Broker-Dealers and Bankers Bolster Use of Uber In Pre-IPO Lobbying

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The current over-bubbly Silicon Valley “Unicorn” wave, which advances the notion of ‘stay private’ and eliminates the need to take a company public when there is an over-abundance of private equity cash available to prop up the so-called enterprise value, has led to a dearth of IPO deals and by extension, has crimped the wallets of brokerdealers and investment bankers who garnish big fees and commissions from the initial public offering process. Have no fear, to win over ride-sharing whale Uber in advance of their ultimate IPO, Bankers are pulling out the stops.

Wall Street bankers and broker-dealers are notorious for climbing over walls to win over whales in advance of the ultimate monetization event. In the case of Uber, the biggest Unicorn of them all, with a private market valuation of more than $50billion, JP Morgan, Goldman Sachs and other major investment banks have launched a pre-IPO lobbying campaign by banning the ubiquitous line-up of black car services esconsed outside  their palatial Wall Street homes, and instead, they are offering their brokers special compensation to embrace the use of Uber so as to win over the senior executives who will decide on this decade’s potentially biggest initial public offering mandate for investment bankers.

f7622be21d3caa14_rolls_eyes.xxxlargeIn a July 10  NYT story by Nathaniel Popper, which has been re-purposed by tens of dozens of media outlets, we give credit where credit is due and share the following excerpt from Popper’s column:

“..The latest reminder came this week when JPMorgan Chase announced that it would reimburse all of its employees for rides taken with Uber — offering access to “Uber’s expanding presence and seamless experience,” the company said in a news release.

JPMorgan made its decision long after other parts of corporate America were already hailing cars through the California start-up. But banks have recently shown a fondness for the service — with Goldman making the company part of its official travel policy in late May and Morgan Stanley putting out its own news release about its Uber use late last year.

Bank experts were quick to note that these moves come as the banks are jockeying to win a coveted spot managing Uber’s initial public offering — one that is not yet scheduled but that is assumed to be coming in the not-too-distant future. The I.P.O. for Uber, whose fund-raising so far has pegged its valuation at $50 billion, will most likely be the blockbuster I.P.O. in whatever year it takes place.

BrokerDealer.com provides a comprehensive global database of broker-dealers located in more than 30 countries across the free world.

A spokeswoman for JPMorgan said that the Uber news release this week had nothing to do with an I.P.O. and was instead part of the bank’s broader business relationship with the company. It does, though, fit squarely within a hallowed tradition of banks going to sometimes amusing lengths to secure a prized initial offering and the significant fees and reputational lift that it can provide.

“On the margin, sometimes the little incremental thing will make the difference,” said Lise Buyer, who advises start-ups looking at initial offerings. “Anything that a bank can do on the margin to improve their odds will probably be useful.”

The softer side of the sales pitch has taken on many forms over the years. When Amazon.com was going public, Ms. Buyer said that banks presented their pitch books to the company in the form of bound books, to celebrate Amazon’s book-selling roots. Other bankers have made humorous videos about the company they were proposing to bring to the stock market.

One of the most storied practitioners of the hard and soft sell of potential clients was the JPMorgan banker Jimmy Lee, who died unexpectedly last month.

Mr. Lee placed a G.M. car in the lobby of JPMorgan’s headquarters on Park Avenue when General Motors executives came in to consider whether to use the bank for the carmaker’s return to the public markets after the financial crisis. (JPMorgan participated.)

A few years later, Mr. Lee was in a custom-made Facebook hoodie — a sharp departure from his normal pinstripe suit — when Mark Zuckerberg visited JPMorgan before his company’s initial offering. (The bank took part in that one, too.)

These sorts of efforts have a well-grounded logic for the companies shopping for a bank. A banker taking a company public has to sell the shares of the company to investors — and thus needs to show an understanding of what the company does.

For the full story at the NY Times, click here

FOMO Is Leading To Cramming Of Startups According To One Capitalist

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FOMOBrokerdealer.com blog update courtesy of the Wall Street Journal.

Venture capitalist and Benchmark partner, Bill Gurley, advised people against “cramming” too much money into startups, such as Uber, Snapchat, and WeWork, at last week’s Goldman Sachs technology conference. Following his speech, Gurley gave even further insight to investing in startups and how the slang word, FOMO, plays into investing.

After speaking about the risks of “cramming” too much money in startups at the Goldman Sachs technology conference last week, venture capitalist Bill Gurley exited the stage.

More than a dozen investors swarmed the lanky partner of Benchmark, eager to speak with him— but few were planning to heed the venture capitalist’s advice. According to Gurley, one man, who represented a large mutual fund, asked, “You don’t want us to invest in this but the big tech stocks are not delivering enough growth and my competitors are getting into these startups, so what are we supposed to do?”

Gurley says he didn’t have a good answer but he wasn’t surprised by the sentiment, which he describes as FOMO, a slang popular among millennials that stands for “fear of missing out.”

It is this infectious FOMO, according to Gurley and other venture capitalists, that has created a flotilla of billion-dollar startups with ever-soaring valuations and mixed financials.

According to The Wall Street Journal’s Billion Dollar Startup Club, there are now at least 73 private technology companies worth more than $1 billion dollars, versus 41 a year ago. Some, such as Uber, the $41.2 billion car hailing app backed by Gurley’s Benchmark, are worth enormous sums. At least 48 companies were valued at $1 billion or more for the first time, and another 23 members moved up the ranking after raising more money.

Many investors are treating these 73 companies as if they were publicly traded, says Gurley. They are investing sums of money usually reserved for IPO offerings and, sometimes, giving away those dollars with the kind of confidence usually associated with investors who’ve perused regulatory filings for detailed financial information. The investors themselves are a blend of traditional venture-capital players and typically public-market investors: hedge funds, mutual funds and banks. They are sort of meeting in the middle, with the venture capitalists investing in later-stage companies than they have historically done, through new growth funds, and the institutional investors getting in before the IPO.

“We’ve been calling this the private-IPO slice,” said David York, managing director of Top Tier Capital Partners, a fund of funds. “The valuation of risk is a public-market thought process versus a private-market thought process.”

Gurley, who has become a vocal critic of irrational behavior in the industry, says he’s also very worried about the pile-up in the “private IPO” market.

He’s worried that venture capitalists’ new bedfellows, such as mutual funds, are too new to venture capital to properly weigh the risks and realize that these billion-dollar companies are not guaranteed home runs.

“This replaces the IPO — but not all these companies are IPO level candidates,” he said. “Would you hand a teenager $200,000?”

According to data collected by The Journal, of the 29 firms that have invested in five or more current billion-dollar startups, only about half are traditional venture-capital firms. The rest are a mix of institutional investors, such as the Dragoneer Investment Group and Tiger Global Management, and strategic investors, such as Intel and Google. Near the top of the list is Tiger with 12 investments in private billion-dollar companies, and T. Rowe Price Group with 11. In this group, Tiger also raised the most money last year, keying up $4 billion, or 12% of all venture capital raised in 2014.

With such financial heavyweights jumping in, many of their peers are wondering: Can I afford to sit out?

It’s difficult to quantify exactly how much money is sloshing around at this level. Several top venture capital firms have raised large growth funds in the past few years, but total contributions from hedge funds, mutual funds and banks is practically immeasurable without knowing how much each invested in particular funding rounds. Whatever the amount, this layer of growth capital could warp prices, venture capitalists say.

“It’s like traffic on the highway, you add just 5% more cars and it slows down traffic considerably,” said Glenn Solomon, a managing partner at GGV Capital. His firm is an investor in four companies in The Billion Dollar Startup Club.

In some ways, Gurley’s firm has benefited from this influx of pre-IPO capital. His firm is an early investor in four companies in the Billion Dollar Startup Club: Uber, Snapchat, WeWork and Jasper Technologies. All four have since raised money from a big public-market investor.

For the entire article from the Wall Street Journal, click here

BrokerDealers Want To Ride With Uber

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Shanghai, China. February 13th 2014. Driver images for UBER marketing content.

Brokerdealer.com blog update is courtesy of the New York Times’ Deal Book’s Mike Isaac.

Uber is an app-based transportation network and taxi company based out of San Francisco, California. It began in 2009 and has slowly been making its way across the United States and the world. Customers use the app to request rides and track their reserved vehicle’s location. Uber vehicles range from black luxury SUVs and town cars, to taxis, drivers’ personal vehicles. Although Uber hasn’t gone public yet, they have recently expanded their venture round to a total capacity of $2.8 billion due to high demand. Now, it is only a matter of time before the company decides to go public and the brokerdealers can’t wait. 

Uber, the ride-hailing service, likes to trumpet its popularity with consumers. Their fervor is surpassed, perhaps, only by investors’.

Facing overwhelming demand from institutional investors, Uber has expanded its Series E round of venture financing by $1 billion, according to documents filed Wednesday with the Delaware secretary of state, bringing the total capacity for the round up to $2.8 billion.

The move, which was confirmed by Uber, occurred just weeks after the company closed a $1.2 billion round of financing. At the time, Uber said it had left capacity for about $600 million in additional strategic investments, according to a Delaware filing. The company is incorporated in Delaware and based in San Francisco.

But the appetite for a piece of Uber has proved to be greater than the company had imagined. The $600 million was quickly oversubscribed, and Uber decided to raise the amount. Baidu, the Chinese Internet giant, accounts for part of the additional investment beyond the $1.2 billion round.

The most recent expansion is on top of some $4 billion Uber raised, including a recent $1.6 billion round of convertible debt financing from the clients of the private wealth arm of Goldman Sachs, the investment bank previously confirmed.

Uber’s $40 billion valuation, extraordinary by any private technology company’s standards, remains unchanged since the company announced the first part of the round in December. Uber is one of the most richly valued private technology start-ups, second only to Xiaomi, the Chinese smartphone manufacturer.

“The participation we have seen in Uber’s Series E underscores the confidence investors have in Uber’s growth,” Nairi Hourdajian, the head of global communications at Uber, said in a statement.

Even in Silicon Valley’s recent venture capital environment, where hundreds of millions of dollars and high valuations seem much easier to come by, Uber remains an anomaly. The company has raised close to $5 billion in private financing since it was founded in 2009, and it appears in no hurry to introduce itself to the public markets.

Uber is likely to need full pockets to continue its rapid growth.

The company is working to expand UberPool, its ride-sharing initiative that links multiple passengers heading toward the same destination and lets them split the cost.

Uber has also said it intends to bolster its European operations and push into the Asia-Pacific region.

It can expect to meet opposition. Uber faces stiff resistance from taxi and limousine interests in countries like Spain, Germany and Belgium, among others, and will probably need to spend heavily to market itself to win favor with locals.

To do well in China, the world’s most populous country, Uber will probably have to spend heavily to take on services like Kuaidi Dache and Didi Dache, China’s two largest taxi-hailing services, which recently announced plans to merge. That deal, if completed, would give the two services more than 90 percent of the market.

Meanwhile, Uber’s largest United States competitor is also raising money. Lyft, identified by its signature pink mustache logo, is trying to raise at least $250 million in private capital, with participation from at least one previous investor, the Alibaba Group of China.

For the original article, click here.

Private Market Valuations Exceed IPO Valuations: Is This a Bubble??

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private-company-valuations-temp-112614-4Brokerdealer.com blog update inspired by 2 Jan WSJ column by business news journalist Liam Denning

For broker-dealers, investment bankers, and those following the investment strategies of private equity and venture capital firms, this is one of the better plain-speak summaries profiling the current climate of investing in private companies. The recent outsized valuations during 2014 have caused greybeard investors to scratch their heads…as the outsized pre-IPO valuations are counter-intuitive to traditional investment analysis of private companies, particularly given the assortment of “lower-than-last-private round” post IPO valuations that these same companies are being given in the public marketplace.

For private companies that wish to network with deep-pocketed angel and/or institutional investors, Brokerdealer.com provides an investor forum that connects start-up entrepreneurs with those who can see the forest through the trees.

Below please find excerpts of Liam Denning’s reporting..

Buying a stock, with all its attendant filings, analyst coverage and forecasts, still can be a gamble. So imagine getting excited about one isolated price signal on a private company with all the disclosure of the Air Force’s Area 51.

Yet that is what is setting pulses racing as 2015 dawns. Xiaomi, a closely held Chinese smartphone maker, recently raised $1.1 billion at an implied valuation of more than $46 billion. That puts it ahead of Uber Technologies, the unlisted ride-booking application developer that got new funding in December valuing it at $41 billion. Both numbers also are higher than the market capitalizations of roughly three-quarters of the S&P 500’s members.

In theory, such startup valuations matter little to anyone but a relative handful of founders, employees and venture capitalists. The average investor doesn’t get a seat at the table or more than an occasional glimpse of what even is on the table.

In practice, news of such amazing, and seemingly unobtainable, investments stoke bullish sentiment, leaving individual investors potentially vulnerable.
Venture capitalists and other insiders usually do extensive due diligence before committing to the likes of Uber. But their basis for valuation differs from the approach of mainstream investors buying stocks, with venture funds also considering exit timelines, the cash needs of a startup to keep expanding and maintaining incentives for management and owners as equity stakes get parceled out. They also can, of course, just get things wrong.

Ordinary investors also must consider the wider context. In a world thirsting for yield amid ultralow interest rates, money has sought riskier corners of the market. Almost $24 billion of new commitments flowed to U.S. venture funds in the first nine months of 2014, according to the latest data from Thomson Reuters and the National Venture Capital Association. That is more than in each of the preceding five years in their entirety and sets up 2014 to have been the biggest year for new venture money since before the financial crisis.

This raises the risk of dollars being deployed into questionable businesses, which then eventually find their way into the wider market via initial public offerings, which are priced off the back of those high startup valuations.

For the entire WSJ story, please click here.

Uber Snags $1.2Bil in Funding at $17Bil Valuation: Deal Investors Drive Record Raise for Car-Ride Service

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A BrokerDealer.com/blog special:

Bankers, Broker-Dealers, venture and private equity investors, and the universe of fast-growth start-ups who keep an eye on the pulse of pre-IPO funding rounds were salivating on Friday after Uber, the car ride service, announced it raised $1.2bil from “institutional investors, mutual funds, private equity and venture capital,” with a second round of investors coming soon. The new round of financing values the company at a total $18.2 billion. The company’s pre-money valuation, not counting the latest round of funding, was $17 billion.

Investors hope the company, which allows users to summon a ride on their smartphones, can expand globally and diversify into logistics.
The investors in the round valued Uber “pre-money” at $17 billion, the blog post said. The $1.2 billion infusion took the startup’s valuation to $18.2 billion.

Fidelity Investments put in about $425 million, Wellington Management added $209 million and BlackRock Inc contributed $175 million, according to a person familiar with the matter.

Venture firms Summit Partners, Kleiner Perkins Caufield & Byers, Google Ventures and Menlo Ventures also participated in the round, a person familiar with the matter said. Kleiner’s investment came from its Digital Growth Fund, run by former stock analyst Mary Meeker, known for her bullish recommendations during the first dot-com boom. Her fund has had recent hits, including traffic app Waze, acquired last year for $1.1 billion by Google.

“Uber is one of the most rapidly growing companies ever, and we believe there are opportunities for continued tremendous growth,” Joan Miller, a spokeswoman for Summit Partners, an investor in the funding round, said by telephone.Uber, which did not give details about its latest investors, operates in 128 cities across 37 countries.

Kalanick said he expected to close a second round of funding from strategic investors of about $200 million