Toyota invested $500M in Uber in late August at a $72B valuation [1]

[1] https://www.cnbc.com/2018/08/27/toyota-to-invest-500-million...

Private transactions may not be a very good measure of valuation.

Remember that just because a few shares change hands at $X, doesn't mean that supply/demand puts them all at that price.

Insiders might be more inclined to sell some off, there could be special terms, yada yada.

Agreed. The shares sold in the secondary offering were likely shares of common stock, whereas the last round of funding would have been a sale of preferred stock.

I would expect there to be a natural discount off the preferred valuation since the common stock doesn’t have the same downside protection. A 20-30% discount would not be at all unusual in my experience.

It's not just the type of share - a single bid/buy transaction does not necessarily reflect the value of the rest of the shares.

Saudis need to park tons of cash somewhere. They might be willing to pay a premium for the safety of an American company. A hedge fund may not.

Valuation of a company by using a small sample transaction is always a roughshod thing.

What is this "downside risk" that exists for common stock and not preferred stock?

Basically it’s the “you’re just an employee” risk of startups.

A non employee investing 100k in your company is clearly contributing more than a full time employee being paid in RSUs, so when the company gets liquidated (eg statistics happens) they will get paid back, whereas your employees don’t.

Alternatively, the company might sell enough preferred stock to VCs to give them majority voting rights, and they can then devalue the common stock and sell the company with none of the proceeds going to common stock.

Or your company never goes public, but common stock comes with rules against selling it on private markets, so it can functionally be treated as being worth $0. Or of course (because you can’t sell it) the company can impact clawbacks without you even doing anything wrong.

Of course I’m not saying that all startups do that, just that that can happen (and I believe all of the above have happened).

That’s part of why I will never work at a startup, though not necessarily by choice: many HN people have claimed told me on many occasions that it is unreasonable for me to expect to get fair compensation from a startup. Shrug.

Anyway, for other people who are willing to take the risk of a $0 return from a company selling at a profit, I would strongly recommend having a lawyer look at your contract to verify none of the more egregious failings listed above can happen, and remember that stock compensation is worthless if you cannot sell it.

> A non employee investing 100k in your company is clearly contributing more than a full time employee being paid in RSUs

How do you figure?

I was being sarcastic, largely because people on HN have vigorously opposed my assessment that time working for a startup at below market rates is fundamentally the investment of money in that startup.

So at minimum every "employee" working for a startup is investing (market rate - actual rate) dollars in that startup. That's also not super equivalent because time investments (and standard employment contracts) mean that there is an absolute opportunity cost to working for a startup that does not match a cash investment. Essentially you can invest money in multiple companies at a time, you can't invest time repeatedly.

I think they were being sarcastic

correct, I had thought in this context at least it was obvious :)

Liquidation preference is one. Basically holders of the preferred stock get to cash out first and common stock holders get whatever’s left. In case of an exit at a lower than before valuation, for example, it’s not unusual for common stock to lose most (or all) of its value.

The Venture Deals book is really insightful on this (and general startup financing) subject.

https://www.feld.com/archives/2016/10/venture-deals-third-ed... This book? Thank you

Yes.

I cannot recall any instances though for hot issues of public shares trading less on IPO than the private

>We've gone from a damaged company worth 48b in January to a 120b valuation in a few months.

I remember some here were ragging on Softbank for overpaying in their Uber investment just a few months ago. Amazing how a few months can change things.

> Presumably the Saudi and Japanese softbank investors are hoping to extract an ipo profit.

I don't think they bought in for a quick profit. These guys buy in for info and influence. But nearly a 200% appreciation ( if the valuation holds and if they IPO ) in a year has to be tempting.

> Presumably the Saudi and Japanese softbank investors are hoping to extract an ipo profit.

Greater fool theory?

Not all the money in Uber is dumb. Early investors like Benchmark and GV had an exit opportunity when the Softbank deal was being negotiated, but none of them took it.

But the early investors are less sensitive to the higher valuation volitity. I doubt GV really cares if the valuation is 59B or 100B. They were in early enough, that I suspect they’ll make a heavy profit regardless. It would be interesting to know if the final IPO values higher or lower than what SoftBank would have been offering, but even if Uber ends up lower, I’m sure there is relatively low risk to early investors.

I’d love to know the actual numbers though.

> I doubt GV really cares if the valuation is 59B or 100B

There is no VC that doesn't care about a 70% difference in returns.

Disclaimer: I know none of these numbers...

Let's say that GV had the opportunity to sell to SoftBank at a valuation of 50B. Let's just guess that they would getting a 500X return. Maybe they invested 1M early at a 10M valuation and got diluted to ~1% ownership. So 1% of 50B is 500M on a 1M investment.

This is a great return for them. Congrats to all involved.

But this could be considered something of a low-end valuation. Maybe it's more... maybe Uber can IPO at a 100B valuation. The difference between a 500X and 1000X exit is huge, but risky. Maybe they end up IPO'ing at only a 40B valuation. GV would still have a 400X exit. This is the risk GV would have to gauge.

Now, if you're one of the later investors and spent 100M for 1%, then the (respective) numbers would be 5X (500M for a 100M investment), 10X, and 4X. For an late round investment like this, you may chose to exit at a locked in 5X, deeming the risk of a 4X exit too great.

Thus my comment that earlier round investors would be less sensitive to whatever the ultimate IPO valuation is. A 400X exit would make a fund. A 4X exit, while good, isn't great.

Again, I don't know the numbers and I suspect they are all significantly higher. I picked numbers that made the math easier. I also don't know who ultimately ended up cashing out (or when). So really, this is all speculation. But if anyone has the numbers, I'd love to know them!

This will not end well, for anyone.

except Lyft