Uber is throwing in the towel in China.
After a gruelling ground war, the California-based ride-hailing company is officially selling its Chinese unit to its rival in the country, Didi Chuxing.
Uber has suffered through extreme regulatory scrutiny, driver assaults, controversy over background checks and of digging up dirt on critics, and more. But this is something else. China is the world's most populous country, with a market consistently touted by Uber as a source of opportunity.
Uber's withdrawal is the greatest setback in the company's seven-year history — and a rude awakening for many in the venture-capital-funded startup ecosystem.
First, the facts
The details of the Didi Chuxing deal, which was first reported by Bloomberg, are as follows:
- Uber is selling its Uber China unit to Didi Chuxing.
- Uber's app will continue to exist in China (for now) while the two teams are folded together.
- The combined company will be worth $35 billion.
- Per a press release, "Uber will receive 5.89% of the combined company with preferred equity interest which is equal to a 17.7% economic interest in Didi Chuxing."
- Didi Chuxing will also invest $1 billion in Uber, at a $68 billion valuation.
Venture capital isn't everything
Uber faced a litany of problems as it battled its Chinese homegrown rival, including crackdowns by the Chinese authorities as well as censorship in WeChat and allegations of driver fraud.
China was a puzzle that Uber just couldn't crack, no matter how much cash it threw at it. The $68 billion company, the most valuable private tech startup in the world, was burning a whopping $1 billion in China a year as it fought Didi. While it is apparently profitable in some developed markets, it is deep in the red in China.
This failure comes despite Uber's previous touting of China as a land of milk and honey. "To put it frankly,"CEO Travis Kalanick wrote in a leaked letter to investors in 2015, "China represents one of the largest untapped opportunities for Uber, potentially larger than the US."
The company boasted of meteoric growth in the country: Nine months after launch, Uber enjoyed 479 times as many trips in Chengdu as it saw in New York after the same length of time, it said.
But metrics aren't everything. The most explosive growth in the world won't do a company any good if it can't turn a profit and build a viable business around its core product.
Uber's failure in China is a lesson that much of Silicon Valley and the tech industry would do well to heed. Many in the venture-capital business are happy to pump tens of millions into wildly unprofitable businesses off the back of hockey-stick growth graphs and vague promises of future returns.
It's a strategy that can work; just look at Facebook. But it's no guaranteed recipe for success, no matter how many billions you throw at it — as Uber has learned.
Counterintuitively, the Didi Chuxing deal may actually help Uber in the long term, as offloading its unprofitable Chinese segment should make it easier for the company to finally go public.
Ultimately, the deal is a repudiation of the notion that those with enough venture capital behind them can do anything.
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