SAN FRANCISCO -- Ridesharing service Uber said Friday it has raised $1.2 billion in funding, pushing the value of the controversial startup to $18.2 billion, one of the largest valuations ever for a venture-capital-backed company.
The eye-popping investment underscores the appeal to investors of ride-sharing services that build smartphone apps to connect passengers and drivers, despite the widespread regulatory opposition and incidents that have raised questions about the safety of such services.
"It's the most-valued startup," said Sam Hamadeh, founder and CEO of research firm PrivCo. "I guess you have to give your hats off to that -- no matter how they achieved it," he said, referring to Uber's pushing the limits on regulations and defying city bans on ridesharing.
The $1.2 billion investment, Uber's fifth fundraising round, was led by Fidelity Investments and included BlackRock and Kleiner Perkins Caufield & Byers, as well as Google Ventures, which threw in cash for the second time.
Uber said it expects to soon close another deal that will bring the total investment to $1.4 billion and nudge its valuation to $18.4 billion. That would put Uber's worth at almost twice that of San Francisco-based Dropbox and Airbnb and Chinese smartphone maker Xiaomi, which have the second-highest valuation at $10 billion each, according to data from Dow Jones and The Wall Street Journal.
"With our growth and expansion, the company has evolved from being a scrappy Silicon Valley tech startup to being a way of life for millions of people in cities around the world," Uber founder and CEO Travis Kalanick wrote in a company blog post. The company did not respond to this newspaper's requests for comment.
In an interview with the Journal, Kalanick said Uber was doubling its revenue every six months.
Uber is now worth more than rental car companies Hertz, which has a market value of about $12 billion, and Avis, which is worth about $6 billion. The valuation is another ringing endorsement of the sharing economy, which refers to a wide range of companies that use social networks and smartphones to offer everything from clothes to rooms, with business models that connect those with something to offer with those who want something.
Uber's record-level investment and star power as one of Silicon Valley's hottest startups comes despite challenges that have raised questions about public safety and the company's ability to grow nationally. Uber has been hit with cease-and-desist orders from every corner of the country, and on Thursday, the Virginia Department of Motor Vehicles became the latest regulatory body to ban ridesharing services. Dallas authorities also have cracked down on Uber, and Seattle's mayor has threatened the company with a cease-and-desist order.
"There are so many regulatory issues with Uber that are not being considered by this valuation," said Hamadeh, who is also an attorney. "Investors are holding their nose and investing in Uber looking for a big payoff, and not considering the massive risk. Uber is not the clean investment that VCs wish they had."
And with an $18 billion price tag, it's hard to imagine what Uber's exit plan is. Few companies could afford to acquire Uber, Hamadeh said, and he questions whether it could go public at such a high price in what is currently a more reserved market.
"It's too big to swallow," he said.
Yet as more riders dump city cabs, and sometimes even their own cars, for ridesharing, investors are increasingly confident that consumer demand will continue to drive regulatory changes. Lyft, another San Francisco on-demand car app, raised the second-largest venture investment in the first quarter of this year -- $250 million from a group that included Alibaba and Andreessen Horowitz, according to Dow Jones.
"At the end of the day, if the majority of the population loves it, and since those are the voters, there would be inclination (for regulators) to accept the service at some point," said Sergio Monsalve, a partner at Palo Alto firm Northwest Venture Partners. "You have to look to the customer satisfaction as the driver of the future of the company."
Uber pioneered on-demand car services in 2009 and was soon joined by Lyft and Sidecar. The fledgling industry operated outside regulatory authority until, facing a groundswell of public support for ridesharing, the state approved new regulations to license some companies and required the services to meet safety and insurance standards. On Thursday, Colorado went a step further when it became the first state to legislatively embrace ridesharing by signing a bill that authorizes the services.
But Uber is in other legal tangles over its drivers' safety record and faces criticism for its eagerness to deflect responsibility for driver mishaps. Uber took no responsibility for the death of 6-year-old Sofia Liu, who was hit and killed on New Year's Eve in San Francisco, allegedly by an Uber driver. Syed Muzaffar, who no longer works for the company, was in between passenger pickups when he struck Sofia, police said.
Another former Uber driver this week was charged by the San Francisco District Attorney's Office with misdemeanor battery after allegedly striking a passenger in November. The driver, Daveea Whitmire, also had a history of assault and a felony convictions for selling marijuana and drugs.
Contact Heather Somerville at 510-208-6413. Follow her at Twitter.com/heathersomervil.
Uber $18.2 billion
Founded 2009, San Francisco
Airbnb $10 billion
Founded 2008, San Francisco
Dropbox $10 billion
Founded 2007, San Francisco
Palantir: $9 billion
Founded 2004, Palo Alto
Pinterest: $5 billion
Founded 2008, San Francisco
Source: Dow Jones, VentureSource