. Kalanick: A man with nearly unprecedented board control who’d shown a refusal to listen to anyone and who was also approaching middle age with grey hair at the time those hot takes were written.
Don’t believe me? Here’s one blast from the past that actually argued Uber didn’t need “a Sheryl” but Sheryl Sandberg herself, cast here as a magical Silicon Valley Mary Poppins, not an accomplished leader in her own right:
“Sandberg has already proven that she can guide an immature young man into a leadership role and help create a company with a market cap of nearly $400 billion. She would have her work cut out for her: Zuckerberg was only 23 when Facebook went public, Kalanick may be more set in his bad ways. But then again, Sandberg, who’s 47, wouldn’t take any guff.”
That’s the gender dynamics of Silicon Valley in one quote: No matter how accomplished, women are here simply to reign in male founders who are actively and recklessly destroying shareholder value.
That infantilization of the middle aged tech bro is weird enough. But even I didn’t see that becoming the cover story for Uber writ large in the wake of a failed public bid. A company whose brand was oppressively dark, “baller” and militaristic from the beginning.
Not everyone is buying the act. The Financial Times has long been the lone financial publication to consistently call out Uber’s BS. This past weekend, it deftly broke down the “poor misunderstood next Amazon” cover story for the failed IPO.
Among the hits the FT scores:
- Amazon had things like warehouses, equipment, and employees-- actual physical and real barriers to entries from competitors.
- Amazon only burned $1.1 billion before turning cash-flow positive permanently in 2002, “less than a tenth of what Uber has spent, with no end in sight.”
- Amazon delivered on its core business first: “Jeff Bezos, did not boast about the new markets he planned to conquer before even proving his original business idea could work. In Uber, by contrast, Wall Street has just welcomed an $70.4bn giant with a voracious appetite for cash to match its spending addiction.”
The FT also noted that Uber’s network effects haven’t been as powerful as it would have hoped, that its “winner take most” strategy simply hasn’t worked if you look at the continued ascendance of Lyft, Didi and Uber’s generally failed ambition to run the global ride sharing game.
From the piece:
“Mr Khosrowshahi has tempered Uber’s confrontational, winner-take-all style. It is no longer intent on destroying competitors or fighting with regulators. But his strategy still depends on ‘winner takes most’, a belief that the ride-hailing company with the largest market share will walk off with a disproportionate chunk of the industry’s profits. So far, things have not worked out that way.”
That and Uber’s business “hit a wall” just before its IPO, the FT notes, with 20% quarter-over-quarter growth rates falling to as low as 1% in recent quarters. As Mark Cuban said on CNBC today, Uber is “not a growth company.” And the FT warns that even now Uber still hasn’t yet faced the “reality of building a sustainable business.”
This is to say nothing of the power of AWS, Prime, and Amazon’s moves into entertainment and the other factors that helped buoy Amazon up to a $1 trillion market cap momentarily. Without those moves, Amazon isn’t what it is today. What exactly is the equivalent for Uber? Because it isn’t Uber Eats. Even if there were a vision there for an AWS like second act, without proving its core business first, none of it is a given for Uber.
Put more simply: The argument seems to be that Uber is like Amazon because it is losing a lot of money to build market share and then later it’ll turn profitable. But when Amazon lost a tenth what Uber has spent already, even that facile comparison simply doesn’t hold up.
It’s yet another example of the flaw in Silicon Valley’s slavish devotion to pattern recognition. It becomes so wedded to the pattern it wants to fit that it changes the actual facts of that pattern. I’m reminded of John Doerr’s famous and regrettable quote about why he backs so many young white men:
"That correlates more with any other success factor that I've seen in the world's greatest entrepreneurs. If you look at [Amazon founder Jeff] Bezos, or [Netscape founder Marc] Andreessen, [Yahoo co-founder] David Filo, the founders of Google, they all seem to be white, male, nerds who've dropped out of Harvard or Stanford and they absolutely have no social life.”
It’s a quote that backs a double shock: The immediate and obvious one that he actually defends investing along the lines of racial, gender and class bias. The second stunner is only apparent upon closer inspection: His facts are actually wrong!
Andreessen went to University of Illinois. Bezos went to Princeton, didn’t drop out, and was married and in his 30s when he started Amazon. And Yahoo actually had another non-white co-founder Doerr neglects to mention in Jerry Yang. (The one who was responsible for the transformative Alibaba deal that represented almost all of Yahoo’s value in the end days.)
It’s not just a tyranny of hewing to a pattern that is at play with the Uber excuse narrative, and all the excuse narratives in the Valley that is galling. It’s the actual fictionalizing of that pattern to fit the particulars of Uber’s lousy business.
So what now? If Uber keeps trading down, will the Valley at some point acknowledge that these unprecedented valuations just may have been foolhardy? Might we get away from this playbook of flooding companies (founded mostly by white men) with so much capital that their success becomes assured while those who don’t fit this retrofitted pattern struggle to scale whether they’ve found product-market-fit or not? Might we get back to a Valley that values working business models and startups that can show profitability once they’ve been around ten years and raised billions of dollars?
There’s an interesting piece, also on Axios, today about Slack’s upcoming IPO. It is also a unicorn. It is not losing nearly as much money as Uber, and it’s not raised nearly as much at anywhere near as obscene prices. Still, it shares some similarities of the unicorn/blitz scale playbook. If Slack performs well, the piece argues, Lyft and Uber might be seen as outliers. If it doesn’t then it might prove a Wall Street indictment of the playbook that could chill all those IPO hopefuls.
“But if Slack stumbles, then a new storyline emerges. It's one in which people suddenly remember how underwhelming Dropbox has been since its March 2018 IPO — with a fully-diluted value barely above where it raised money in 2014. Go short on fleece vests and subscriptions to The Information.”
The risk is if that narrative takes hold those pumping up the late stage unicorn valuations might evaporate, essentially creating a longer, slower redux of the dot com bubble, where the rules on cash burn suddenly change. It would be one played out in private markets, with probably less drama or immediate collateral damage.
For those who’ve followed Silicon Valley for decades, it’s fitting that this is largely in the hands of Wall Street right now. After all, this cult of the founder, unicorn, put-off-the-IPO-for-a-decade playbook was a reaction to the dot com bubble and bust, when money losing companies were pushed into the public markets too early, and founders suffered under the gaze of short-term obsessed public markets. Growth funds like Softbank (which is also trading down on Uber’s lousy performance by the way) were supposed to be an end run around that problem. And yet, here we are again, faced with almost the same worst-case end game.
All of that disruption may have simply delayed the age-old Silicon Valley problem and added zeros to the scale of it.