No Uber IPO in sight after $3.5 billion from Saudi Arabia

Once upon a time, Silicon Valley startups raised money from venture capitalists and then, with some luck and a promising business, held an IPO to cash in and expand. Uber has no need for such traditions.

The San Francisco-based company, founded in 2009 and valued at $62.5 billion, has now raised $11 billion as it spends heavily to expand globally and battle well-funded rivals such as Lyft Inc. and China’s Didi Ltd.

The ride-hailing company’s latest infusion of cash — a record $3.5 billion from Saudi Arabia’s sovereign wealth fund — means Chief Executive Officer Travis Kalanick has the finances to continue avoiding a listing of his company any time soon. “I’m going to make sure it happens as late as possible,” he told CNBC earlier this year.

It’s unclear how long the Saudi money will last Uber however. Over the first three quarters of 2015, Uber was reported to have lost $1.7 billion on $1.2 billion in revenue. In February this year, Kalanick said at a conference in Vancouver the company was spending more than $1 billion annually in China alone to avoid losing market share — a figure previously reported to have been written in a letter to investors in 2015.

The money from Saudi Arabia is a new wrinkle in the shifting way the world’s largest technology startups are being funded. The $3.5 billion raised by Uber Technologies Inc. this week is far larger than what most companies are able raise when they hold public offerings: Twitter Inc. netted $1.82 billion during its 2013 IPO and First Data Corp. raised $2.56 billion in the largest technology IPO of the past 12 months. In 2004, Google raised $1.67 billion during its stock-market debut.

Other startups also are remaining private longer. Snapchat (which now has more daily users than Twitter) raised $1.8 billion in its most recent round, and the corporate messaging startup Slack Technologies Inc. raised $200 million. (Bloomberg Beta, the venture capital arm of Bloomberg LP, is an investor in Slack.)

Meanwhile, Uber’s biggest rivals have been stocking up. Apple invested $1 billion in Didi last month (Didi is working to close a total $3.5 billion soon), General Motors backed Lyft in January, and Volkswagen pledged $300 million to Israel-based ride-hailing company Gett Inc. last month.

There’s a seemingly endless roster of investors anxious to buy into Kalanick’s vision for upending the transportation sector. “Uber is in a class by itself,” said Anand Sanwal, co-founder of CB Insights, a firm that tracks startup investment. “There is insatiable appetite for Uber stock,” he said, referring to the company’s ability to continually raise large amounts of money.

There are competing schools of thought on the subject of holding an IPO. Proponents of going public argue the added scrutiny of the public markets gives a company more discipline, while rewarding employees and early investors. An IPO also brings in money to invest in acquisitions and expansion. Yet entrepreneurs who want to remain private contend it gives their company more leeway to grow without the unpredictable demands of managing a roster of new shareholders.

“There’s a lot you can do in the private markets, where you’re not subject to quarterly earnings releases and all that good stuff,” said CB Insights’ Sanwal.