Uber, the fast-growing mobile car-booking service, reportedly is negotiations for a mega-round of capital that could value the company at more than $10 billion.
So, how fast is fast-growing? Well, Uber’s last round of funding came earlier this year, and investors — including TPG Capital, Google (GOOG) Ventures, Benchmark Capital, Goldman Sachs (GS) and even Amazon.com’s (AMZN) Jeff Bezos — ponied up $258 million at a valuation of just $3.5 billion.
Is this just more Silicon Valley silliness, or can we begin comparing Uber to the Facebook’s (FB) of the world?
To be sure, there is no shortage of crazy antics in the tech sector. Look at the implosions at Zynga (ZNGA) and Groupon (GRPN) — which in their own right helped change markets — and remember this: There was a time when VCs desperately sought to jump into these deals.
And Uber? Well, it too is innovative and disruptive. The company, which was founded in early 2009, operates an app that can easily locate a driver for consumers, and it also provides photos, background information and real-time maps. (Full disclosure: I’ve used the service many times, and I love it.)
Uber also has built a sophisticated Big Data infrastructure that is tied to a large fleet. The underlying analytics made it possible for Uber to form partnerships with General Motors (GM), Toyota (TM) and various financial institutions. It leverages this infrastructure by offering drivers low-cost financing to purchase cars.
The revenue model is simple enough: Uber takes a 20% cut on all transactions.
Uber is the dominant player in this growing private-driver space, with operations in 115 cities across the globe, and it has rankled taxi companies left and right.
However, Uber isn’t just going after the taxi market.
For example, the company recently launched UberRUSH, a local courier service. There’s also buzz that the company may provide home deliveries and take on giants like UPS (UPS) and FedEx (FDX). (And hinting at that, Uber recently chanted its tag line from “Everyone’s private driver” to “Where lifestyle meets logistics.”)
Uber faces a number of challenges, however.
Take the aforementioned taxi drivers — well, they have thrown intense litigation at Uber in hopes of stemming the disruption to their industry. Chicago and Seattle operators have tried to sue, and heck, even Uber’s own drivers have accused the company of cheating them out of tips.
But perhaps the biggest issue for Uber is the competition, which has resulted in various price wars. Just some of the rivals include Lyft, LeCab, Sidecar and Hailo. They’re no softies, either. Back in April, Lyft — which is available in 60 U.S. cities — raised $250 million from investors including Andreessen Horowitz, Mayfield and even Alibaba at a $700 million valuation.
The Uber funding deal actually could be a sign that the company’s founders are getting antsy. Amid the selloff in once-hot tech companies like LinkedIn (LNKD) and Twitter (TWTR) and the plunge in other, more recent tech IPOs, the environment could get chilly for private operators. So it makes sense to build a cash hoard for defensive purposes (and would explain other major recent fundings, such as from Pinterest and Airbnb).
And the prospects for an initial public offering?
Considering the company’s hefty balance sheet, Uber will be in no rush for an IPO. Not to mention, there’s a good chance that the upcoming Alibaba IPO could crowd out other large offerings.
Still, the Uber deal does indicate that VCs are still upbeat, at least for the moment — and are willing to pony up significant amounts capital for fast-growing operators.
But if IPOs continue to erode and valuations fall in the public markets, the giddy times could quickly come to an end.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.