Uber Effect: VCs chasing the next 'big' start-up
Chinese search engine Baidu (BIDU) has taken a stake in the ride-hailing app, Uber. Baidu will not report how much it has invested, or what kind of stake it is getting in return. Uber will likely get access to the popular Baidu Maps and its mobile technology in the deal which will be able to integrate Uber services.
It’s a bright spot in a pretty dark month for Uber. The company faces lawsuits in Los Angeles, San Francisco and Portland, Oregon. Courts have shut down or limited Uber's operations in Spain, Belgium, France and the Netherlands. The service was also shutdown in New Dehli after an Uber driver was accused of rape.
At a press conference following the deal, Uber CEO Travis Kalanick said Uber is working “pretty well” in China already. The service isn't facing any regulatory issues there, according to Bloomberg News.
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Yahoo Finance Editor in Chief Aaron Task says this deal is significant. “For all the negative publicity they have been getting, and not just negative publicity, they have had some real pushback from regulators,” says Task, “…they are still expanding around the world.”
After a round of financing earlier this month, Uber’s valuation was put at a staggering $41 billion. That's because Uber has evolved into far more than just a ride sharing app. “It’s way more than about hailing a taxi,” says Task. “It’s about totally transforming the way we all interact with the rest of the world...That’s the only way you can put those kind of staggering valuations on a company that’s growing very fast if its core industry is only $11 billion for the entire taxi industry in the U.S.” says Task.
Uber’s explosive growth has venture capitalists chasing the next big thing. As The New York Times reports Wednesday, companies like Instacart, a same day grocery delivery service in San Francisco, and WeWork, a company that provides shared office space have recently closed rounds of funding putting their valuations at about $2 billion and $5 billion respectively. Yes, that's billion with a "b."
Call it the knock-off effect. According to the New York Times and the National Venture Capital Association, more than 40 percent of venture capital investment this year was in software and mainly in apps.
But finding the next Uber won't be easy for venture capitalists, and the stakes are high. From 2008 to 2013, venture capital returns were less than that of the S&P 500 by 5.4 percentage points, and trailed private equity firms by a even greater margin.
Task says, “Part of the venture capital business is you throw a bunch of money at ten things. If one of them becomes a home run, it doesn’t matter what happens to the other nine.”
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