Uber wanted to IPO with a $120 billion valuation but ran into trouble when some of its biggest shareholders held out for a lower price

  • Uber wanted to go public with the $US120 billion valuation pitched by bankers at Morgan Stanley and Goldman Sachs ahead of its initial public offering, but the company ultimately listed with a $US75.5 billion market cap.
  • One reason is that institutional investors, many of which privately owned Uber stock, didn’t want to buy more shares at the higher price, according to The New York Times.
  • Uber had taken more than $US10 billion from institutional investors and private-equity firms, among other investors, according to The Times. Many bought their Uber shares at valuations below $US61 billion.
  • So it wasn’t an easy pitch, The Times said, to get the same institutions to buy more stock at nearly twice the price.
  • Read more on the Business Insider homepage.

Uber’s mega initial public offering might have been even bigger if it weren’t for institutional investors.

The ride-hailing company, which went public last week with a market cap of $US75.5 billion, initially tried to garner a $US120 billion price tag in its IPO. That’s the valuation bankers at Morgan Stanley and Goldman Sachs pitched to the company at the start of the process.

The Wall Street Journal reported that figure in October, and it held shape until April, when the company told investors it would aim a little lower at a valuation of $US100 billion.

The problem: Many of the institutional investors that would have bought large amounts of Uber stock in the IPO already owned shares through private funding rounds. And those investors were resistant to buy more shares at nearly twice the valuation they had initially invested, according to The New York Times.

Since 2009, Uber had taken more than $US10 billion in funding from mutual funds and private equity, among others, according to The Times. Asset managers such as T. Rowe Price, Vanguard Group, and Tiger Global Management helped the ride-hailing company raise a $US5.6 billion round in 2016 at a valuation of $US61 billion.

Those are the same kinds of investors that usually buy large allocations during an IPO, which means in many cases, selling Uber’s public shares meant selling its stock to its existing investors.

But it wasn’t just the price that was an issue. The Times reported that slowing growth led some investors to suggest that Uber was priced too high.

Read more:
UiPath raises $US568 million in new funding at a mega $US7 billion valuation, making it the most valuable artificial intelligence startup in the world

As the biggest IPO of the year, Uber’s public offering was highly visible. But it’s not the only high-growth tech startup to take investments from institutional investors.

As high-growth companies stay private for longer, investors such as Fidelity and Dragoneer Investment Group have led more private funding rounds so they can get more shares at a lower price than is often possible after an IPO.

Slack, which is set to go public in a direct listing in the coming weeks, raised $US427 million at a $US7 billion valuation in 2018 in a round led by Dragoneer Investment Group, along with its existing institutional investors T. Rowe Price and Wellington Management.

UiPath, a private artificial-intelligence company, completed a similar round in April, in which it raised $US568 million at a $US7 billion valuation in a round led by the hedge fund Coatue.

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