In this blog post, we’ll look at Uber’s early fundraising rounds and the challenges the company faced along the way to becoming the giant it is today. Back in 2010, Uber was just an idea in the mind of its co-founder, Travis Kalanick. He had a vision for a mobile app that would revolutionize the taxi industry. But he needed money to make it happen.
At the time, Travis found it tough to raise capital.
I heard 100 no’s a day for 6 years straight
Investors were skeptical of the idea and unsure of its potential. The company also faced stiff competition from traditional taxi companies and other ride-hailing services. But Kalanick was determined to succeed and set out to raise funds.
One of Kalanick’s early investors was Jason Calacanis, an entrepreneur and angel investor who had previously seen Kalanick’s work at two of his prior startups (Scour and Red Swoosh).
Scour ended up failing, and Travis had minor success at Red Swoosh where he sold the company for $19m, netting himself around $2m personally.
Having observed Travis’ work ethic at both of these startups, Jason saw two qualities in Travis that he really liked: ruthlessness and talent.
Some investors might have been more risk averse when deciding to invest in Travis again. He had a 50% success rate and his win was not spectacular. But, Jason believed Travis would make a huge success out of his third company having learned from his mistakes and successes at his prior startups.
Consequently, Jason wrote Travis a $25k angel check, despite having reservations about the heavy capital requirements that Uber faced and his anticipation of strong regulatory resistance when it came to typical black cabs and taxi companies.
Other famous angel investors in Uber:
Jeff Bezos (Founder of Amazon), Brian Chesky (Founder of Airbnb), Gary Vaynerchuck (passed twice on the angel round!) and David Sacks.
Gary actually passed the opportunity to invest in Uber, not once, but twice! The video below will start at the right time for you to hear the full story:
However, plenty of famous angel investors turned down the opportunity to invest in Uber. Mark Cuban is an excellent example of this. Mark was an investor in Red Swoosh (one of Travis’s earlier statups). Fundamentally he didn’t believe that Travis would be able to overcome the regulatory battles that he anticipated all the taxi companies would finance trying to stop Uber.
Mark recalls his response to Travis as something like: I’m not interested at a $2million valuation, let alone $5million!
This should be a reminder to all startup founders that even good angel investors frequently miss good startup investments.
As a founder, you cannot let rejection from one angel deter you from your fundraising journey
How Travis pitched potential Uber investors
Travis had an interesting pitch strategy when it came to wooing potential investors. He would pitch the company to investors by giving them a ride in an Uber car. Demonstrating the superior user experience the app created vs existing taxi services of the time. This approach proved successful, and soon Kalanick was able to secure his Series A.
This pitch technique was particularly effective on Bill Gurley, a partner at Benchmark Capital. He was so impressed with Kalanick’s pitch that he immediately called his partners to convince them that they needed to invest in Uber.
Most VC funds operate as a partnership. This requires all the partners to agree on each investment. So even in one partner loves a startup, another partner could have experienced problems in a separate investment that gives them an insight as to why this startup opportunity is riskier than understood by the initial VC partner.
It’s an interesting point that all startup founders looking to raise venture capital should know. You will need the approval of all VC partners of your chosen VC fund. Don’t be afraid to ask how any particular fund makes their investment decisions and when you should expect to hear answers i.e. the investment committee might meet every week on Monday morning.
Okay, now back to Uber:
Thankfully for Travis (and Uber), Bill was able to gain the approval of his partners and they gave his investment into Uber the green light, despite raising concerns over the regulatory landscape.
Having Bill Gurley, a legendary VC investor in Silicon Valley so excited by the potential of Uber enabled Travis to build up a lot of excitement around his fundraising rounds. Lesser known VCs see the success Bill has had and see his stamp of approval as a significant de-risking factor. With Bill thinking that Uber is a good venture capital investment, lots of VC partners wanted to get in on the action.
Ubers’ Series A
Travis faced challenges when it came to raising the Series A round for Uber. He discovered that a lot of VC funds had a large amount of skepticism around the regulatory risks and potential legal challenges he faced.
Bill Gurley, led Uber’s Series A funding round with Benchmark Capital agreeing to invest $11m. Uber had grown significantly from its inception by this point, to a user base of over 1,000 regular users and annual revenues of $1.6 million.
An interesting point to note here is that when Uber started, it was launched at a very high price point. The cost per ride was priced at least 1.5x more than a typical taxi fare. Despite the high price per ride, the convenience Uber created (not having to wait in the street and flag down a taxi, or being let down by a driver) delighted its users and the team were able to demonstrate meaningful user retention.
Here is Uber’s Series A pitch deck:
Another challenge Uber faced in its early days was regulatory hurdles. Traditional taxi companies and government officials were resistant to the new technology and pushed back against Uber’s expansion. Uber was even served an order to cease and desist their operations by The San Fransisco Municipal Transportation Authority.
This scene from Super Pumped (a TV show about the early days of Uber) shows the cease and desist being delivered to Travis. The scene captures Travis’ mentality and the culture that he built at Uber:
Early Uber Investor Returns
When Uber went public in May 2019, it was the biggest tech IPO in history with it being valued at $82bn. All the early investors of Uber made a killing:
- Benchmark Capital, who invested $11m in Uber’s Series A funding round, made around $6.5bn with their equity stake (a 591x return on their capital).
- First Round Capital who had invested $500,000 in Uber’s seed round, made around $2bn when the company went public.
- Travis Kalanick’s equity was reportedly worth around $5.3 billion at the time of Ubers’ IPO.
Conclusion
In conclusion, Uber’s early fundraising rounds were a critical part of its journey to becoming a massive company. The challenges the company faced, from regulatory hurdles to competition from other ride-hailing services, only made it stronger. Kalanick’s determination and strategic approach to fundraising, along with support from investors like Bill Gurley, were crucial factors in Uber’s success.
If you’ve enjoyed reading more about Uber’s Seed and Series A fundraising rounds, I have linked below a fantastic interview between Travis and one of his early angel investors Jason Calacanis – it’s a great watch:
Here’s a bonus fact for the readers who made it to the end. Travis tried to kill his competitor Lyft’s fundraising efforts.
He know that both companies needed to raise a lot of capital to scale. As such, if he could prevent Lyft from raising capital, he and Uber would take the whole ride-sharing market.
Once Travis found out that Lyft was fundraising. He had his team call every VC in Silicon Valley. The message was: Uber is planning to fundraise. The round will open as soon as Lyft closes their fundraise. Anyone that invests in Lyft will not be invited to invest in Uber.
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