When Carl Icahn invests, it usually means he's preparing to take over your company or make sweeping changes. But today, it looks like Icahn is utilizing a different strategy to grow his considerable wealth.
On Friday, the famed activist investor invested $100 million into Lyft at a $2.5 billion valuation. The ride-sharing company has now raised a billion dollars from investors like Rakuten, Andreessen Horowitz, Founders Fund and K9 Ventures.
For most people, $100,000,000 is a tremendous amount of money. But for Icahn and his holding company Icahn Enterprises -- which reported revenues of $4.5 billion JUST in Q1 2015 -- $100 million is barely a blip on the radar. So why did Icahn decide to make such an unusual investment?
For Lyft, the benefits of having Carl Icahn as an investor are numerous and obvious. Icahn is one of the most-connected investors on the planet, especially among investment banks and private equity funds. Lyft's valuation places it outside the realm of investment for most venture capitalists. It is, however, a perfect candidate for investment from a JPMorgan or BlackRock. Icahn knows these people and knows how to structure these deals. In addition, his access and knowledge will be invaluable for Lyft's eventual, inevitable IPO.
But what about Icahn? What is he getting out of the deal, outside of 4% of a company that's poised for fast growth? The best answer I have is access. While Icahn stands to make a billion dollars if Lyft eventually becomes worth $25 billion (a reasonable assumption, if you believe ride-sharing will only grow over the next few years), his stake in Lyft allows him to invest even more before an IPO at a discounted price.
"The company's revenue growth to date has been extremely compelling, and increasing urbanization over the next 5 to 10 years should enable the company to maintain that trajectory," Icahn told The Wall Street Journal.
It stands to reason that Icahn would want to put a few billion to work in a Lyft IPO, especially if the ride-sharing company is really "tremendous bargain", as Icahn believes.
There's another factor to consider -- the recent trend of venture-backed companies putting off their IPOs. A decade ago, companies like Uber and Dropbox would have gone to the public markets to raise the money they need to expand their growth. But in recent years, these tech giants have chosen to raise private money and avoid the scrutiny and regulations of the public markets. While Uber and Dropbox will likely IPO sometime in the future, they can now afford to wait, thanks to private equity and investment bank money. Icahn, traditionally a player in the public market, cannot ignore this trend if he wants to continue to generate profits.
Icahn's move is a savvy one -- it's a small bet (for Icahn) with lots of potential upside. And if his gamble works, I suspect it won't be the last time he jumps into the private markets.