How Uber was valued at $17 billion.
Disclosure: I wasn't in the room when Travis Kalanick negotiated Uber's $17B pre-money valuation, so this is all just educated speculation.
Having said that, I've been in the room before as a Corporate Development Manager with CFOs and CEOs negotiating multi-billion dollar deals, as an M&A banker with the best tech bank in San Francisco, and even as a CEO negotiating the sale of my own company (not for billions, unfortunately). So, I think I've gained a little bit of insight into the process, which is not nearly as scientific as many people might imagine.
I can still remember vividly the feeling of walking into a board room to discuss a big deal. I can remember the pride of having created a masterpeice - a beautifully bound book of charts, numbers, and sophisticated analyses that were going to be used to figure out the price of the deal. We're talking about billions of dollars at stake here, so we need a lot of detailed data and analysis to help us out.
I can also remember another feeling that's more relevant to the topic of this post, and that is the feeling of being completely demoralized. Demoralized, because I've spent late nights (or all nighters) creating this masterpiece of a deal book and it's really not what the CEOs care about or want to talk about. The conversation they have in mind is much simpler. Like the conversation I imagine Travis Kalanick just had with his investors - probably after reviewing a deal book:
Travis: We're worth $20 billion.
VC: How do you get to $20 billion?
Travis: Facebook paid $16 billion for WhatsApp and Uber is bigger.
From there some back and forth discussions about how Uber may or may not compare to WhatsApp and some back and forth negotiations to get to the pre-money of $17B. It's not a lot different than negotiating the value of your house based on what someone paid for your neighbor's house. It was probably that simple.
Why is it that simple? Because if want to invest in Uber at this point you're doing it because you think it'll be worth $100 billion. If that's the case then you're not going to walk away from the deal over a measly billion or two in the valuation.
About TheStartup100
TheStartup100 and this blog are a project of Frank Anderson. I'm an internet entrepreneur; former investment banker and consultant; and studied at the University of Illinois and the University of Chicago. You can email me at frank(at)thestartup100.com.