Those briefed on the latest Wall Street transaction said that wealthy clients of Morgan Stanley are managing a special fund that allows them to bet on Uber. The fund, called New Riders L.P., is a contribution to the billions of dollars in capital that Uber has been working to raise. Yet unlike the other investors in the current fund-raising stages, the investors in the Morgan Stanley fund are efficiently investing their money with their eyes closed.
The institutional investors are in financial flux of revenue and expense metrics and expectations. However, the 290-page document for the New Riders fund does not offer any financial details about Uber. The investors are also not directly getting equity in Uber, unless through the fund. Consequently, the fund has few guards for investors. Even so, all this has not blocked wealthy investors from investing about $500 million to Uber’s latest round, valuing the San Francisco-based company at $62.5 billion.
The fund’s investors are seeking to generate money from whenever Uber goes public, apparently at a much higher valuation. Such expectation emphasizes the opportunity that still surrounds a select group of Silicon Valley start-ups even as price for others decline and the public stock market crashes. For some investors, the deal is just like having an early, exclusive slice of the world’s most valuable start-up. Morgan Stanley is investing $475 million of new preferred stock in Uber, through a special fund that holds only those shares. The clients must have a net worth of at least $10 million and a minimum investment of $250,000 and are not permitted to offer over 5 percent of their net worth. Bank of America Merrill Lynch is also offering Uber from its clients through a similar fund.
Formerly, institutional investors and others have offered about $1.5 billion into the round, for a total deal of $2 billion or more. Rich investors are willing to make risky bets on hedge funds, private equity vehicles and, of course, in young private companies like Facebook, before it went public. But somehow the Uber deal is asking even more of investors, while the company has already funded $10 billion and has not given any sign of when it may go public. And despite funding huge sums of cash, Uber has spent much of that around the world, still as a result of losing money. Investors that are buying into this deal most likely understand at least some of the hazard and can afford to lose money. And the absence of financial data on Uber in the deal documents may turned into a shortcoming.