Here’s what you need to know about SoftBank’s tender offer for Uber coming tomorrow

It’s time to see if investors will sell or hold onto shares of the troubled car-hailing giant

Investors who have poured over $ 10 billion into Uber over the last eight years have stomached scandals and soap operas of every kind, including the noisy ouster of its CEO Travis Kalanick.

But tomorrow, they’ll find out if all that trouble was worth it — or if they’ll have to wait even longer for the big payoff.

Tuesday’s when a multi-billion “tender offer” from Japanese investment giant SoftBank is expected to begin, according to sources tracking the process, giving Uber shareholders the chance to sell some of their stock or hold fast until the company goes public. The decision effectively asks every Uber insider to gauge their confidence in the company they built.

SoftBank and other new investors are hoping to purchase up to 20 percent of Uber, which has most recently been valued at $ 70 billion. The twist? The group has signaled that they are only willing to offer a share price that would value the company at around $ 50 billion.

That means if enough existing shareholders decide that the discount is too steep, the deal could crumble — setting off a cascade of problems at Uber ranging from how to solve its troubled governance to how it can grow without more funding.

It’s also the first major reckoning for newly installed CEO Dara Khosrowshahi, who is banking on pulling off the deal smoothly to get Uber past its incessant and damaging drama and toward a more stable future.

But nothing involving Uber is easy, so here’s what Recode is watching for and hearing from sources ahead of the launch of this massive transaction:

Who is selling?

Under the terms of the deal, the SoftBank-led group will only move forward if it can cobble together at least 14 percent of the company’s shares, although it seeks more. That’s why the back-channeling among Uber shareholders about who might be selling and who might not be has become so intense and confusing.

The likeliest group of sellers are early employees — assuming they have more than 10,000 shares — many of whom are expected to part with at least some of their positions. The program would look similar to Facebook employees’ cash-out to Digital Sky Technologies in 2009. But Uber employees’ shares together only add up to a few percentage points at best.

Later investors, who bought shares of Uber at a valuation higher than $ 50 billion, are unlikely to want to book a loss and sell.

So that’s why the deal largely rests on a half-dozen of the company’s biggest owners and earliest backers. Those powerhouse investors include Benchmark Capital, First Round Capital, Lowercase Capital, Menlo Ventures, and Google Ventures, as well as key Uber players, most especially founders Garrett Camp and Kalanick.

Kalanick has told associates in the past that he has no plans to sell any of his 10 percent ownership of the company. And even though even parting with a small part could make him a billionaire, sources said it is still not clear if that position has changed. Sources close to the situation remain wary of what the fractious entrepreneur will do. Most do expect the more cooperative Camp, however, to sell at least some shares.

Google Ventures, which led a $ 250 million round in Uber in 2013, is assumed by many to be a seller, given the tension between Uber and Google’s parent company, Alphabet. Another complication: Alphabet’s other investing group, CapitalG, also recently led a $ 1 billion investment round in Uber’s arch-rival, Lyft.

Sources said Benchmark, which has a 13 percent ownership percentage, is more likely to sell now that it has secured some governance reforms that it had pushed to restrain Kalanick. But the venture firm has also said it believes its portfolio company is on pace to be worth over $ 100 billion — which would appear to be merely negotiating posture if the venture firm now agreed to a 50% haircut.

Menlo, First Round and Lowercase have attracted less attention than either Benchmark or Kalanick, but could very well be the swing votes in whether the sale is successful.

Menlo — whose 2011 investment was led by a Kalanick ally, Shervin Pishevar, who has since left the firm — is likely to sell at least some of its holdings, sources said.

First Round has appeared somewhat divided on whether to collect on any of its massive return, which is accumulated by leading its seed round in 2010 when the company was valued at only $ 4 million.

Even less likely to sell at the proposed valuation is Lowercase, the fund steered by early Uber investor Chris Sacca, which joined Benchmark’s financing round in 2011.

Can Dara pull it off?

The transaction is major leadership test for Khosrowshahi, who has pushed the company’s investors to not just consider what is good for their limited partners, but also what is good for the company.

The new CEO has encouraged all of Uber’s biggest shareholders to sell at least a little of their holdings, multiple sources said, in order for the new buyers to reach the 14 percent threshold needed to trigger the sale, and, more importantly, the governance reforms.

The deal would also give Khosrowshahi an ally in SoftBank and its powerful CEO, Masayoshi Son, who has been investing hundreds of billions of dollars in tech around the globe. Son has repeatedly said he could invest in Lyft should the Uber transaction fall through, although a few Uber insiders treat that as a negotiating ploy.

The obvious challenge for Khosrowshahi is that shareholders could balk if the Uber pricing is too low. While the exact terms are still a mystery to even its largest shareholders, sources said the current pricing is expected to value Uber at between $ 48 and $ 52 billion.

And, despite months of wrangling, the price remains largely where it was when the broad outlines of the deal were struck almost two months ago. With Uber on what appears to be an upswing — with strong growth and a respected new leader and management — several current shareholders think that selling is an unwise idea before Uber’s expected IPO in 2019.

SoftBank has also pushed an anti-collusion provision that has sought to prevent sellers from formulating their minimum price for selling. That means it has no clear way to discern what is posturing by stockholders and what is any real discomfort with the terms — which could lead to an ill-informed underbid when the price is set on Tuesday.

If the first tender process, which will last for 20 business days, fails, then SoftBank will have the chance to try again and raise its offer price to attract more sellers.

Is there a hacking discount?

And then there is last week’s disclosure that Uber had been the victim of a massive data breach, which has once again trained investors’ ire at Kalanick, who oversaw the company’s cloddish response to the hack in 2016. That response included paying off the culprits.

That news — released by Khosrowshahi — could impact both Uber buyers and sellers as they decide how much the ride-hailing giant is truly worth. Could it trigger an argument that the pricing is actually too high and that there are still more Kalanick-era skeletons to emerge from the closet? Yes. Will it ratchet up pressure on Kalanick to reduce his ownership control in the company? Maybe. Will it be seen by current investors as a cynical way to get them to take a discount? Who knows.

All that is clear is that the next chapter in the Uber drama starts Tuesday.


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SoftBank’s $93 billion Vision Fund is the biggest of all time — and it’s not even close

Its size could also be a liability.

SoftBank’s Vision Fund is a beast like no other. Backed by sovereign wealth funds and tech behemoths alike, it’s not just the largest tech fund ever — it’s the largest corporate venture capital fund ever, according to data from FactSet. It towers over what were formerly the biggest of these funds, raised by such names as Goldman Sachs and Blackstone.

And even more terrifying to Silicon Valley venture capital firms, SoftBank’s fund is focused on tech startups. Typical funds from Sand Hill firms barely register on the same scale as SoftBank’s $ 93 billion Vision Fund — VC funds usually top out in the millions or at most one-digit billions.

Here’s how it compares in size to the biggest funds historically, as well as to some major tech funds:

Chart of size of major venture capital funds

The size of SoftBank’s fund has both intimidated and befuddled competing investors, who expect that the giant will have to cut massive, rapid deals in order to put the cash to work effectively, according to sources. Some worry that the pool will further inflate already overly high valuations of private tech companies. But other shareholders see it as an opportunity to sell their stakes earlier in companies that are taking longer and longer to deliver real cash.

But perhaps the relatively smaller size of Sand Hill’s venture capital funds is a blessing. SoftBank will have to allocate approximately $ 20 billion a year to dispense with its intended $ 100 billion fund in its five-year time frame. Smaller firms will likely have to be choosier about their investments.

For example, Benchmark’s fund that invested in Uber in 2011, when the company was worth only $ 60 million, raised $ 425 million for its entire fund — an amount smaller than single deals by SoftBank. Uber is now worth more than 1,000 times what it was during its series A funding. Funding later-stage investments or buyouts like SoftBank is doing is much more expensive, but won’t likely yield returns like that.

Theodore Schleifer contributed reporting.


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SoftBank’s Vision Fund is the biggest technology investment portfolio ever. This is where its $93 billion has gone so far.

Uber would be its biggest deal yet.

SoftBank seems like it’s everywhere in tech. That’s because its Vision Fund — an investment fund backed by sovereign nations Saudi Arabia and the United Arab Emirates as well as tech giants including Apple, Qualcomm and Sharp — has a lot of money to spend. Having raised $ 93 billion so far, it’s the largest technology investment fund ever.

Slack announced yesterday that it was receiving $ 250 million in a funding round led by the Japanese tech goliath’s Vision Fund. The fund has already extended money to WeWork, SoFi and Fanatics. Uber, the biggest startup in the U.S., could receive as much as $ 10 billion from the fund, making the ride-hailing company Vision Fund’s biggest beneficiary yet.

Here’s what we know so far about the value of investments and funding rounds led by SoftBank, according to its announcements and public disclosures.

Chart of SoftBank Vision Fund’s investments so far.

In the case of funding rounds, the Vision Fund isn’t on the hook for the entire amount but rather a sizable portion. Some of the deals (OneWeb, SoFi, Improbable, Nauto, ARM and OSIsoft) are intended for but are not yet officially part of the fund. Final deal values have not been disclosed.

And this is just the beginning. The Vision Fund hopes to raise a total of $ 100 billion that it will invest for up to five years after its final closing. Spending that much money will require massive investments — about $ 20 billion worth per year on average.

SoftBank is also investing plenty in technology outside of the Vision Fund, including investments in Uber competitor Didi Chuxing.


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SoftBank’s Plan B: Win over Uber investors who aren’t Benchmark

The Japanese giant is “making the rounds” to find new ways to get a piece of the car-hailing company

SoftBank has begun approaching other investors besides Benchmark in a continuing effort to acquire a piece of Uber, according to people briefed on the moves.

As has been widely reported, the giant Japan-based investor and conglomerate has offered to buy shares in the car-hailing company owned by the Silicon Valley venture firm, but has been unsuccessful so far due to differences on price. (SoftBank had offered to buy shares at a $ 45 billion valuation for Uber, said sources, while Benchmark has publicly stated that they believe Uber will be worth $ 100 billion.)

That’s why SoftBank has recently begun to make overtures to other shareholders to purchase some of their positions, said sources, “making the rounds” and expanding its list of targets to find other potential sellers.

SoftBank has also expressed an interest in also buying equity directly from Uber, but is said to only be willing to do so if they could also purchase ownership stakes from an existing investor, the people briefed said.

It is unclear what other investors in the massive privately held company could be interested in selling at the prices offered by SoftBank. Benchmark has been assumed the most likely seller given its fierce disagreements over the direction of the company, which burst into public view in the lawsuit against Kalanick this week.

“If anything, our view is that SoftBank should pay a significant premium to what a fair value of the stock should be,” said one person briefed. “I personally don’t know anybody that would sell at that price at any kind of size.”

In fact, some of those investors are on the hunt to buy more shares in Uber, despite all of its troubles of late, including the ousting of CEO Travis Kalanick for presiding over what appears to a deeply dysfunctionally managed company.

Before Benchmark signaled it would not accept a deal at those terms, several existing Uber backers — including the hedge fund Tiger Investments — told Benchmark that if Uber shares were available at a $ 45 billion valuation, they would be glad to take those off of their hands, according to one of the people briefed.

Tiger Investments, Benchmark and SoftBank declined to comment.

In addition, prior to the lawsuit, several Uber investors had been privately advising the board not to allow Benchmark to sell any of its stake in the ride-hailing company until Uber chose its new CEO. Some worry that those seeking to bring SoftBank into the fold could upset delicate negotiations over Kalanick’s successor.

And on Friday, a new class of potential buyers emerged: A trio of Kalanick’s closest associates — angry over Benchmark’s lawsuit — wrote in a letter to Uber’s board that they have even more investors interested in Uber.

“We have investors ready to acquire these shares as soon as we receive communication from Benchmark that they are willing to withdraw their lawsuit and sell a minimum of 75 percent of their holdings,” they wrote.

The reason for all this activity is clear: SoftBank has gobs of cash it wants to deploy. Its Vision Fund has pledged to make $ 100 billion in investments, an enormous sum that requires it to disburse massive checks at a rapid pace. SoftBank is already a major investor in several of Uber’s competitors, and its head, Masa Son, has publicly mused about backing its primary rival in the United States, Lyft.


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