Google’s investment arm and TPG have led a $258m investment in Uber, the taxi-hailing app that has both delighted customers andenraged regulators around the world

August 23, 2013 11:58 pm

Google investment helps fuel Uber

By Tim Bradshaw and Richard Waters in San Francisco

Google’s investment arm and TPG, the private equity group, have led a $258m investment in Uber, the taxi-hailing app that has both delighted customers andenraged regulators around the world. The move values the three-year-old company at around $3.5bn, according to one person familiar with the deal, vaulting Uber into the ranks of the most valuable private tech companies alongside the likes of Airbnb, the travel company, Square, the mobile payments firm, and Spotify, the digital music service.Uber launched its iPhone app in 2010 to bring limousines to the curb within minutes, providing a luxury experience to customers who could not usually afford their own private driver. Amid growing competition from ridesharing start-ups such as Lyft and Sidecar and other taxi-hailing apps such as Hailo and GetTaxi, Uber has added the ability to request regular cabs and lower-end cars too.

Its eye-catching valuation comes amid Silicon Valley’s current infatuation with transforming transport, fromTesla’s electric vehicles and its founder Elon Musk’s plans for a “hyperloop”, to Google’s self-driving cars and a wave of interest in urban delivery and taxi start-ups.

Uber’s funding, which included contributions from existing investor Benchmark Capital according to regulatory filings, provides a combination of new money as well as allowing existing investors and management to cash in part of their stakes.

Travis Kalanick, Uber’s chief executive, said in ablogpost that the proceeds would allow the San Francisco-based company to “expand into new markets, begin marketing efforts, and fight off protectionist, anti-competitive efforts”.

Customers give Uber five-star ratings on Apple and Google’s app stores but taxi unions and local governments in some areas have fought to block its service, suggesting it should be regulated like other utilities.

Despite these challenges, it has launched in more than 40 cities, including New York, London, Mexico City and Singapore.

Mr Kalanick said that Google provided complementary technology such as maps, self-driving cars and its Android mobile platform, as well as experience with regulators, while TPG provided operational expertise in highly regulated industries.

David Drummond, Google’s head of corporate development and chief legal officer, and David Bonderman, TPG’s co-founder, will join Uber’s board.

After experimenting with one-off deliveries of ice cream, Mexican food or Valentine’s day gifts, Uber may be able to use its large network of customers and drivers to offer new kinds of services. Over the July 4 holiday this year, its app even offered $3,000 helicopter rides between New York and the Hamptons.

“Once you deliver a town car in five minutes you can deliver almost anything,” Mr Kalanick told the FT in an interview last year. “Right now we are focused on transportation. I call it an urban logistics fabric.”

Despite a number of copycats and competitors, Uber says that it has a defensible advantage in the back-end technology that it uses to dispatch and route cars, predict demand and optimise utilisation of its drivers.

It also now has a financial advantage, despite Lyft raising $82m and Hailo $50m, both from its mammoth funding and high profit margins. Mr Kalanick has said that its service is usually profitable within a few months of launching in a new city, with users taking several rides a month on average.

News of Uber’s fundraising was first reported by AllThingsD.

The Vision For $3.4 Billion Uber Is Much More Than Just A Car Service, And It Could Vastly Improve Our Lives

ALYSON SHONTELL AUG. 23, 2013, 5:16 PM 8,964 11

Uber is a car service that sends a driver to a user on demand when he or she pings a mobile app. Investors think the business is worth a lot of money — $3.4 billion to be exact.

That’s up from a $330 million valuation in November 2011.

If you’ve ever tried Uber or live in a city where taxis are unreliable, you know Travis Kalanick’s team is onto something big. People are willing to pay up to avoid being late or stranded.

But how can Uber be worth multiple billions? And how will Uber impact more than our punctuality in the future?

Right now, Uber only lets you hail cars from your phone. It started as a luxury black-car service in 2009, but now it offers cheaper options, like Sedans (Uber X) and taxis. There are no reservations. The app only accepts real-time requests.

In Kalanick’s mind, Uber can offer much more than rides. The CEO hinted at the company’s potential in an interview with Fortune’s Jessi Hempel, where he called Uber the “cross between lifestyle and logistics.”

Kalanick wants Uber to be an “instant gratification” service that gives people what the need, when they need it, whether that’s a ride or some other delivery.

For example, if you want to send a package to a friend across town, you could hail an Uber driver who could pick up the package and deliver it minutes later.

Kalanick’s team has already experimented with on-demand ice cream trucks, which deliver treats to residents who hail it on their phones. They’ve also experimented with on-demand roses on Valentine’s day, helicopter rides to the Hamptons, and on-demand barbecue in Texas. Each has been spun as a marketing promotion, but it’s also a way for Uber to test new types of deliveries and work out the kinks.

“What we’re doing right now is we’re in the experimentation phase where you sort of find some interesting ways to do promotions like Uber ice cream,” Kalanick explained to Hempel. “It’s very straightforward for us to basically give [drivers] a phone with an app on it and say, ‘Look, when the thing is blinking, hit the screen and go to where the map tells you to go. And you don’t have to pick them up and take them anywhere, just give them ice cream.'”

So while Uber only currently offers rides full-time on its app, it’s in the process of figuring out logistics around the world to ultimately power other real-time requests. Think package deliveries, furniture, food, and more.

Kalanick’s close friend and Uber investor Shervin Pishevar explained Uber’s grand vision to Inc:

“Uber is building a digital mesh — a grid that goes over the cities. Once you have that grid running, in everyone’s pockets, there is a lot of potential for what you can build as a platform. Uber is in the empire-building phase.”

That doesn’t mean you’ll be able to order everything in real-time on a service like Uber.

“There are things that are not designed for Uber,” Kalanick told Hempel. He used the example of hailing a plumbing service on Uber. Plumbers are needed so infrequently, there’s no need for them to show up in real time via Kalanick’s service.

“If somebody goes …’Travis, when are you going to do a concierge service? Or hotel [bookings]?’ I’m like, ‘We’re not going to do hotels because we’re not delivering a hotel building to you.’ We know what we are,” he says.

Uber is not guaranteed to win and dominate the world of logistics. There are other real-time networks, like Seamless or PostMates, that could inhibit Uber’s expansion plans. Multiple cities have given Uber legal trouble in an effort to protect cab companies.  Competitors like Hailo, SideCar, and Lyft have popped up and gained traction.

With a reported $125 million in annual revenue, Uber’s $3.4 billion valuation is a stretch. But when you start to see Uber’s potential beyond cars, the number becomes easier to grasp.

An investor who hasn’t put money into Uber doesn’t think the valuation is crazy, but he does thinks it’s one Uber will have to grow into.

“You don’t have many even market comparables,” the investor explained. “There aren’t a lot of alternative transportation companies that you could take and apply the same multiple to Uber.” He noted a 10X multiple on revenue, or a $1-1.25 billion valuation, might better suit Uber’s current size. “There are so many other categories Uber can go after though; I think that’s how investors justified the $3.4 billion valuation.”

Investors are thrilled with Uber’s growth. Revenue is up 18% month over month and Uber is profitable in all of its earliest markets. The startup has grown from 75 employees last year to more than 300 today. It now runs in more than 35 cities worldwide, up from 12 one year ago. Uber is also a category leader.

Uber’s Google-Led Deal Said to Value Company at $3.5 Billion

Uber Technologies Inc., the developer of a mobile application for car-service booking, said it raised $258 million from Google Inc. (GOOG)’s venture-capital arm and private-equity firm TPG Capital.

The financing values San Francisco-based Uber at about $3.5 billion, according to a person familiar with the matter, who declined to be named because the valuation wasn’t disclosed. Uber announced the funding on its blog.

“We couldn’t be more excited to embark on the next phase of our journey with our new partners,” Travis Kalanick, Uber’s chief executive officer, wrote in the blog post. “Our vision is to build a technology company that changes transportation and logistics in urban centers around the world, and this financing gives us the fuel to make that a reality.”

David Drummond, Google’s senior vice president of corporate development and chief legal officer, and David Bonderman, a TPG co-founder, will join Uber’s board of directors, the post said.

Andrew Noyes, a spokesman for Uber, declined to comment on the valuation.

Uber has grown the business sevenfold over the past year, Kalanick said in Taipei last month for the service’s debut there. Kalanick said in an interview at the time that Uber was seeking hundreds of millions of dollars to fund its expansion to cities in China and around the world.

The company is opening in new markets, seeking to promote its products before upstarts, such as Hailo and Lyft Inc., can dominate in cities where Uber doesn’t yet operate.

Earlier this month, Uber said in a corporate disclosure that it had raised $88.4 million from TPG and an additional $15 million from Benchmark, an existing investor. The remaining shares to be issued were valued at $258 million, according to the filing.

AllThingsD reported yesterday on the filing and valuation.

To contact the reporters on this story: Mark Milian in San Francisco at mmilian@bloomberg.net; Ari Levy in San Francisco at alevy5@bloomberg.net