Uber Valued at $40 Billion in $1.2 Billion Equity Funding

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Uber Technologies Inc. has completed the next stage of its funding, garnering $1.2 billion to boost its international expansion.

The mobile car-booking company said today it raised the money at a $40 billion valuation, more than doubling its $17 billion valuation in June and bolstering its rank as the most highly valued U.S. technology startup. In total, Uber has now raised more than $2.5 billion since its 2009 inception.

Uber, based in San Francisco, declined to say which investors participated in the financing. Bloomberg News reported last month that T. Rowe Price Group Inc. was in talks to become a new investor, with existing investor Fidelity Investments also set to be involved.

An Uber representative confirmed the $40 billion valuation and said the company may raise as much as $600 million more if other investors decide to come into the same round at a later point. A T. Rowe Price spokeswoman and a spokesman for Fidelity declined to comment.

Uber Chief Executive Officer Travis Kalanick said the company is in a “tremendous growth” period, set to generate more than 1 million jobs worldwide in 2015.

“This kind of continued growth requires investment,” Kalanick wrote in a blog post. “This financing will allow Uber to make substantial investments, particularly in the Asia Pacific region.”

The financing puts Uber in a league of its own among fast-growing U.S. technology startups, as well as publicly traded transportation companies. The company is now valued at four times that of other elite Silicon Valley startups, such as Airbnb Inc. Uber’s value also dwarfs Tesla Motors Inc., which has a market capitalization of $28.6 billion. General Motors Co., the largest U.S. automaker, has a $53.2 billion market capitalization.

Justifying Valuation

Whether Uber can justify the $40 billion valuation remains to be seen. The closely held company doesn’t disclose its finances.

“It seems there’s limitless appetite for getting into Uber and the opportunity it’s going after,” said Anand Sanwal, CEO of research firm CB Insights. “The risk is that they aren’t going to grow into this valuation and questions remain on how it will scale outside of big cities. This type of money is unheard of for a private tech company.”

Convertible Debt

Uber is also building its finances with a more than $1 billion convertible debt sale to Goldman Sachs Group Inc.’s wealth management clients. The clients are getting a chance to buy a six-year bond in Uber that will convert into equity at a 20 percent to 30 percent discount to the company’s valuation at the time of an initial public offering, said people with knowledge of the matter, who asked not to be identified because the details are private.

Goldman Sachs isn’t investing its own money in the debt, said the people. The convertible bond carries a coupon that increases over time if Uber hasn’t gone public within 4 years, said the people.

“It’s interesting that, with the convertible debt, Uber is putting itself under pressure to go public within 4 years,” Sanwal said.

An Uber representative and Goldman Sachs representative declined to comment on the convertible bond deal. Kalanick has previously said he wasn’t focused on an IPO.

Any deal with Uber is highly coveted among investment banks as it can lead to an IPO underwriting role. Goldman Sachs invested in Facebook Inc. in 2011 and helped take the company public in 2012 after some hiccups. The bank reaped $1.09 billion selling Facebook stock when the social network went public.

Goldman Sachs is already an investor in Uber. Earlier this year, Uber also hired Cameron Poetzscher from the bank to head corporate development.

Investor Appetite

The equity fundraising and convertible debt show investor enthusiasm for Uber is undimmed even after a recent company controversy. Uber Senior Vice President Emil Michael last month discussed prying into journalists’ private lives, triggering questions about how the company treats privacy and the data that it collects on passengers. Uber has hired a law firm to conduct an internal privacy review.

Investor interest has been stoked by the fast growth of Uber, which was founded by Kalanick and Garrett Camp. The company lets consumers order rides on their smartphones, effectively acting as a replacement to taxi and limousine companies. It has rolled out its service in more than 250 cities worldwide, up from 60 cities a year ago.

In his blog post, Kalanick alluded to the challenges and “significant growing pains” that Uber has faced as it has expanded and said the company will be making more changes in the months ahead, without being specific.

“The events of the recent weeks have shown us that we also need to invest in internal growth and change,” Kalanick wrote. “Acknowledging mistakes and learning from them are the first steps.”

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