Venture Bytes #37 - Uber - Our CEO Pick

Uber - Our CEO Pic

As the dust settles following a series of scandals that rocked Uber, outsiders are left to wonder how will they fix this? The answer is simple: a new CEO with uber qualifications.

The unsavory culture and reckless growth strategy that led to this point could easily be traced back to Travis Kalanick; Uber’s disgraced chief executive. Though he was integral to Uber’s astronomic growth as a young startup, Travis lacked the operational focus necessary for the head of a multi-billion-dollar company. What the company needs now more than ever is for someone to step into the CEO position to right all the wrongs left unchecked during Kalanick’s tenure. Most importantly, the new head of Uber needs to win back the trust of the company’s investors. The new CEO needs to prove to their private shareholders that the company will act in their best interest from now on, with the priority of returning value to investors before all else. At the same time, the company must win back the public. The firm should demonstrate a complete shift in its culture, one that maintains the utmost ethical standards and promotes an inclusive and respectful environment for all employees.

Under Kalanick, this vision for Uber seemed incompatible with his - a culture that focused only on growth, regardless of the cost or moral grey areas they would need to cross into. Given Uber’s scale, a shift in focus and operations is necessary. The company must prioritize a stable path to profitability and an ultimate exit to the public markets. The problem under Kalanick was a failure to recognize that, as Uber grew, it became a different company.

A different CEO could build a new reality for Uber, one in which people at the top recognize the managerial style required by a company of such size. Several names for CEO replacement have been circulating in the press. Nikesh Arora, the former SoftBank and Google executive, seems like the ideal candidate for the job. Because of Uber’s recent scandals, however, the company cannot afford a CEO any blemishes on his record – such as the scandal Arora faced at SoftBank. Another strong contender is Tim Armstrong, the CEO of AOL, Armstrong was integral to AOL’s operations as it shifted to digital journalism. Unfortunately, Armstrong’s reputation is also blemished by controversial comments he made regarding employee healthcare.

Which brings us to Thomas Staggs, our leading choice. A scandal-free candidate, he brings an idea résumé for an executive tasked with pulling Uber back from the brink. Staggs has an unblemished ethics record after 26 years at Disney, where he served as, among other things, the chairman of the Parks and Resorts division and later as the chief operating officer. He has the requisite skills and experience to stabilize Uber and to restore confidence in the company. He would carry over the focus on customer satisfaction and openness to client input; a change that could heal the tarnished public perception of Uber. Since he filled several high-level roles in one of the most well-known public companies in the world, the former COO is all too familiar with the behavior and operations necessary to ensure satisfaction among shareholders and consumers alike.

Mr. Staggs could be the combination of managerial and ethical prowess necessary to restore Uber to its former glory and prepare the company for a stable and profitable future.

Santosh Rao @ssrao10

Which Way to Exit? IPO or M&A

IPO or Sell? Every CEO of a successful startup has grappled with that question. Though exit via public placement was historically the first choice, acquisition by a larger company is an increasingly compelling exit strategy.

For the longest time, investors funded tech startups with the expectation of returns on their investments through IPO. It was seen as the natural progression in the life of a company- culminating in a public placement. Now, however, startups are playing a different role for investors and Silicon Valley. Young tech companies are exiting more via M&A at the hands of the larger players in the industry, highlighting symbiotic relationship they now share: the startup brings bold and innovative ideas, and the larger company offers its scale, capital, and user base. This is only made possible by the existence of ultra-large-cap firms in the tech industry, whose size minimizes the risk from any single investment and offers shareholders a hefty premium on their company.

This is shifting how companies operate. Rather than prioritizing a path to profitability, startups can focus on building their product or platform into an attractive offering for one of the larger players in The Valley. This shift couldn’t come at a better time, as the public markets have grown intolerant of any young tech firm that stumbles on the way to being cash flow positive. Because the public markets may turn against them, as Snap and Cloudera have experienced in their young public lives, startups are staying private for longer.

This could explain why many young tech firms have taken in more private funding than ever before, to fund growth or R&D until they become an attractive target for acquisition by a larger industry peer. Instagram and WhatsApp, both acquired by Facebook while they were private companies, showed exactly how a modern startup doesn’t need to achieve profitability in order to return value to their investors. WhatsApp, which has more than 1 billion users worldwide and has never generated a penny on its own, secured a whopping $19 billion for shareholders in the Facebook deal before it proved itself. The Instagram deal, valued at roughly $1 billion when it was acquired in 2012, serves as another example of payday coming for a company with a good idea but no profits to show for it.

The shift to M&A over an IPO is one that leaves Silicon Valley better off. Companies that otherwise couldn’t survive the rough startup environment can finally have their chance to make it. The big firms benefit because they can purchase companies with fresh, innovative ideas, and bring those ideas to the masses at scale. Venture Capital investors may be the biggest winners. Rather than hoping for returns via the fickle public markets, they can expect a profitable exit through a synergetic acquisition by a larger player. Who wouldn’t take that deal?

Santosh Rao @ssrao10