Goldman's Long-Shot Bet In Uber To Pay Off 12,000 Percent At Upcoming IPO
Despite losing the opportunity to head the largest tech IPO this year, Goldman Sachs still stands to gain a 12,000 percent profit from its past investment in the ride-hailing firm Uber. Despite losing ground against its arch-rival Morgan Stanley with Uber, the New York-based investment banking firm will likely still be rooting for Stanley as it does have a hefty stake in Uber's stocks.
If Morgan Stanley manages to offer Uber's stocks at the top of its proposed price range, Goldman still stands to make a hefty fortune due to a wager it had placed on the startup back in 2011. If the IPO price sells at the higher end of the range, Goldman stands to earn a massive profit from its US$5 million investment in 2011.
Before Uber became the giant that it is today, Goldman made a long-shot bet on the startup firm. The move was mostly instigated by the firm's senior executives using the company's own funds.
The group of executives had included the firm's former co-head of investment banking, David Solomon, who was openly skeptical about the new ride-hailing trend.
The bet didn't come easy as the executives reportedly bickered on the decision, with some questioning the returns of what they saw was simply a "localized phenomenon."
After much debate, the executives finally decided to place a US$5 million bet on the company, which bought it around 10 million shares. That bet has paid off exponentially as Goldman's shares of Uber are estimated to be worth US$600 million when the company goes public.
Goldman's investment in Uber was part of the firm's fund that invested heavily in promising startups. Solomon reportedly led the creation of the fund along with Goldman's former tech, media, and telecom group head, Gregg Lemkau. The fund had a dedicated pool of money directly taken from the bank's own capital.
Just a few years after the company made its US$5 million investment on the ride-hailing firm, Uber had attracted billions in new investments that continued to fund its then unprofitable operations.
The company's upcoming IPO is expected to generate more than US$9 billion in new capital for the company. Uber will be selling more than 1.6 million shares when it goes public sometime this year. The expected price range for its IPO is from US$44 to US$50 per share. This would value the company at around US$83.85 billion at the higher end of the range. Uber plans to be listed on the New York Stock Exchange under the ticker "UBER."