Neil here.
On July 6th, public rideshare behemoth Uber announced that it will acquire its rival food delivery startup, Postmates, in a $2.65 billion all-stock deal.
In an all-stock deal, shareholders of the acquired company (Postmates, in this case), receive shares of the acquiring company (Uber, in this case) as part of the deal terms.
Basically, Postmates’ shareholders chose to obtain equity in Uber rather than exit and take cash in exchange for their shares… a risky move.
All-stock deals can be great for investors if they increase the acquiring companies’ stock value. But there’s always a chance that a company’s stock value could drop – and that’s where the real risk lies.
Now, in the wake of COVID-19, Postmates has been doing exceptionally well, as more people rely on food delivery services. Its competitors, including DoorDash, Grubhub, and UberEats, have also seen huge upticks in demand lately.
Considering that, here’s my take: Uber acquired Postmates in a move to hold stronger footing on the public trading floor and gain a tighter hold on the food delivery services industry.
It could be a smart move. After all, it hasn’t always been a pretty picture for Uber in the past.
In its 2010 seed round, Uber raised $1.58 million at a pre-money valuation of $3.86 million.
Fast forward eight years to its late stage Series G round, and Uber raised $1.25 billion at a pre-money valuation of $68.33 billion, according to PitchBook.
Uber’s explosive growth prompted its leaders to file initial public offering paperwork in April 2019, in a move that was expected to launch a $100 billion IPO – the largest since Alibaba’s $169 billion public debut in 2014.
Only, it didn’t.
Uber’s May 10, 2019 IPO became one of the biggest flops in IPO history. The company sold 180 million shares at $45 each with over 1.6 billion shares outstanding, valuing Uber at $75.71 billion by the end of the day.
In other words, Uber’s late stage and IPO investors saw billions of dollars evaporate before their eyes.
However, this story paints a familiar – and positive – picture for angel investors, who bought in around that low $1.58 million valuation 10 years ago.
Even at the company’s IPO valuation, those investors still would have seen their stakes grow by around 48,000X.
Knowing that, I’m sure those later-stage investors were kicking themselves on IPO day.
Uber’s acquisition of Postmates could be an attempt to repair the damage done by their IPO bust and sweeten the deal for those who lost big bucks… which relays an important lesson for investors and companies alike.
When we’re talking about exits, remember that not every company is going to make an IPO… and that’s okay.
There are plenty of ways to exit a company, be it through an IPO, a merger, an acquisition, or simply just by selling your shares.
But IPOs aren’t for every company, and quite frankly, not every company should go public if there’s a foreseeable risk of getting torn to pieces on the trading floor.
That was certainly the case for Uber.
Time will tell how the company progresses now that they’ve acquired Postmates… and Uber’s newest shareholders better hope it progresses well.
But for Uber’s very first investors… well, they’ve struck gold regardless. Just another reason why you shouldn’t wait on angel investing.
I’ll be back soon with another update.
Until next time,
Neil Patel
On July 6th, public rideshare behemoth Uber announced that it will acquire its rival food delivery startup, Postmates, in a $2.65 billion all-stock deal.
In an all-stock deal, shareholders of the acquired company (Postmates, in this case), receive shares of the acquiring company (Uber, in this case) as part of the deal terms.
Basically, Postmates’ shareholders chose to obtain equity in Uber rather than exit and take cash in exchange for their shares… a risky move.
All-stock deals can be great for investors if they increase the acquiring companies’ stock value. But there’s always a chance that a company’s stock value could drop – and that’s where the real risk lies.
Now, in the wake of COVID-19, Postmates has been doing exceptionally well, as more people rely on food delivery services. Its competitors, including DoorDash, Grubhub, and UberEats, have also seen huge upticks in demand lately.
Considering that, here’s my take: Uber acquired Postmates in a move to hold stronger footing on the public trading floor and gain a tighter hold on the food delivery services industry.
It could be a smart move. After all, it hasn’t always been a pretty picture for Uber in the past.
In its 2010 seed round, Uber raised $1.58 million at a pre-money valuation of $3.86 million.
Fast forward eight years to its late stage Series G round, and Uber raised $1.25 billion at a pre-money valuation of $68.33 billion, according to PitchBook.
Uber’s explosive growth prompted its leaders to file initial public offering paperwork in April 2019, in a move that was expected to launch a $100 billion IPO – the largest since Alibaba’s $169 billion public debut in 2014.
Only, it didn’t.
Uber’s May 10, 2019 IPO became one of the biggest flops in IPO history. The company sold 180 million shares at $45 each with over 1.6 billion shares outstanding, valuing Uber at $75.71 billion by the end of the day.
In other words, Uber’s late stage and IPO investors saw billions of dollars evaporate before their eyes.
However, this story paints a familiar – and positive – picture for angel investors, who bought in around that low $1.58 million valuation 10 years ago.
Even at the company’s IPO valuation, those investors still would have seen their stakes grow by around 48,000X.
Knowing that, I’m sure those later-stage investors were kicking themselves on IPO day.
Uber’s acquisition of Postmates could be an attempt to repair the damage done by their IPO bust and sweeten the deal for those who lost big bucks… which relays an important lesson for investors and companies alike.
When we’re talking about exits, remember that not every company is going to make an IPO… and that’s okay.
There are plenty of ways to exit a company, be it through an IPO, a merger, an acquisition, or simply just by selling your shares.
But IPOs aren’t for every company, and quite frankly, not every company should go public if there’s a foreseeable risk of getting torn to pieces on the trading floor.
That was certainly the case for Uber.
Time will tell how the company progresses now that they’ve acquired Postmates… and Uber’s newest shareholders better hope it progresses well.
But for Uber’s very first investors… well, they’ve struck gold regardless. Just another reason why you shouldn’t wait on angel investing.
I’ll be back soon with another update.
Until next time,
Neil Patel
Follow @angelsandentrepreneurs
Hi Neil, Can you go into the numbers a bit more? What were the terms of the original round, valuation and discount? Assuming someone made the minimum investment at that time and cashed out at the first opportunity what would their return have been? Thanks.
Hi John,
Great question! To preface, Uber’s seed round took place before the 2016 JOBS Act… meaning that only accredited investors could participate. That’s why Uber’s seed round saw big names like Jeff Bezos, Ashton Kutcher, Brian Chesky, and more.
Uber’s seed round raised $1.57 million, valuing the company at $3.86 million. When the company made its IPO, it was worth $75.71 billion. That was a major loss for late stage and IPO investors who expected the company to hit at least $100 billion… but it was a major gain for angel investors who saw their investments grow around 48,000X.
So, for example: Let’s say Investor X invested $10,000 into Uber’s seed round. Assuming their shares were never diluted and they hung on to their investment until IPO day, they would have made $480 million.
Now, let’s say, hypothetically, that non-accredited investors were able to invest. Let’s say that Investor Y dropped just $100 into Uber’s seed round. Assuming the same as above, that investment would have been worth around $4.8 million on IPO day. Not a bad pay day!
I hope this helps!
Neil
where do I buy the investments when I select the start up company?
Hey Edita,
Thanks for reaching out! If you’re a member, you can head directly to your Deal Flow Tracker and check out all of the deals available to you. Here’s the link: https://angelsandentrepreneurs.com/deals/. If you like what you see, scroll down to “How to Invest” on each individual page for investment instructions.
If you’re not a member, we’d love for you to join us! Here’s a link: https://pro.angelsandentrepreneursinfo.com/m/1587507
Thanks!
Sarah
Hi, Neil, Rebecca here. I have enrolled in the Diamond Level, two years subscription two weeks ago, but
until now I haven’t receive the Duo Diligence PAckage and The Deep Dive Videos and whatever included. All I received was the Welcome package with the Hustle book and Notebook/ pen. I am very anxious to get started, to make money so I could move on and live a normal life again with my sick husband . I have saved my Stimulus money to invest, hoping to make a difference in our retirement life. We lost every. I’m praying this will get us back to our normal life. . .buy a house and a new car. Thanks
Perhaps, I need help to get me started, since this is my very first time to do this..,..in my old age.
Hi Rebecca,
Welcome to Angels & Entrepreneurs. So glad to hear you received your Welcome Package.
All of your Due Diligence and Deep Dive materials are located directly on the Angels & Entrepreneurs website. Just head over to your Deals Page and click on a deal that you’re interested in to find all of those resources, including instructions for how to invest if you like what you see. Here is the link! https://angelsandentrepreneurs.com/deals/
I also recommend you head over to the Media Room to check out Neil’s Angel Investor’s Bootcamp series. It gives a really great overview of what to expect in the startup world and how to make the most informed investment decisions for you. Here’s that link: https://angelsandentrepreneurs.com/media-room/
I hope this helps!
All the best,
Sarah