Uber was the most valuable private company in history, but the public market has not been as enthusiastic. The reason explains a lot about how the tech industry works
Uber is now a massive, publicly traded company. Anyone can buy Uber shares at a valuation of about $70 billion. This isn’t bad for a company losing billions of dollars a year, but it’s a fraction of the $120-billion valuation the IPO’s bankers initially floated. It’s roughly what private investors valued it at 3 years ago, when the company made $7.43 billion less revenue.
That is to say, there’s a large gulf between how venture capitalists saw the company and how a broader set of investors on the public market see it. Journalists and analysts have tried to explain this yawning gap. Maybe it’s because Uber stayed private too long, or because Lyft messed up ride-hailing IPOs, or because the timing was bad, or because the long shadow of corporate misbehavior has tarnished the brand. With $50 billion on the table, there’s plenty of blame to spread around.
But some of it should go to Silicon Valley’s cultural divergence from the business reality. Investors loved the company not as an operating unit, but as an idea about how the world should be. Uber’s CEO was brash and would do whatever it took. His company’s attitude towards the government was dismissive and defiant. And its model of how society should work, especially how labor supply should meet consumer demand, valorized the individual, as if Milton Friedman’s dreams coalesced into a company. “It’s almost the perfect tech company, insofar as it allocates resources in the physical world and corrects some real inefficiencies,” the Uber investor Naval Ravikant told San Francisco magazine in 2014.
And many, many investors agreed, long before the company was anywhere close to profitability. “Frankly, there’s never been a company like Uber,” Shawn Carolan, who co-led Menlo Ventures’ investment in the company, said last month. Uber has taken more money than any other company from the dense set of moneymen who bankroll new(ish) companies. Its investors include Alphabet, Google’s parent company; Jeff Bezos; Softbank; the Saudi sovereign wealth fund; a slew of marquee venture-capital firms; Goldman Sachs; and even Tim Ferriss, whose work week is probably even shorter now. In 2014, the company set the record for the largest valuation ever for a private tech company—at $17 billion—and then smashed its own mark many times.
What made Uber so special? To start, both co-founders Garrett Camp and Travis Kalanick had sold companies before they started Uber. They were seasoned entrepreneurs with track records, and that opens doors. Rob Hayes of First Round Capital famously sent Camp an email offering funding to the then-fledgling “UberCab” that read: “I’ll buy. What’s UberCab?”
More importantly, however, VCs liked the service themselves. In 2016, Hayes recalled his first encounter with Uber: “What I saw was a product that I would use all the time, even though I never use black cars. My friends didn’t use black cars, but this was a product they were going to use all the time,” he said. He and his firm would rely on their instinct instead of putting a number on the company’s value the standard way—by looking at the market Uber was targeting and figuring out how much market share it could win.
Even investor and media supervillain Peter Thiel has made fun of Silicon Valley power players’ tendency to invest in what they themselves like. “VCs often have a blind spot for things,” he said in 2014. “They overvalue things they use. They undervalue things they don’t use. Uber is overvalued because investors like riding in Town Cars.” (Thiel, for his part, invested in Uber’s rival, Lyft.)
But there are plenty of companies that have experienced founders and that do things VCs like. What set Uber apart—and the reason it generated the Uber-for-X phenomenon—was its marketplace model.
The company used computers to restructure the driving labor market (“corrects some real inefficiencies”). Why have a dispatcher send cabs all over a city when an algorithm could do the same thing—with no labor cost or organizational infrastructure, and probably with better results? The cab companies, with their own complex institutional histories, were suddenly irrelevant. Drivers drove and riders rode—and the only thing necessary to connect them them was an app on a phone. The model didn’t just make financial sense to people trained to think in Silicon Valley in the 2000s; it made ideological sense.
While Uber’s app was obviating the need for cab companies, Kalanick (who would step down in June 2017 amid a company meltdown) turned the local taxi industry into the biggest lobbying bogeyman since Big Tobacco. A low-wage industry and its longtime institutions were labeled “trusts” and “cartels.” “My politics are: I’m a trustbuster. Very focused. And yeah, I’m pro-efficiency,” Kalanick told the Wall Street Journal. “It’s good for everybody, it’s not red or blue.”
With Kara Swisher at the Code conference, Kalanick was even more open. “We’re in this political campaign, and the candidate is Uber. And the opponent is an asshole named Taxi,” he said. The company tried to catalyze riders to contact their local officials telling them to allow Uber to operate, no matter the rules on the books; the effort was called Operation Rolling Thunder. “We have to bring out the truth about how dark and dangerous and evil the taxi side is,” he concluded.
In Kalanick’s national crusade against Taxi, he literally hired Barack Obama’s campaign manager, David Plouffe. In a tough battle in New York, he brought in Michael Bloomberg’s former campaign manager, Bradley Tusk, and won. Tusk later founded a venture firm based on the idea they could help start-ups with politics. Here’s how he sees it. “We beat up the entrenched interest, and we either convince the regulator the law is OK as is, or we change the law,” he told The Information. “That playbook, while not easy, we get.” For providing this kind of service to Uber, Tusk may have made $100 million.
For early Uber investors, Uber was everything that disruption was supposed to be. You took an app, created by a small number of people in a San Francisco office, and used it to erase the institutions—formerly called businesses—that used to sit between the buyers and sellers of services. It wasn’t just a company, it was a company that destroyed the need for other companies. It was pure and uncut Economics 101, capitalism as it was meant to be. And if by eliminating much of the labor that it previously took to organize car services, the company would also generate billionaires … well, to the innovators go the spoils.
Thinking like this could pass, in the early 2000s at least, as merely “pro-efficiency,” even if it was obviously opposed to, at the very least, organized labor. Uber’s corporate behavior, expressed through the CEO and his world-beating political consultants, was meritorious. Taxis’ corporate behavior, as expressed through a multitude of small business owners and employees, was “evil.”
People have consumer desires and more aspirational political and civic desires. You might want to drive a car that burns gas, but also support a carbon tax as part of fighting climate change. You might buy cheap eggs, but support legislation that tightens the regulations around the cages the chickens live in. But Uber’s form of regulatory arbitrage relied on making an individual’s consumer desire a civic cause. The company created a loyal user base in a legal gray area, then when a city’s elected political leaders made a decision Uber did not like, the company would use its power to push their political messaging to their users. Elected officials became like customer-service representatives during a cable outage, desperate and nervous.
Far from wondering about the ethics of these maneuvers against democratically elected people, venture capitalists lauded Kalanick’s ability to take on the system. When Hayes was asked what convinced him Uber could go big, his first citation was of the company’s fight with San Francisco.
“Instead of backing down like a lot of companies would when they get a very legal-sounding letter, [he] said, ‘This isn’t right. This is not good for customers,” Hayes said. “And this is not what individuals want.”
In Uber’s world, there is no such thing as collective action. Every person is an individual particle of the market, freely interacting with all the others, unless there is pesky government meddling. Uber really was about the triumph of individualism, an ethos that infuses Silicon Valley so thoroughly that it’s hard for most here to see. Companies that fit that pattern are more likely to garner VC attention, get funding, and find success. That’s how Silicon Valley shapes the world.
But they cannot sustain companies within their bubbles of influence forever. They must leave the nest for the public markets, where they are judged on their bottom lines. So far, the market says: This company is worth $50 billion less than its executives and bankers thought.
And in Uber’s world, the market is always right.