Uber and Airbnb will eventually — it is widely assumed — have massive IPOs. In the meantime, big banks are salivating at the hundreds of millions of dollars in fees those offerings will produce.
That helps explain why the two most highly-valued U.S. venture-backed companies are raising billions in debt, even though they've raised mountains of equity.
Tech eras are defined by one or two companies. Miss out on Microsoft in the 1980s, Amazon.com in the 90's, Google last decade or Facebook four years ago and banks not only lose the IPO fees, but they face an uphill battle getting into secondary offerings, mergers and acquisitions and all sorts of other advisory work.
And then there's wealth management: Think how much cash early Uber employees will some day to stash away in various hedge funds.
"It's smart business to underwrite an inexpensive debt deal at this point to make sure they're locked in," said Scott Orn, chief operating officer of Kruze Consulting, a firm that provides financial services to start-ups. "They're effectively trying to buy the IPO business."
Orn was previously a partner at venture debt firm Lighthouse Capital. He said that outside of the most prosperous venture-backed companies, debt is getting harder, with banks tightening their lending terms.
Uber and Airbnb are the exceptions.
According to a story this week in the Wall Street Journal, Uber is looking to banks including Morgan Stanley, Barclays and Goldman Sachs to sell a leveraged loan of up to $2 billion in the coming weeks. The WSJ, citing people familiar with the matter, said there's no guarantee a deal will take place.
That follows a recent $1 billion credit facility that Uber secured for its Xchange Leasing subsidiary, in a deal led by Goldman Sachs.
Airbnb, meanwhile, just raised $1 billion in debt from JPMorgan, Citigroup and Bank of America, with participation from Morgan Stanley, Bloomberg reported this week, citing people familiar with the matter.
Big banks using their balance sheets to secure future tech business is not a new strategy.
In 2011, a year before Facebook's IPO, Goldman Sachs led a $1.5 billion equity investment in the social network, even though Morgan Stanley ended up winning the lead spot on the offering. JPMorgan nabbed a stake in Twitter two years before its IPO, a deal that Goldman Sachs eventually won.
With Uber, banks have been elbowing their way in using various techniques.
Goldman Sachs clients provided $1.6 billion in convertible debt to the ride-sharing company last year, while Morgan Stanley and Bank of America were giving their wealthy clients opportunities to invest in Uber private market equity earlier this year.
Interest rates are low, IPOs are scarce, and Uber and Airbnb are looking like they'll be the internet companies of this era.
Banks will do just about anything to make sure they don't get left out.
Representatives from Goldman Sachs, Morgan Stanley and JPMorgan declined to comment.