Isn’t the Uber IPO guaranteed to be a scam?

“Uber Is Said to Aim for I.P.O. Valuation of Up to $100 Billion” (nytimes) says that the company wants to raise $10 billion via an IPO. Crunchbase says that the company has already raised $24 billion privately. In a world that is swimming in capital, why not just raise another $10 billion from private sources? Make one phone call to Goldman Sachs and say “I would like $10 billion please.”

Can there be a reason to go public other than getting “dumb money” to pay higher prices than what private equity and other professional investors would pay?

The same article notes that the investors who paid up for Lyft shares have already suffered a loss of 15 percent (as with most nytimes stories, this is fake news? Yahoo Finance shows a loss of 23 percent during a period in which the S&P 500 is up about 1.5 percent).

On the third hand, where are the likely competitors to Uber? From a technical point of view it would seem that Google and Apple would be the natural competitors. They have mapping software and know where both riders and drivers are. But if neither of those companies wants to enter the messy business in which customers may be injured or assaulted, then who could realistically compete?

I wonder if the Uber programmers are more capable than their counterparts at Google Maps. Uber is much smarter about predicting my likely destination than Google.

9 thoughts on “Isn’t the Uber IPO guaranteed to be a scam?

  1. AFAIK, VC investments often come with 10 year term, which for Uber is basically now, so they have to go to IPO if investors so desire.

    The reason everyone is rushing to IPO right now is that they expect recession to hit soon.

    • If “everyone” is rushing to IPO because there is a recession that “will hit soon” who are the morons who don’t know this and are eager buyers? The people who can’t afford a subscription to Phil’s weblog?

    • If you get out too soon before the recession, you loose upside. So it seems they think there is enough time to take part in the IPO and still make the profit. As Lyft stock price demonstrates, perhaps incorrectly.

  2. “Dumb money” is right. Who knows more about the company…the venture capitalist and management, or your average IPO investor? Funny how the more knowledgeable party is in such a hurry to sell.

  3. The argument you make about Uber is the same as for all IPOs — that smart money is selling to dumb money. But there has to be an exit for smart money otherwise they would never invest and there has to be a reasonable possibility of upside for the dumb money or they would never buy and the investment banks have to price the IPO with some upside for dumb money otherwise no one would buy IPOs from investment banks. It does seem that Uber is not an overly attractive business and that it has low barriers to entry but so did the business model of some guy inventorying books in his garage in Seattle and selling them over the internet.

    • Jack: Your idea about liquidity sounds reasonable, but isn’t Uber different from the typical small company that goes IPO? The company is known to everyone on Planet Earth, more or less. A VC fund that invested 5 years ago could easily sell its stake to a sovereign wealth fund, for example. There would be no need for a road show to explain the company to potential investors.

  4. The handover from VC to shareholders is supposed to happen once the company’s business model has proven itself, the information about the company is so broadly available, and future returns have declined to a point where VCs will want to reallocate their capital to riskier, but higher average return pursuits, where their analytical abilities will be more rewarded. Whether UBER has reached this point is unclear.

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