Glade Brook Capital Partners has launched a new private fund designed to invest in one stock: Uber Technologies, the taxi and car-sharing service that can be accessed only from a smartphone app.
Greenwich, Connecticut–based Glade Brook said in a regulatory filing that it has raised at least $141.5 million for Glade Brook Private Investors V. This includes investments made by both U.S.-based and non-U.S. investors, according to the regulatory filing.
We recently reported that Glade Brook was one of three firms with roots in Julian Robertson Jr.’s Tiger Management Corp. that recently participated in Uber’s $1.2 billion Series E financing. The other two were Stephen Mandel Jr.’s Greenwich, Connecticut–based Lone Pine Capital and Christopher Hansen’s San Francisco–based Valiant Capital Management.
In a three-page offering document sent to clients and obtained by Alpha, Glade Brook lays out its astoundingly optimistic thesis for Uber, projecting exponential growth each year through 2018, when it expects revenue to exceed $35 billion. It projects the company to become profitable on a cash flow basis in 2016 and on a net income basis the following year. “We ultimately believe Uber could become one of the most valuable companies in the world,” Glade Brook proclaims in the document.
This is not the first time Glade Brook — founded by Paul Hudson, a former managing director at Chris Shumway’s Shumway Capital Partners — has created a fund to invest in just one stock. In August 2012 the firm formed Glade Brook Private Investors to invest exclusively in Chinese e-commerce giant Alibaba, which went public earlier this year. At the end of the third quarter, Glade Brook had a total of $483 million in all of its private equity funds, or 35 percent of its $1.38 billion in total assets, according to its November 11 client letter, obtained by Alpha.
What’s more, at the end of the third quarter, Glade Brook’s core hedge funds had about 10.8 percent of illiquid exposure to private equity and pre-IPO investments, according to the letter.
In the third quarter alone, the three classes of Glade Brook Private Investors were up between 24.3 percent and 28.8 percent. For the first three quarters, they had gained between 35.9 percent and 48.5 percent. Glade Brook Private Investors II, which invests solely in Spanish-language media company Univision Communications, returned 0.6 percent in the third quarter and is up 7.7 percent for the year, according to the report.
According to the term sheet for the new fund, the minimum investment is $1 million. It will charge a 1 percent management fee and a 20 percent performance fee, or 15 percent for investments over $25 million. The term of the fund figures to be five years, although there could be two one-year extensions at the sole discretion of Glade Brook.
Uber, launched in 2010, operates in 53 countries. “We believe Uber will grow to be the dominant global provider of local transportation,” Glade Brook states in its report.
Glade Brook asserts that as Uber drives down prices and creates more demand, it will not only “displace” taxis, limousines and rental cars, but supplement mass transit and even one day become an alternative to car ownership. “The company’s first-mover advantage and scale lead us to believe Uber will continue to expand its dominance in the marketplace,” Glade Brook tells clients. “We believe margins will follow, eventually exceeding 50 percent, driving massive cash flows for the company and its investors.”
For example, Glade Brook projects revenues to surge from $103 million in 2013 to $465 million this year, nearly $2.7 billion next year, $8.6 billion in 2016, more than $20 billion in 2017 and more than $35 billion in 2018.
Glade Brook expects Uber’s net loss to peak at $638 million in 2015 and shrink to $97 million the following year. It then expects the company to earn nearly $3.3 billion in 2017 and nearly $7.3 billion in 2018.
The investment firm does acknowledge there are regulatory concerns around Uber, which also has been mired in controversy, most notably over concerns about how well it vets its drivers. Reports surfaced on Thursday that a Boston Uber driver raped a woman; this follows rape accusations in India and earlier accusations that a driver assaulted a passenger.
Some people were also outraged over published reports that Uber’s senior vice president of business, Emil Michael, plans to hire journalists to dig up dirt on reporters who write negative things about the company. Meanwhile, in recent days, Senator Al Franken has been raising questions about Uber’s privacy policy.
Uber seems very sensitive to these developments and criticisms. On its website’s blog on December 17, Phillip Cardenas, Uber’s head of global safety, stressed the company’s commitment to “putting safety first” and “setting strict safety standards,” even acknowledging the India rape. “In November, Uber’s safety team began a global review to assess the areas where greater investment is required,” he states.
Cardenas explained that Uber is beginning to research “biometrics and voice verification” to enhance driver screening and plans to provide riders “the instant ability to communicate” with the company and family “in the event of an emergency.” Uber is also planning to institute polygraph tests for prospective drivers and “exploring new ways to screen drivers . . . using scientific analysis and technology.”
Glade Brook does not make much of the regulatory concerns, although its analysis was written before Thursday’s news reports. It has not addressed the other concerns.
“Uber has only exited one market in which it has launched (Vancouver), and we believe a supportive regulatory framework will follow the market as consumers (voters) demand Uber’s popular service which has clear societal benefits of job creation, efficiency, increased transportation options, increased safety and more,” Glade Brook states in the report.
So when will investors be able to profit from this bet? Glade Brook predicts that Uber will launch an initial public offering in 2016. The investment firm plans to distribute shares of Uber’s listed entity after the IPO is completed “and the expiration of a lock-up period.”
By then we should know whether this was a shrewd investment or whether the company took investors for a ride.
