atans1

Uber raises money to subsidide users

In China, Financial competency, India on 15/07/2016 at 1:28 pm

NYT Dealbook explains Uber’s biz model of sunsidising the rides of Chinese and Indian customers to starve its competitors of biz:

WHY UBER KEEPS RAISING MILLIONS It feels like almost every other week there is a new headline about Uber raising more money, Andrew Ross Sorkin writes in the DealBook column.

If you add up all the money the company has raised since it started in 2009,it is on its way to amassing $15 billion and has a valuation of $68 billion – all while remaining a private company.

When Amazon went public in 1997, it had raised $54 million and was valued at $438 million.

Uber has to finance its efforts to grab market share in China and India, butit is also trying to mark its territory. Every time Uber raises another $1 billion, investors find it less attractive to back one of Uber’s rivals: Didi Chuxing, Lyft, Gett, Halo, Juno. It is a war of attrition, to starve the competition of cash.

Uber’s efforts seem to have had the opposite effect so far, spawning a long list of rivals, but as the smaller competitors run out of cash, venture capitalists should be less inclined to put up more money.

This arms race comes against the backdrop of falling valuations and there is a rush to take the money while it is still available. Bill Gurley, a venture capitalist who has a stake in Uber and sits on its board, warned investors about unicorns seeking funds: “You are not being invited to a special dance, you are being approached because you are the lender of last resort.”

The question is whether investors will look at Uber’s balance sheet and throw up the white flag. It still has formidable competition from Didi, the market leader in China, which just raised $7 billion. And some of the same investors that have backed Uber are also backing Didi, including BlackRock and Tiger Global. (Some may be hoping that Uber might one day merge its Chinese operation with Didi.)

Uber’s most recent fund-raising effort – focused on the leveraged loan market – aims to avoid diluting the current base of shareholders and having to sell itself at an even higher valuation. It will have to pay up for the financing, but if its valuation continues to grow, it would be a bargain compared with the value of the equity. Uber is hoping to sell debt with a yield of 4 or 4.5 percent.

The question between now and the probable initial public offering in a few years is whether it will have starved all of its competitors along the way.

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