Harry here. We’ve been in Austin this week meeting with rideshare start-ups and talking to drivers, so I’ve been a bit slow to respond via e-mail. But we’ve learned a lot and will be sharing everything next week.
Today, RSG contributor John Ince shares our top story about Uber’s latest $3.5 billion round, and it’s interesting to note Uber’s valuation remained the same this time around.
Uber Turns to Saudi Arabia for $3.5 Billion Cash Infusion
Sum and Substance: In its quest to build a global empire, Uber has turned to the Middle East for its biggest infusion of cash from a single investor.
Uber said on Wednesday it had raised $3.5 billion from Saudi Arabia’s Public Investment Fund, the kingdom’s main investment fund. The money was part of the ride-hailing giant’s most recent financing round and continued to value the company at $62.5 billion. The investment does not cash out any of Uber’s existing investors.
As part of the investment, a managing director at the Public Investment Fund, Yasir Al Rumayyan, will take a seat on Uber’s board, joining Uber’s chief executive, Travis Kalanick, and other directors, including Arianna Huffington.
“We appreciate the vote of confidence in our business as we continue to expand our global presence,” Mr. Kalanick said in a statement. “Our experience in Saudi Arabia is a great example of how Uber can benefit riders, drivers and cities and we look forward to partnering to support their economic and social reforms.”
Uber, which has viewed the Middle East as an important area in its expansion, said the investment further aligned the company with Saudi Arabia as the kingdom planned to transform its economy, reducing its dependence on oil and improving employment. The investment from Saudi Arabia is one of the biggest single investments collected by the technology world’s top privately held companies. Uber, whose valuation makes it Silicon Valley’s most valuable private business, has collected billions at a rapid clip over the last three years.
Uber has drawn from a wide variety of investors, including traditional venture capital firms, mutual fund giants like BlackRock and wealthy clients of firms like Goldman Sachs and Morgan Stanley. Other sovereign wealth funds like that of Qatar have also invested…. Among Uber’s increasingly important overseas markets is the Middle East, where the company has already said it plans to invest $250 million. The service operates in 15 cities and nine countries in the region, including Saudi Arabia.
My Take: Say what you will about Uber – they have the Midas touch when raising money. This is an astounding amount of money to be invested in a privately held company. It’s almost 2x the entire amount ($2 billion) that Facebook raised while they were still a private company. But it raises troubling questions. Private companies can keep their books private and thus are accountable to almost no one.
Recently I had breakfast with one of Uber’s existing investors and I asked how much he actually knew about the company and its financials. He said Uber is very close with its numbers – sharing them only with a few people. He described the company as a “huddle.” I’m wondering if the people from the Saudi Arabia’s Public Investment Fund really know what they’re getting into here. Remember, the numbers leaked to Bloomberg showed that in the first three quarters of 2015, Uber showed a loss of $1.7 billion on sales of roughly $1 billion. Sure, startups often run a loss as they seek to grow, but numbers like that are worse than even Amazon during its most extreme growth phase.
Lyft Driver Accused of Terrifying Ride Speaks Out, Says Woman’s Story Is Fake
Sum and Substance: SAN DIEGO – The Lyft driver accused of giving a San Diego woman and her friends a terrifying ride says her story is fake.
Daniel didn’t want to use his last name or go on camera, but spoke with 10News over the phone. He says he remembers picking the group of friends up late Saturday night. “I could tell that they were excited and partying and, you know, they smelled like alcohol,” he said.
His version of what happened next is different than the version told by a woman, who was one of his passengers. “I thought he was going to pull out a gun or something and shoot me, that’s how insane he was acting,” the woman said. She told 10News Daniel cursed at them, unbuckled their seat belts and slammed on his brakes trying to hurt them before dumping them by the side of the road. Daniel says the trouble started when someone spilled white powder all over his seats.
“Some of it was mixed with like fluid so it looked like gloppy and ploppy, like almost like vomit,” Daniel said. “So that’s when I said ‘there’s probably going to be a $200 cleaning fee for this’ because like I thought it was throw up.” He claims the group got upset, then even more rowdy, so he decided to terminate the ride for his safety.
“The person, the shotgun, didn’t want to get out. So I unbuckled his seat belt and said ‘can you get out please?’ and he didn’t,” Daniel said. “After I got out of the car, and he locked the door, and I unlocked it and said ‘you need to get out.’ And he said ‘ no, we’re good.’ And I said ‘the ride’s over, get the f**** out.'” Daniel said that’s the only time he cursed at them. “I put my hand on his shoulder and I said ‘can you please get out?’ and at that point I said ‘the ride’s over,’” he said.
He also says some members of the group acted like they were going to jump in front of his car, and they gave him the finger as he drove away. “It’s embellished,” Daniel said. “It’s kind of embarrassing. Because I, you know, I’m like ‘that’s really not how it happened.'” Daniel says he drove full-time for Lyft and Uber, but now he’s banned from both apps. The woman says the group never got a cleaning fee, but received a $75 ride credit. A Lyft spokesperson declined to comment.
My Take: Okay, as a driver, what do you do when a passenger makes up stuff about you and then goes to the media with their story? This Lyft driver got de-activated and suddenly all the time and effort he put in on behalf of the company was but a footnote to his life. No opportunity to make his case. No adjudication of the claims and counter charges. Just a summary judgement that he was wrong without appeal. We will never know exactly what happened on this ride, but what we do know is that Lyft gave the woman (who it sounds like was intoxicated) who went to the media with her version of the events a $75 credit, while the rider got a pink slip.
In defense of Lyft, they can’t invest the time or money to investigate every dispute that arises. They have clientele to satisfy and any bit of salacious news that threatens to disrupt their carefully cultivated public image needs to be nipped in the bud. Their goal is to get any potentially damaging news out of the spotlight as soon as possible. What do you think? Is there a better way for Lyft to handle situations like this? What is it?
Is Uber Trolling for Immigrant Labor?
Sum and Substance: We know the ride-hail apps have been eager for talent. They advertise incessantly for new drivers. Recruiters set up at gas stations. Some take out Craigslist ads that offer eye-opening cash. But maybe, just maybe, Uber and Lyft are running out of drivers to find.
Stories abound of ride-hail “partners” who take home much less than the apps promise after their cut and overhead expenses like fuel, insurance and car payments are calculated. There are no benefits. Wages vary widely. And there are dangers.
Is Uber turning to immigrant drivers for its next pool of potential workers? Yesterday the firm announced that it’s in the midst of a drive to recruit 12,000 drivers who would be aimed at Los Angeles’ Latino communities. It hosted a recruitment drive in East Los Angeles, with the goal of finding drivers for its uberESPANOL service. Of course, it’s being spun by Uber as a benefit to Angelenos.
Some critics are understandably wary. Dave Sutton, spokesman for “Who’s Driving You?,” a campaign by cab, limo and paratransit drivers to bring awareness to ride-hail firms’ driver screening processes, says Spanish-speaking immigrants are a soft target for ride-hail recruiters. “Uber has a work-from-home scam quality to it,” he told us. “Someone whose second language is English might not be aware of drivers’ unhappiness.”
Sutton worries that potential drivers who speak mainly Spanish aren’t getting balanced information about Uber. “I hope there’s sufficient awareness in the Spanish-speaking community that Uber has a long history of taking advantage of drivers,” he said. “Uber does everything in its own self interest and constantly tries to spin it as a public good.”
My Take: I gave a ride to an Uber employee who works in recruitment this week and asked about this. He said they’re growing so fast, they are definitely tapping into new markets for drivers. With another $3.5 billion to spend, you can bet some of that will continue to go into driver bonuses and recruitment programs like this – and more aggressive efforts to get the credit-challenged on the road with lease programs. (See next article)
Inside Uber’s Auto-Lease Machine, Where Almost Anyone Can Get a Car
Sum and Substance: In its relentless pursuit for growth, Uber needs new drivers, and many of those drivers need cars. To help them get started, Uber has been offering short-term leases since July through a wholly owned Delaware-based subsidiary called Xchange Leasing, LLC. It partners with auto dealerships, advertises to drivers, manages risk, and even pays repo men to chase down cars whose drivers aren’t making their payments.
Xchange may be key to Uber’s continued expansion as it tangles with Lyft in the U.S. and a bevy of competitors abroad. Uber announced a partnership with Toyota last week to finance even more cars. This year, Uber said its financing and discount programs, which include Xchange, will put more than 100,000 drivers on the road. That requires dipping into the vast pool of people with bad or no credit.
In a deal led by Goldman Sachs, Xchange received a $1 billion credit facility to fund new car leases, according to a person familiar with the matter. The deal will help Uber grow its U.S. subprime auto leasing business, and it will give many of the world’s biggest financial institutions exposure to the company’s auto leases.
The credit facility is basically a line of credit that Xchange can use to lease out cars to Uber drivers. Xchange caters to people who have been rejected by other lenders. The program is run by Andrew Chapin, who pitched it to Uber Chief Executive Officer Travis Kalanick in 2012. Before joining Uber, Chapin was a Goldman Sachs commodities trader.
Xchange isn’t intended to be a moneymaker, said an Uber spokesman. But it has plenty of critics who accuse the company of looting the pockets of its drivers. The program is plagued by a lot of questions that surround other subprime lending programs aimed at risky borrowers with bad credit. Is Xchange really offering good deals? Does it ensnare drivers with commitments they can’t meet? “You can buy the car for what they’re charging you in weekly payments,” said Greg McBride, chief financial analyst at personal-finance website Bankrate.com. But for many drivers who sign up with Xchange, it’s their only option.
Bloomberg spoke to five auto-finance experts. Most said the leases are expensive, even predatory, compared with leases available to drivers with good credit.
My Take: The big question surrounding the entire TNC industry is how the companies will keep enough new drivers in the pipeline to provide adequate coverage in urban markets. Given their high growth and churn rates, it is a huge challenge. So their solution is to dip into the pool of credit challenged drivers. Uber says they’re not looking at this as a profit center, but the numbers cited by experts in this article argue otherwise.
It’s also noteworthy that Goldman Sachs, who are already invest in Uber, are essentially putting another $1 billion in new money on the table here, albeit loaning to those with low credit, as a potential income stream through Uber. Sounds to me like Uber / Xchange / and Goldman Sachs are are teaming together to tighten the screws on those who have found themselves in a financial hole.
Readers, what did you think of this week’s stories?
– John @ RSG
