Uber confirms SoftBank has agreed to invest

Is the share auction first come first serve? Or how is that done?

It's an internally sponsored secondary which means that the buyer has already been determined which in this case is Softbank and Uber will put together some requirements around which share holders can sell and what amount of their stake.

Something typical is if you have been at the company for X number of years, you can sell X% of your vested equity.

They will have a large bank or some other third party as the underwriter for the deal to figure out the correct pricing and then offer it to the employees that are eligible to sell shares until they reach the buyer's total requested amount, which in this case is $9B.

Can anyone explain why $1B is being invested at a $70B valuation, while existing share holdings are being purchased at a lower/to be determined valuation?

The $1B that is being invested at the $70B valuation is direct from the company and Softbank will be purchasing preferred shares like any other VC. These preferred shares have extra rights, things like liquidation preference, board seats, voting rights, etc.

What specifically they will receive is unknown, but at the very least they will have a 1x liquidation preference on that $1B invested, which means if the company sells for the total amount of money raised (well below $70B), the investors get all of their money back.

So think of preferred shares like "insured" shares, which is why investors are willing to pay more, because the likelihood of entirely losing their investment is lowered significantly.

However, Uber may not want to raise more capital, take on extra dilution, etc, so they are selling only $1B that will flow to their balance sheet.

The other $9B will be purchased from common shares, or employee shares. These shares do not have these preferred rights and most significant they do not carry a liquidation preference. Which means if the company sells for the amount raised, or below that, you lose the entire $9B.

Since there is no downside protection and there is no liquid market, this is usually used to negotiate a lower price than that of preferred shares.

If there had been considerable time between when the last priced round happened and when secondary shares are purchased then the investor may have to buy them above the last round price because the company has made significant traction and the perceived value of the company is now higher.

But since the last two priced rounds are at the $70B mark and these shares are unsecured, they will usually be bought at a discount.

How much varies but you can expect a 10-30% lower price.

However, since this is sponsored by the company early employees will most likely be allowed to sell shares at a very large valuation compared to what their strike price is.

Couple of queries if anyone happens to know:

- Would existing employees with stock options be allowed to sell or the ones with RSU's are also eligible?

- Would ex employees be eligible too?