As much of our daily life relies upon convenient transportation, it is no surprise just how hard it is to escape hearing about or personally interacting with Uber. Uber has become a household name as its services have achieved ubiquity across the world. It is perhaps even more difficult to avoid encountering Uber in the investing arena. With its various scandals, hasty expansion, and increasingly likely IPO prospects, Uber has thrust itself into the investing limelight.
Uber’s copious media attention has not come without its fair share of negative press. The multi-billion dollar transportation network company has endured coverage on an alleged sexual assault case from 2014, lawsuits regarding gender discrimination and a covered-up data breach in 2016, and investigations on workplace misconduct in 2017 just to name a few cases. Though these incidents are relatively recent, Uber has developed an unscrupulous reputation since its onset, as its former CEO, Travis Kalanick, embraced the mentality that nothing matters except for profits. Yet, even with Uber’s unethical practices under scrutiny, they have not struggled to secure funding. In fact, despite their various controversies and competition from Lyft, Uber has been able to woo numerous investors who believe their approach is disruptive. In 2011, VC firm Benchmark invested $11 million in Series A funding. As time passed and Uber’s valuation grew exponentially, so did investment interest from TPG, Menlo Ventures, First Round Capital, Lowercase Capital, Goldman Sachs, Fidelity, and SoftBank. Kalanick leveraged this demand by having firms compete while retaining a majority vote on the board. This phenomena is indicative of the direction in which VC has been heading. The tides have turned, placing an increasing amount of control in the hands of entrepreneurs.
Since Benchmark invested in Uber, the total value of VC deals has increased significantly on a rather consistent year-to-year basis. In 2011, VC investments totaled $44.4 billion. As of June 30, 2018, startups have amassed $57.5 billion in funding. Even more telling, 94 VC deals have involved $100 million or more in financing, 42 of which constituted unicorn valuation. This tells us that more capital is being concentrated into fewer bigger deals.
One reason for this trend is that companies seeking Series A and seed round funding are doing so at a more mature stage than they have been in the past. Now, the size, participants, and pre-money valuations we used to imagine as belonging to companies seeking Series B funding reach this point while seeking Series A funding. For instance, Pony.ai, a self-driving car startup that raised $112 million in 2018, obtained Series A financing largely due to achieved technological milestones as well as partnerships the company already developed with auto manufacturers, robotics and AI technology providers, and Uber and Chinese ride-sharing company Didi.
Another influencing factor has been an increase in later stage funding. Last year marked a new high of late-stage VC investment with $50.1 billion invested. As venture capitalists attempt to maximize profits, they are looking increasingly towards financing established companies.
Lastly, recent exit sizes have created incentives for venture capitalists to invest more money. So far in 2018, median exit sizes for acquisitions, IPOs, and buyouts have substantially exceeded that of previous years. With potential to earn greater return, venture capitalists are eager to put their money to work.
It is not uncommon for startups that attract attention to stand out to multiple VC firms that share this eagerness. As entrepreneurs attract more and more VC suitors, VC firms often compete against one another, battling for equity stake in the next hot startup. As entrepreneurs benefit from investors fighting over them, startups have the ability to handpick their future partners -- an ability that did not exist to this extent before. In making this important decision, entrepreneurs consider the track record, connections, skill sets, and desired equity of VC firms supplying offers. Making a sound decision is both a modern day entrepreneurial luxury and crucial to the startup’s future health.