Business Essentials for Professionals


Eyebrows Rise as Investors Back both Arch Rivals Uber and Didi

Eyebrows Rise as Investors Back both Arch Rivals Uber and Didi
Billion-dollar-plus funding rounds have been made routine by ride-hailing companies Uber and Didi and are among the many new dimensions that they have brought to the startup industry.
Another first in this list for startup industries is the sharing big investors despite both being fierce rivals, backing both companies.
According to investment records and sources familiar with the deals, at least four investors - asset manager BlackRock, Chinese investment manager Hillhouse Capital Group, hedge fund Tiger Global and insurer China Life, are shared by Uber, the leading ride service in the United States and much of the world, and Didi Chuxing, which claims 87 percent of the Chinese market for private vehicle ride-hailing.
"It's very unusual to allow the same parties to invest and get information rights of sworn mortal enemies. But then again, it's also not common to raise $14 billion as a seven-year-old pre-IPO company," said Max Wolff, chief economist at Manhattan Venture Partners.
Since it started in 2009, Uber has raised more than $13 billion in equity and debt financing. Bringing its total fundraising to more than $10 billion, Didi this week confirmed a $7.3 billion funding round.
According to investors, academics and dealmakers, issues like whether one company may succeed at the other's expense, conflicts of interest and information sharing raises concerns by the practice of backing competitors.
"I think it looks bad. These firms are still private, they are still growing and making strategic choices, and those choices are going to matter a whole lot," said Rory McDonald, an assistant professor at Harvard Business School who has done research on the topic.
Companies are on average less competitive and less innovative when they have a link to a competitor through a shared investor compared to if they did not have that tie, says a McDonald's research.
Since none of the investors had board seats or board observer seats and hence have less access to and control over the company which makes Uber say that it does not have concerns about sharing investors with Didi.
There were no comments from Didi.
People who are familiar with such deals say that such investors are likely not to have the influence and close relationships that early-stage venture capitalists would since the four investors came in at a later stage in the companies' lives. And investments are most often made in isolation by individual fund management teams for funds such as BlackRock.
Backing competitive startups are generally avoided by startup investors. However there are precedents of otherwise. Both photo-sharing startups Instagram and PicPlz for example, were backed by venture firm Andreessen Horowitz. While PicPlz eventually shut down, the information access rights were eventually given back to Instagram by firm and did not invest further.
However it is months or years after the VC invested that the conflict in venture capital often happens when a startup changes focus or creates a new product as in the Andreessen Horowitz case.
In the case of Uber and Didi, the companies are already in conflict, and still investors are rushing headlong into both is what has raised alarms, say investors and industry experts.

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc