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 $75.5 billion, initially tried to garner a $120 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 $100 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 $10 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 $5.6 billion round in 2016 at a valuation of $61 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.
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 $427 million at a $7 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 $568 million at a $7 billion valuation in a round led by the hedge fund Coatue.
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