
Benchmark Capital Sues Travis Kalanick for Fraud - bobsky
https://www.axios.com/benchmark-capital-sues-travis-kalanick-for-fraud-2471455477.html
======
throwawy11111
Benchmarks in a bind and at war with travis; they need to liquidate their
stake in next year or two. Softbank deal to buy out their shares fell apart in
part b/c no CEO. Benchmark wants safe-hands leader who will cost-cut firesale
their way to quick IPO. travis + allies being more long term; blocking
benchmarks CEO picks (meg). so board civil war continues with benchmarks dirty
tricks like this sour grapes lawsuit and selective leaks to undercut and force
mgmt's hand in cost cuts (the lease car data earlier this week)

~~~
uhhhhhhh
>travis + allies being more long term

His actions and bad management hardly seem long term based thinking. While you
could be right that is his intention, his actions to date, the bad management
issues well documented, or his possible participation in fraud, to the
antagonistic business practices hardly seem the best "long term" approaches.

~~~
btown
Not to defend his actions, but to consider his possible mindset in doing them:
His actions could be explained as pushing hard to build a defensive moat
against a world allied against Uber as quickly as possible. If _regardless of
what you do_ you lose a bit of PR here and there, you get kicked out of cities
here and there, and you have to pay a few hundred million in settlements here
and there, you might as well throw caution to the winds so that you still have
plenty of market share left when you lose those things, right? It would seem
that's the Uber way. Of course, breaking laws and conventional morality to do
so is a slippery slope, and he severely underestimated how much those extremes
would splash back on _him_ personally. I hope that other excessive CEOs treat
this as a wake-up call - limits and laws are there for a reason.

~~~
matt4077
What ultimately got him wasn't his "maverick rule-bending to compete against
the establishment".

He created this bro-themed caricature of a corporate culture, and he did so
for no reason other than enjoying that sort of atmosphere, or being
incompetent to stop it. Or both.

Let's not start some sort of myth of martyrdom around Kalanick by conflating
these two. Although, yes, this strategy of braking local regulations and
expecting to win a power struggle with every government anywhere was also on
its last leg when he left, and would've gotten to him as well, sooner or
later.

~~~
monknomo
"maverick rule-bending to compete against the establishment" seems like a
really complementary way to say "lawbreaking company".

I mean, their whole model was to go places, ignore the law and continue
operating until they either got thrown out, or they pumped money to the right
places to get the law changed.

Scofflaw corps get nailed sooner or later, and a corp the is built on breaking
laws might break some laws investors care about...

~~~
fapjacks
Perhaps, but I've heard politicians on the national level talk about this as
just business as usual. If the system creating the laws sees "move fast and
break things (like laws)" as the norm, then we can scold and shame all we
want, but it's not going to change things. Regulatory capture and law-breaking
startups seems to be what's expected out of American business by the very
people doing the legislation.

~~~
forapurpose
Which politicians said what exactly? I read a lot of U.S. national news and
I've never heard that.

------
aresant
Among the complaints of bad behavior:

"Kalanick [aquired] a self-driving startup that, according to a confidential
report not disclosed to Benchmark (the "Stroz report") allegedly harbored
trade secrets from a competitor . . . "

The Stroz Report was created when "Otto and Uber jointly hired an outside
forensic expert Stroz Friedman. Friedman interviewed employees, including
Levandowski and Lior Ron, reviewed their digital devices like mobile phones
and cloud storage, and prepared a report recording the results of the
investigation. . . Uber dangled a huge carrot for Levandowski to be truthful .
. and agreed to indemnify him for any prior bad acts he confessed to
committing. In other words, if Levandowski told Stroz what he stole, then the
high priests at Uber have absolved him of his civil sins and Uber will pay for
any resulting lawsuits or penalties"(1)

Maybe I'm reading between the lines, but it seems like they're saying in black
& white that the Stroz report contains incriminating evidence that Levandowski
DID "harbor trade secrets" from Google which will materially impact the
outcome of Ubers broader legal woes . . .

EDIT - Reading further in the actual complaint ""if the contents of Stroz's
interim findings had been disclosed to Benchmark at the time, they would have
had a material impact on Benchmark's decision to authorize the board seats . .
." (2)

Sounds quite a bit like a smoking gun, that Benchmark probably realizes now is
going to come to light.

(1) [https://medium.com/@nikhilgabraham/why-anthony-
levandowski-h...](https://medium.com/@nikhilgabraham/why-anthony-levandowski-
has-almost-nothing-to-lose-eef1116fea5e)

(2)
[https://www.documentcloud.org/documents/3922911-67730336-DE-...](https://www.documentcloud.org/documents/3922911-67730336-DE-
Verified-Complaint-FINAL.html)

~~~
tmh79
RE the stroz report: from what I've heard, AL did take a bunch of files, and
he planned to use as leverage against google/waymo to get his 120m bonus, and
Uber told him more or less "dont let that shit touch anything we do". He also
had some kind of big google earth photo taking kit at his house for long after
he quit google.

~~~
calafrax
well, no problem then. just stealing your employer's property to use to use
for extortion. what a nothingburger.

~~~
kuschku
They had previously refused to pay him wages that they had agreed to pay.

It is common in parts of the programming world — especially when dealing with
untrustworthy clients — to keep a way to take their IP/disable their
website/turn off their domain/etc unless they pay you on time.

~~~
mikeryan
No it's not. Illegally holding on to property that's not yours isn't leverage
- its theft and leaves you open to prosecution. If you have a contract with
someone and they're in breach then the courts provide you an avenue for relief
- not blackmail.

------
rmason
If actual fraud is not found what sort of message does this send to
entrepreneurs that Benchmark is founder friendly?

Looks like a grudge match to me. Apparently unhappy with merely removing
Travis from the CEO's chair they want to make certain he's never allowed to
ever enter the building.

~~~
smallgovt
There's way too much money at stake here for this to be driven by grudges,
emotions, or even reputations.

Benchmark's stake in Uber is worth $9.1b -- many, many times the size of their
fund. They will do anything they can to protect this investment.

They very likely believe that the best way to protect their investment is to
keep Travis out, and this is part of the process. Decisions like this aren't
made at an individual partner level. The entire partnership decided to file
this lawsuit, and that means it's a calculated decision.

~~~
chrisseaton
> Benchmark's stake in Uber is worth $9.1b -- many, many times the size of
> their fund.

I don't get it - their stake in Uber is part of their fund isn't it? So how
can it be worth more than the whole fund?

~~~
tedmiston
For example, if their fund is $1B and they put $250M in Uber, then Uber's
valuation goes 10x, so their portion is now worth $2.5B, more than the fund
started with. (Numbers made up for example.)

------
whack
The key point of conflict appears to be the following:

 _The suit revolves around the June 2016 decision to expand the size of Uber
's board of voting directors from eight to 11, with Kalanick having the sole
right to designate those seats. Kalanick would later name himself to one of
those seats following his resignation, since his prior board seat was reserved
for the company's CEO. The other two seats remain unfilled. Benchmark argues
that it never would have granted Kalanick those three extra seats had it known
about his "gross mismanagement and other misconduct at Uber"_

I never understood this practice of investors/founders having such wide
discretion when it comes to controlling board seats. It always seemed to me
that board representation should be roughly proportional to equity ownership.
If a founder/VC controls 30% of the equity, he should be given control over
~30% of the board seats. Such an arrangement seems like the best way to ensure
that incentives are aligned, and to prevent drama/shenanigans like whatever
led to this suit.

~~~
ardit33
Board seats are part of bargaining chip during funding rounds.... they are
very very important.

If you lose control of the board as a founder, you basically are another
employee at the company, at the mercy of your investors, who can choose to
bring "adult" supervision anytime they seem it is fit to them.

Having the founders control of the board did well to both facebook and google
on the long term. On the other hand you have Twitter where nobody is in real
control of it, and it ended up with no clear direction.

~~~
kuschku
This gets especially interesting when you start to expand into Europan
countries, and suddenly large amounts of the board seats are elected by the
employees (usually a similar amount is chosen by investors and by employees).

This is something that seems to be missing in the US.

~~~
smokeyj
> and suddenly large amounts of the board seats are elected by the employees

Any stats or info on this? Would be interested to find out more.

~~~
ahartman00
not eu as a whole, but in Germany, "The law allows workers to elect
representatives (usually trade union representatives) for almost half of the
supervisory board of directors"

[https://en.wikipedia.org/wiki/Codetermination_in_Germany](https://en.wikipedia.org/wiki/Codetermination_in_Germany)

------
WisNorCan
It's interesting to see how all the chaos at the board and management level
has affected employees. Data from LinkedIn paints a troubling picture both in
terms of hiring and retention.

* Uber has 31,537 employees as of August 2017.

* New hiring is down from 1000 per month in 2016 to 500 a month in 2017. July was the lowest month since the start of LinkedIn data which is August 2015 @ 440 hires.

* There are currently 8,000 job openings. Operations and Engineering are the two largest categories.

* With every 100 people that are hired. ~80 people are departing the company.

Hiring managers I have talked to say that it is very challenging to attract
strong candidates to Uber and it is demoralizing because their best people are
leaving.

~~~
sjg007
Why so many people?

~~~
tristanj
Many of the 30,000+ employees are non-tech. Uber needs lots of hires for
driver recruitment, training, support. They have people on the ground in every
region they operate.

~~~
needless2
do they get paid okay?

~~~
johnnyfaehell
Depends on what you consider "okay". For most people who will join I suspect
they will think it's okay money.

------
sillysaurus3
_Stakes: Per the complaint, Kalanick currently holds around a 10% equity stake
in Uber, which most recently was valued at around $70 billion. Benchmark holds
approximately 13 percent._

This is interesting. I thought HNers were saying Kalanick had the biggest
stake, which is why the board couldn't fire him.

How does this work? If someone only has 10% equity, why was it so difficult to
remove them? This is a useful tool for founders, so it's worth understanding.

~~~
benmathes
Uber has different share classes with different voting rights

[https://www.nytimes.com/2017/06/12/technology/uber-chief-
tra...](https://www.nytimes.com/2017/06/12/technology/uber-chief-travis-
kalanick-stock-buyback.html?_r=0) \---------------------------------

Even if a worker sells only 10 percent of his or her stock back to the
company, that worker agrees to give Mr. Kalanick the voting rights to 100
percent of his or her stock. Each share of Class A stock comes with one
shareholder vote, while each share of Class B comes with 10 votes.

Uber had 545.8 million Class A shares at the end of last year, which included
43.4 million employee stock options that had been issued, according to
financial statements obtained by The Times. If all of the early employees who
owned those options sold even a small part of their stock to Uber, Mr.
Kalanick could control the votes of up to 43.4 million shares, or an
additional 7.9 percent of that stock class.

Uber also had 459.7 million Class B common shares at the end of 2016, which
included 9.9 million employee stock options that had been issued. If all of
the holders of those options sold even part of their stock to Uber, Mr.
Kalanick could control the votes of up to 9.9 million shares, or an additional
2.2 percent of that stock class.

Mr. Kalanick does not control those votes until he issues something called a
“voting notice,” which requires the employee to vote all of his or her
remaining stock in accordance with Mr. Kalanick’s wishes on all matters
submitted to a vote of stockholders, according to the agreement. If Mr.
Kalanick issued such a notice to a Class B shareholder, the stock gets only
one vote a share, which goes to Mr. Kalanick.

~~~
eridius
> _Employees must follow the “instructions of Travis Kalanick,” according to
> the buyback agreement, “with respect to any and all matters” that are
> submitted to a shareholder vote._

Wow. I knew about the super-shares, but giving Travis (not even Uber's CEO but
Travis personally!) control over the voting rights of any employee who sells
any of their stock back to the company seems pretty fucked up. Is this done at
any other company?

~~~
mcguire
I think the answer to that is, not if they want to be part of the S&P 500.

------
minimaxir
Direct link to complaint:
[https://www.documentcloud.org/documents/3922911-67730336-DE-...](https://www.documentcloud.org/documents/3922911-67730336-DE-
Verified-Complaint-FINAL.html)

------
nthcolumn
Before Travis got booted some Techcrunch article or other was submitted here
on an almost daily basis about him and other issues Uber were having, some
days two! I thought to myself: 'Boy! Techcrunch really have it in for Uber and
Travis' (mit einen kleine schadenfreude, me being no fan of either). Once he
left though, the posts seemed to me to end rather abruptly even though there
were still newsworthy shenanigans at Uber. Has anyone else noticed this? Why?
Cui bono?

~~~
taurath
TechCrunch is owned by AOL, which also owns the Huffpo. Arianna Huffington is
a board member of Uber - she stepped down from editorial work at Huffpo/AOL
media group in 2016, but I"m sure she has a lot of influence on her namesake.
This is totally unsubstantiated but there's generally a lot of mucking about
at the board level of high profile companies like this.

~~~
shostack
If you or others have links to resources on board politics and how that world
works, I'd love to learn more. Having never held a board seat, it is a
fascinating, yet still mysterious world to me, and it seems like the truthful
accounts of what happens in that world are kept as private as possible.

------
zxcvvcxz
> Benchmark argues that it never would have granted Kalanick those three extra
> seats had it known about his "gross mismanagement and other misconduct at
> Uber"

Buyer's remorse! Investors think they deserve so much power because they put
capital upfront and understand how to play the legal system to their benefit,
while more industrious actors are busy actually building the value of the
company.

Yeah and I can tell the folks at Benchmark about a bunch of guys I knew who
wish they never would've gotten married. Oh well, when you take your vows...
Till death do you part ;)

~~~
wbl
He who pays the piper picks the tune.

------
pfarnsworth
Who in their right mind, except for the utterly desperate, would accept money
from Benchmark? Talk about letting the fox into the henhouse, you can't trust
those guys whatsoever.

~~~
bsaul
Care to provide details ? I don't live in the valley so i'm not up to date
with the latest gossip. Last time i heard about this firm, it was pretty
complimentary

~~~
arikr
Maybe referring to the Benchmark <> Epinions stuff.

Though from what I know Benchmark's rep is pretty solid. Particularly as a
king-maker, with Uber and Snap.

------
tareqak
Techmeme summary: _Benchmark Capital sues Travis Kalanick for fraud, wants
invalidation of the June 2016 stockholder vote to expand board, which would
also remove him from board_

------
tmh79
wonder what this means for the CEO search, softbank funding etc. My assumption
is that both parties will settle quickly but I could be wrong. Also not noted
in the article is that while travis owns 10% of the equity stake, he has
super-voting shares, such that him, Ryan Graves, and Garret Camp as a trifecta
hold controlling interest IIRC.

~~~
whbk
Travis has lost the support of Ryan and Garrett apparently (per several
reports over the last month/Garrett's statement/Ryan stepping down from
operating role). Seems like a man on an island at this point.

~~~
throwaway91111
Are there any similar wars between investors and majority share owners? I'm
not familiar with the area.

------
imsofuture
So the board agreed to create 3 new board seats over which Kalanick would
explicitly have full control to appoint people. And now they're suing him
because they regret that?

~~~
dcole2929
Per the lawsuit, Kalanick, stated explicitly, in writing, that the seats would
have to be approved by the board, and he reneged on that. Whether his written
word can still hold him accountable remains to be seen, as it seems like this
agreement wasn't made as a part of the vote to create the new seats but as a
part of the deal where he vacated the CEO position.

All in all when your biggest, earliest investor sues you, despite you having
built them a fortune, you have probably been grossly negligent in some
respect.

------
gavanwoolery
I do not know Travis well enough to say if he is a "good" or "bad" person but
playing devil's advocate for a second: is it really a crime to organize a
board in your favor? I imagine this is done all the time.

~~~
cabaalis
Absolutely not. You can arrange a board however the founders and shareholders
agree. However, it appears they are arguing that he purposefully withheld
valuable information from them that would have made them vote differently on
the board arrangement.

------
featherverse
As an aside.. the dude's face on the TechCrunch article about this is
heartwrenching, if you stare at it long enough.

[https://techcrunch.com/2017/08/10/benchmark-sues-former-
uber...](https://techcrunch.com/2017/08/10/benchmark-sues-former-uber-ceo-
travis-kalanick/)

------
sjg007
Uber should IPO unless they are waiting until they decimate traditional taxis
but I don't see that happening in key markets. They could buy up medallions on
the sly though. Economically, Amazon loses money in expansion and they have no
real competitors online so I don't see why uber can't do the same.

------
sergefaguet
will never, ever talk with Benchmark for any fundraising again. suing the CEO
who made them ~ten billion dollars. what the actual fuck.

~~~
zangiku
Until an exit, he hasn't made them anything except paper billionaires. If
anywhere on the road to an exit Travis or any other CEO does anything
unbecoming of a steward of the capital of the investors, he should be
questioned and potentially removed. That is why laws that protect investor
rights such as fiduciary duty requirements exist.

The reality is that when it comes to fraud or other potentially criminal
activity, you've got to bat 1000 as a CEO. For even lesser offenses you don't
get too many freebies. Welcome to the game.

And wtf are you arguing anyways? Because I invested in Enron and they made me
money, in 1999 I should have been happy even while alarm bells were starting
to be rung? Your argument would've lost conscientious investors a great deal
of money in the end game. You've got to think longer than just right now.

Unless you have proof that the claims by Benchmark are literally fictitious,
you're on the losing side of how this one'll play out.

------
thebmax
Agreed. Fuck Benchmark. Travis makes each partner $1 billion personally and
this is how they treat him? They should be blackballed by every great founder
out there. I had respect for benchmark but not anymore. They are greedy
assholes.

~~~
bearcobra
A question I've been pondering since the Martin Shkreli verdict, is fraud OK
if the deceived parties still profit?

~~~
sah2ed
Fraud is never OK. The end does not justify the means.

~~~
angersock
What a small-minded view. Our entire runs on fraud of one degree or another--
sometimes it's just more than people are willing to bear.

~~~
sah2ed
You are joking right?

The question about fraud was in the context of the misappropriation of capital
from investors for a purpose different from what was initially agreed to, and
not as a general catch-all term for posturing or affectation either by
politicians or the general populace.

~~~
angersock
Hell, you could make the same argument about a company jumping into a
different product line with capital intended for a particular buildout.

Your blanket statement "this is _never_ is justified" was my primary
objection.

------
desireco42
I don't know about this infighting, but don't you think that someone like Meg
Whitman would suck badly at being Uber CEO, not that she did wonders at HP. If
anyone has opinion, I would be interested to hear.

------
revelation
There is nothing new here other than Benchmark Capital thinking they can
choose and pick a shareholder decision to revert based on the recent Uber
gates.

Seems very thin on the ground given there is no ruling in a court of law
against Kalanick in any of those.

~~~
renate44
There is a whole lot that's new here. Benchmark, one of the most renowned VC
firms in the world suing the CEO of its biggest current investment. That's
huge news.

~~~
frandroid
*former

------
PhantomGremlin
In my best Nelson Muntz voice: "Ha-ha".

The VCs have done this to themselves. They put up all the money, they should
have _never_ allowed themselves to be put into this situation.

Decades ago, when I was at startups, this was 100% clear, cut and dried. The
Golden Rule. People who have the gold make the rules.

I'm sure this won't be a popular opinion, since more HN readers are founders
and employees than are VCs. But don't simply downvote. Explain. Articulate
why, after taking billions of dollars in VC money, you feel like you're still
owed control.

~~~
arglebarnacle
Nobody put a gun to Benchmark's head and forced them to take a deal that left
so much control in Kalanick's hands. It was a reflection of the relative
strengths of their negotiating position at the time. Kalanick is owed control
because Benchmark agreed he had control.

The legal question is whether the various scandals that followed show in some
way that Kalanick made that deal under fraudulent conditions. It has nothing
to do with a supposed generic truism that VCs always deserve to control the
companies they fund. Uber is actually a great counterexample to your rule.
They appeared to be such a good investment, and so many VCs wanted in, that
they were able to dictate very favorable terms.

~~~
PhantomGremlin
_Kalanick is owed control because Benchmark agreed he had control._

I agree. Given what was negotiated, the default starting position for the
lawsuit is that Kalanick is owed control.

 _so many VCs wanted in, that they were able to dictate very favorable terms._

That is what I failed to fully appreciate. There is so much dumb money
sloshing around that it forces smart VCs like Benchmark to agree to dumb
things.

Here's now a Fortune pundit described the investment a Saudi Arabian sovereign
wealth fund made in Uber last year:

 _Uber needed the money, and where else are you going to get $3.5 billion? No
doubt, it must be tough to fundraise after you 've already tapped out venture
capitalists, private equity firms, mutual funds, hedge funds, Wall Street
high-net worth clients, and strategic corporate and other sovereign wealth
funds (yes, including from noxious Qatar)._

[http://fortune.com/2016/06/02/ubers-no-good-very-bad-deal-
wi...](http://fortune.com/2016/06/02/ubers-no-good-very-bad-deal-with-saudi-
arabia/)

------
baccheion
Uber, AirBnb, Snapchat, Dropbox, etc will all crumble. They may continue to
exist, but they'll be more like Twitter than Facebook. None of them are
anything special.

Maybe Dropbox will get acquired after their failed IPO. Snapchat could also
get filed away in a similar fashion, but it may be too late.

I wonder why they invested so much in a taxi company. It only makes sense if
all cars are replaced with Uber autonomous vehicles, but what are the odds
that will happen? Uber only makes sense in larger cities.

The "brain" trust may as well get started on teleportation or something else
deserving of billions in blind/naive/"stupid" faith.

Is this the mobile bubble forming and collapsing live? As suggested by
historical timings (8 <= year_ipod - year_founded <= 12), IPOs for all "big
bets" should technically happen within the next year. I strongly doubt it's
going to be pretty.

~~~
emrekzd
> Uber, AirBnb, Snapchat, Dropbox, etc will all crumble. None of these
> companies are anything special.

Lol. Please share some of your wisdom with us. Leaving aside taxi companies
like Uber and useless things like Airbnb, can you tell us what companies do
_anything special_ these days Master Foo?

~~~
bobsil1
Hard tech? Righetti quantum computing, IBM Research neuromorphic chips,
Geometric Intelligence one-shot ML…

