Uber and Lyft Force Investors to Play Favorites
Ride-sharing apps won’t open books to potential backers without promise to stay away from rivals
Both Lyft and Uber have asked potential investors to sign agreements stating they won’t invest in competitors for a period of six months to a year. PHOTO: ASSOCIATED PRESS
Drivers and passengers can freely switch between Uber and Lyft, but investors thinking about backing either car-hailing app must pick a side and stick to it.
In their current fundraising efforts, both Uber Technologies Inc. and Lyft Inc. have asked potential investors to sign agreements stating they won’t invest in competitors for a period of six months to a year, according to people familiar with the policies. Investors are asked to sign the pledge before seeing any internal company data that could help them make a decision, the people said.
The aggressive terms—rare in venture-capital investing—underscore the bitter rivalry between the two top ride-sharing services in the U.S. Uber and Lyft, in their fight to become the car service of choice for millions of commuters across dozens of cities, have undercut each other’s prices, poached drivers and co-opted innovations.
While venture firms typically refrain from investing in competing startups to avoid conflicts of interest, it is unusual for a company to require this level of commitment before an investment decision is made. That suggests Uber and Lyft are confident investor demand for their equity remains strong despite soaring valuations, said Rett Wallace, chief executive of Triton Research LLC, which does research on private companies.
“I’ve never heard of a company doing this,” Mr. Wallace said. “But it’s not like it doesn’t make sense. There have to be some benefits of being private, including not showing your numbers to people you don’t want to. If a company has the leverage to do it, then there’s no reason why they shouldn’t.”
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Uber, the larger of the two San Francisco rivals in every major way, likely has more leverage to wield at this point. The company was valued at $41 billion in a funding round first announced last December, and said last week it is in the process of raising an additional $1 billion as part of that round. If successful, the company will have raised a total of $5.6 billion in equity funding, by far the most on record of any private company backed by venture capital, according to Dow Jones VentureSource.
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The Journal reported last week that Uber’s net revenue—the amount it keeps after paying out drivers—was more than $400 million last year, according to a person familiar with the numbers. The company is projecting that number to rise to more than $2 billion, this person said.
Uber’s backers include a mix of high-powered investors such as venture firms Benchmark, First Round Capital and Google Ventures, Chinese Internet company BaiduInc., mutual funds BlackRock Inc. and Fidelity Investments and even Qatar’s sovereign-wealth fund. It isn’t clear if any of these investors agreed not to invest in competitors before looking at Uber’s financial data.
Lyft aims to raise about $250 million in a round of funding valuing it at around $2 billion, a personal familiar with the matter said. The company was valued at more than $700 million last April after raising $250 million. Lyft’s investors include venture firms Mayfield Fund and Andreessen Horowitz, Chinese e-commerce giant Alibaba Group Holding Ltd. and hedge fund Coatue Management LLC, among others.
As both companies move closer to selling shares to the public, a division may also form between the investment banks each one eventually hires to handle their initial public offerings. Uber has already fostered close ties with Goldman Sachs Group Inc., which invested in the company and recently helped it raise $1.6 billion in convertible debt from the bank’s wealthy clients.
Uber CEO Travis Kalanick has publicly admitted to getting involved in Lyft’s fundraising efforts before. In a Vanity Fair profile last year, he said he called investors and told them, “Just so you know, we’re going to be fundraising after this, so before you decide whether you want to invest in them, just make sure you know that we are going to be fundraising immediately after.”
Fred Wilson , a prominent New York venture capitalist and investor in two smaller ride-sharing startups, Sidecar Technologies Inc. and Hailo Network Ltd., wrote on his blog last November that such tactics are unethical and, often, ineffective.
“Don’t waste your time trying to mess with a competitor’s financing,” Mr. Wilson wrote. “It doesn’t look good, it won’t work, and your time and energy is best spent elsewhere, where the real competition happens, product and market.”
Uber has also barred potential investors from backing London-based Hailo, according to that company’s chairman, Ron Zeghibe. In an interview last October, Mr. Zeghibe told BBC, “Any investor who wanted to even look at Uber’s books to decide whether they wanted to make an investment had to sign an agreement which specifically named us, as well as Lyft, and restricting them from having any ability to even talk to us for at least a year.”
—Telis Demos contributed to this article.
