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Benchmark Capital Sues Travis Kalanick for Fraud (axios.com)
467 points by bobsky 162 days ago | hide | past | web | favorite | 181 comments

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)

>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.

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.

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.

"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...

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.

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

Certainly regulatory capture is a thing, as is law breaking.

Regulatory capture doesn't do you much good if nobody cares when a business breaks regulations, though :)

I think American society does care about businesses following laws and regulations. I think a narrow segment of the press is wowed by 'outlaw cool' and investor funding, but that is not the same as America as a whole.

Obviously corps are gonna lobby, but I think we as a society should and do draw a distinction between lobbying to change a law that you are not breaking and lobbying to change a law you are breaking. I am pretty sure most legislators who aren't closet anarchists take a dim view of things like that. I will wager a large amount that a vast majority of regulators take a dim view of things like that.

I haven't really paid close attention. Are we basing our assumption that Uber was a "bro-themed caricature of a corporate culture" off the sexual harassment claim that kicked off the uproar a few months back?

While sexual harassment is, of course, indefensible, that story didn't really make Uber sound like the frat house implied by "bro-themed caricatures", it just makes them sound dryly indifferent to the employee's complaint. Are there other events that gave Uber that title?

I would disagree with the order of events here. His actions and business practices directly led to 'a world allied against uber', and getting kicked out of cities. That wasn't incidental, it was a direct result of their choices and behavior. You can't use the results of his actions to explain his actions.

The alternative would be licensing as a taxi company everywhere, which would invite the same political battles with entrenched operators (only with less leverage, since you'd be fighting the battles before you had the user base). So conflict is inevitable with this business model.

Ubers legal battles were because they didn't license, and thus got kicked out of multiple cities by violating their requirements.

By working with licensed drivers/companies or licensing their drivers, they would have avoided much of that problem, admittedly that would add to their revenue vs profit/yearly loss issues they have now. Lyft is in a similar boat, trying to lower loss-per-ride and get to a profitable state. It appears based on media reports that Lyft, despite not sharing many of the conflicting business approaches Uber used, is actually ahead of Uber at working its way to profitability.

> If regardless of what you do you lose a bit of PR here and there, you get kicked out of cities here and there, [...]

...which is because the company was built on ignoring laws and regulations to the detriment of both employees (not called employees by the company) and outsiders (competitors) from the very start, so no wonder that nobody is sympathetic to the company.

I was gonna say. Surely Travis and his allies are interested in Uber's long-term success, yes, but that's a very different claim from them being good for Uber's long-term success.

> Surely Travis and his allies are interested in Uber's long-term success

Why is that certain? Many people are interested in their own success at the expense of their companies. Kalanick in particular seems to celebrate selfishness.

Yeah, you're right - I should say rather that Travis and his allies presumably have no interest in a firesale and definitely have no deadlines like people are claiming the VC firm has, and also have no interest in a "safe-hands" leader, because that's never the sort of leader Travis has been.

But yes, Travis' interest is likely to be his own over Uber's if they come into conflict. I just think he believes that they're aligned. (And I also think he's wrong.)

As far as I understand, Uber IS Travis. I'm not trying to say he is God or anything. This "generation" (Uber, snap) to me seems adamant in fixing the errors of the last generation where founders lost control too quickly (Angie's list).

I'm not saying Travis is a good person. I'm just saying that in a war between founders and investors, it is usually a safe bet to side with founders.

It's possible that Travis wants to regain control and suck out equity into this personal stake. Greedy mofo.

How in the world do you have this kind of detailed insight?

the call is coming from inside the uber

Why do they "need" to liquidate in the next year or two?

From crunchbase (https://www.crunchbase.com/organization/benchmark/investment...) it looks like Benchmark made three investments in Uber, the last of which was in 2013. The funds that VCs raise normally only operate for a specific term of eg 5 years, so now is the kind of time they will want to get out.

Incidentally from what I can make of their investments in Uber on crunchbase, they need Uber's market cap to be $31bn just to break even on their investment (13% of the business for $411m). That's probably what they're fighting for.

I think you dropped a 0.

0.13*31BN = ~$4BN, still a 10X return if they've invested $400M.

It's likely not distributed evenly between their three investments (and perhaps three separate funds), and with the late-stage checks typically being larger, it might impact the ROI of that late-stage fund more severely.

I don't really think the urgency is there, though, VCs have been dealing with illiquid companies for decades, if they need to wind down the fund, they will either distribute the shares directly to the LPs or create a placeholder SPV and distribute partnership interests.

Yes I did! Thanks.

Can't edit it now, unfortunately.

Prob because the lifetime of the fund that invested is coming to an end? It's usually 10 years

While most venture funds have a 10 year term, almost all are extended for at least an additional two years. The GP, together with the LP's, have lots of flexibility to extend beyond then if necessary, although there are typically negotiations around fee reductions and clarifying the path to liquidity. I have no insight into this particular fund, but it is very unlikely that it is purely fund term motivating Benchmark's desire to exit.

VC fund lifetimes put a hard time frame of <= 10 years on required liquidity, forcing founders (who have given up board seats to get those investments) to do things they wouldn't ordinarily do. It's a pretty perverse incentive, and I see the attraction of not taking outside money.

It is perfectly reasonable to distribute illiquid shares of a private company at the end of the fund lifetime.

What is the lifetime of the fund? Just the amount of time that the VC firm has said they would have all the money (and more!) back to the limiteds? Clearly that's not a hard deadline, right?

It is a hard deadline because it is in the deal documents when the fund is formed. It is relevant because the fund management is guaranteed fees for that period. Extending it is usually straightforward, but the compensation of the fund management team during the extension is open for negotiation.

I don't think this is just one party. Kalanick has rubbed a lot of people the wrong way. The only reason he has been around for so long is because people have been waiting to use him as the fall guy for all of Uber's misconduct. Apparently that day is now here. His voting rights aren't worth the paper they are printed on unless he can raise more money so my guess is he will be signing those away shortly if he wants to walk away with anything.

This is no excuse to sue their investee. WORST VCs ever. This will serve as a cautionary tale to avoid working with benchmark.

A humiliating year of PR that makes it impossible to fill the empty executive ranks, followed by a crippling power struggle because I submitted a resignation I didn't mean?

I would 100% have expected Sequoia to sue me after I took their money if I had done the same.

We are not kings. At some point misalignment with your board is your responsibility. This isn't some Series B spat.

> I submitted a resignation I didn't mean?

Consider his mental state during this time. He lost his mother for crying out loud and all these things were happening at the same time. Now the VCs want to pile on to that with a lawsuit. I lost my mom 3 years ago and I wasn't in a good place for months. I'm surprised he was able to even function whilst the weight of the world was on his shoulders.

I'm not saying that he should be CEO again just yet (he can take a break and recover) but to sue him at this time like he wasn't directly responsible for the billions they're now so eager to cash out on...?

Don't forget the toll entrepreneurship can have on someone's personal life: you know it from experience and you can also read on how Travis had to move back home in the early days because things didn't work out with initial projects. This is why I would always give first priority of investment to someone like Vinod Khosla who says, 'in 30yrs, I have never once voted against an entrepreneur in a board meeting'. He goes further to criticize most of these VCs as incredibly unsympathetic towards entrepreneurs because they don't know the pains of building a company. Benchmark are exactly the type of VCs Vinod Khosla warns entrepreneurs to avoid.

> I would 100% have expected Sequoia to sue me

Don't know much about Sequoia but I have never seen an article where they've sued an investee.

I've lost a parent and left a startup I founded, so I can sympathize with how incredibly terrible it must be to deal with two huge losses at the same time.

But Uber has grown to impact an incredible number of souls. Gurley et al. have a serious fiduciary duty to exercise here, one not just aligned with their own greed.

Separately, Khosla is not a paragon of founder-friendliness despite his public attestations. No VC is. It is silly to think that 100% alignment can ever exist with an investor — they legally cannot abdicate their voice entirely. At some point Travis needs to recognize that he consciously took risks that diluted his power in exchange for funding. Had he run a profitable business that would not have needed to happen. You can't have your cake and eat it, too.

> Khosla is not a paragon of founder-friendliness despite his public attestations

There's no evidence he hasn't been anything but. I choose to trust him. If I had to choose between a VC leaving a company and the founder CEO leaving, I'd rather the VC left which is the mantra that Khosla advocates for. Before you say the VCs money is at stake, remember also the founders' and employees' sweat equity is also at stake - you can always make more money, but when time is gone, you can't recover it.

A VC's reputation is privately held data. The same for a founder's reputation. Public data is largely useless.

And there is, of course, evidence that Khosla is not 100% founder-friendly, as there is data for every other VC and every other founder out there. Every conflict is gray.

But choose as you wish, of course. That's capitalism.

There have been multiple times that I have protested an action taken by executives; sometimes the action harmed me, sometimes I just thought it was shady/immoral because it was unnecessarily hurting someone else. Every time, I heard some variant of "that's just business."

I wonder how often Kalanick has used that phrase.

> but to sue him at this time like he wasn't directly responsible for the billions

There are different intentions in lawsuits; You seem to think they're seeking damages, but it seems more likely they're just trying to prevent the torturous interference of uncertainty he is causing as news breaks that he wants to be CEO again.

Leaks of backchanneling directly affect their investment and exit strategy. Whether he is CEO, on the board, or "a trusted advisor" the investors and company want to have an appearance of solidarity and confidence.

Vinod Khosla's that guy that keeps illegally blocking off the public access to the public beach in California, right?

He claimed there was trespassing on his private property but I didn't follow the court case.

Brings up a fun thought:

"What do with all the Uber fragments I can't keep in my arms grip!?!?"


So what do? How harvest. (Think of this as a thought experiment)


Uber collapses:

As an outsider, what are perceived assets and what are perceived risks/liabilities

What are perceived opportunities: how to harvest them NOW??

Experiment 1:

Uber shall die in x months; thus need to take action y now, at cost of x with projection z... resulting in A. What is A?


Uber will not die but morph... Ned to take action x at y cost resulting in A?


Uber won't die at all - and will continue perpetuitiously - A - how profit?





Is this in English? Are you ok???

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...

(2) https://www.documentcloud.org/documents/3922911-67730336-DE-...

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.

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

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.

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.

If this was his intention this is a really dumb strategy. He went from having a valid lawsuit for his bonus to loosing his company and being at the loosing end of a lawsuit. I don't buy him being that dumb. He just didn't think he was going to get caught.

i have never seen this behavior, so it isn't that common, and even if it were it would still be illegal unless it is something that has been agreed to contractually.

The way to read it is, there is a report, Benchmark (the board) was not aware of it. It's an acknowledgement of the report - as it is from the court case - but not about its content.

If there wasn't anything bad in the report we wouldn't be having this conversation.

If there was anything bad in the report they would have come out and said so in the complaint. It's not a magic game of telephone.

they would have had a material impact on Benchmark's decision is probably the weakest possible complaint.

Benchmark has a very strong interest in not publishing more negative stuff about Uber than they absolutely have to to gain control. They're the largest shareholder and need to liquidate their position in the near future; any wrongdoing beyond what they absolutely must claim to get a judge to hear their evidence behind closed doors is not in their self-interest.

They have a conflict of interest there. They need to do what they can to get as much control as they can without damaging the value of their shares. There is no fine line there, there is considerable overlap and no matter what they do their shares will drop in value. It's a risky game at best.

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.

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.

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

But that's precisely what happens. It is human nature. Money makes people emotional, greedy, envious, and short-sided. It takes exceptional and very rare discipline (see Warren Buffett) to not be emotional in investing/business.

> 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?

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.)

I'm guessing funds are usually measured by invested capital, rather than how much they are currently worth.

I think it's more like Bill Gurley not fully looking out for the interests of Benchmark [0] while dealing with Travis when he held the board seat at Uber on their behalf.

Fun fact: Gurley has himself being sued by some founders of a startup (Epinions) in the past for misrepresenting material information [1] prior to a merger.

[0] "Mr. Gurley has remained one of Mr. Kalanick’s few trusted advisers, and the two communicate several times a week ... "

"Yet in many ways, Uber now epitomizes many of the excesses Mr. Gurley has publicly condemned, ..."



[1] https://mobile.nytimes.com/2005/01/26/technology/founders-of...

Fwiw, Gurley is legally obligated to make board decisions on behalf of all shareholders not to look out just for benchmark's interests. I don't know that it is relevant in this case but just correcting the common misconception that a board member's job is to look out for his employer's interests.

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

I don't think "The VC company will sue me if they suspect I've committed fraud" is something many founders need to be concerned about.

But that's not the point. In this case it is quite obvious that the lawsuit is being employed to gain power and control. I don't see a clear fraud.

I don't see a clear fraud

Your not being a party to the ongoing case, this doesn't surprise me. I don't think any of us knows enough to judge.

Furthermore, "weeding out fraud" could certainly be seen as "gain[ing] power and control," but it's not the most charitable interpretation.

Benchmark and especially Bill Gurley have never been friendly to common shareholders:


Best comment here.

Sueing their CEO for no real reason but just as powerplay to get back control feels like an act of pure desperation from a mediocre VC but not Benchmark.

Would love to know which partner at Benchmark triggered this. Then we have a name to this insanity (Gurley?).

Eh, Benchmark shafted most of the Epinions founders, who sued and settled.

> Apparently unhappy with merely removing Travis from the CEO's chair

Travis wasn't removed from CEO chair. He resigned temporarily due to passing of his late mother. He himself said multiple times once he is done greaving, he plans to come back.

"Travis Kalanick stepped down Tuesday as chief executive of Uber, the ride-hailing service that he helped found in 2009 and built into a transportation colossus, after a shareholder revolt made it untenable for him to stay on at the company."

is how the NYT put it.

I didnt get this news. First when it broke he and board explained its due to his morher passing. Now im confused as of what really transpired.

There was talk about leaving temporarily before the shareholder revolt kicked in.

Its disapotiing to keep being downvoted just because im wrong. would love to see all these people im sure they never been wrong in their life.

anyways Travis said himself he is leaving Uber because his mother just died, which was not a lie. And I believe when your mother dies you need time to grief and its perfectly fine to take time off.

You made a claim you didn't have the facts right on.

If someone without the relevant information reads it your comment could thus spread misinformation.

And so people downvote. The other replies that got downvoted after that I don't know about though.

People will downvote a comment that is objectively incorrect. I wouldn't take it personally.

Enacting a coup while the king is absent from the castle is a common tactic.

This is true, but the board allegedly pressured him into resigning the week after. Here's the NYT article with details - https://www.nytimes.com/2017/06/21/technology/uber-ceo-travi... - although, given the lawsuit, it's not clear if the reporting was completely correct.

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.

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.

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.

> 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.

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"


So you're saying Uber would have been in worse shape if the founders had been replaced by adults?

Not that I'm totally agreeing with him. But we saw how the "adults in the room" approach worked in the first dotcom bubble.

Control requires time, knowledge, judgement and implies liability.

You may just be good at getting funds and collecting dividends / next round money and that's totally cool. You may not have any plan for the future, and you may not want to go in jail when something goes bad.

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.

> I heard someone talk about interviewing at Uber as a practice interview before interviewing with companies they are actually interested in.

That is kinda hilarious.

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

If that's the number you are getting from LinkedIn, then you can consider the LinkedIn numbers to be absolutely worthless. That number is 2x to 3x the actual value.

Yes, that is directly from the LinkedIn dashboard for Uber [1] which has company employment data. I am assuming that they are dependent on people listing their employment as Uber for it to be correct. I believe you have to be a Premium user to get the data.

Where did you get the 2x to 3x data point? Also, does your data source show anything different on the other issues around slowing of hiring and additional churn this year at Uber?

It is possible that the top line # might be problematic because it requires self reporting, but there is still signal in the # of people that are self reporting joining and leaving.

[1] https://www.linkedin.com/company-beta/1815218/

Probably a lot of Uber drivers, who are not employees, choose to list themselves as such.

> Yes, that is directly from the LinkedIn dashboard for Uber [1] which has company employment data. I am assuming that they are dependent on people listing their employment as Uber for it to be correct. I believe you have to be a Premium user to get the data.

You're sourcing Linkedin for employment data and using that to say there's a churn problem at Uber?

LinkedIn shows new hires and total employees. Churn can easily be calculated by [June Employees] + [June New Hires] - [July Employees]

Good plan. It's not like that number includes vendors, contractors, drivers or anything that could skew the numbers.

Sarcasm doesn’t really help to move a conversation forward.

At some point, you will learn to try to extract signal from imperfect data. It’s a key skill. If you wait for perfect data, you will miss the trends until they are in the rear view mirror.

Unless you believe that there has been a sudden mix shift in vendors vs. employees, the general analysis of churn and hiring still hold. You are only debating the multiplier on numerator and denominator.

Those are less important.

Why not filter the analysis only to profiles with keywords like"engineer" or "operations". Otherwise the analysis is unlikely to be directionally correct.

>Uber has 31,537 employees

Uber now has about 14,000 employees.


Why so many people?

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.

do they get paid okay?

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

Also likely drivers list they work at Uber

I imagine there are people working in every city (and every country) focused on that local market.

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.

Uber has different share classes with different voting rights

https://www.nytimes.com/2017/06/12/technology/uber-chief-tra... ---------------------------------

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.

> 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?

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

Uber has multiple classes of stock and Kalanick successfully negotiated retaining most of the voting rights. VCs won't put up with those shenanigans for must investments but they occasionally make exceptions for unicorns due to FOMO.

I believe the voting power is not proportional to the equity. So it's possible that Kalanick still holds biggest voting stake.

I think there might be multiple stocks classes kind of like with Google. Some shares classes hold higher value for voting.

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?

Benchmark, apparently?

Though honestly it seems that a lot of the stories were because of Kalanick's leadership. It wasn't a single instance of bad behavior, it was that the bad behavior persisted and became part of company culture when in most companies it would have been dealt with immediately, or at least without a pattern.

Rehashing the stories like that when the old leadership was out and new leadership was on its way in would be less newsworthy.

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.

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.

> 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 ;)

He who pays the piper picks the tune.

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.

You're fucking high if you think any VC is going to choose to protect their "founder-friendly" reputation over their $9BB investment. Any institutional investor would be making the exact same decisions as benchmark here.

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

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.

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

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.

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.

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

> My assumption is that both parties will settle quickly but I could be wrong.

What makes you think that?

There is so much for both to lose if they delay - a settlement works better for the company and them

Eh? This is over control, not money. There is no "middle ground"; Benchmark wants Kalanick off the board and he wants to stay.

I expect a tooth-and-nail battle, with much of it leaking into the public.

1) CEO/leadership Search

2) Softbank investing in US rideshare market

both are large events, and the outcomes of both events will be much worse in the case of an ongoing legal battle between shareholders and founder/ex-CEO.

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?

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.

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.

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.

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


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.

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

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.

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.

We detached this subthread from https://news.ycombinator.com/item?id=14983424 and marked it off-topic.

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

Yes. You can't take a bunch of money from investors and then lie to them and tell them their money's doing great when most of it's actually gone, even if you do later manage to hit it big and pay them back. Imagine the kind of precedent that would set if this weren't considered fraud. "Temporary Ponzi schemes" would spring up everywhere.

Maybe it changes the charges and the sentencing, if there is no indication that the person sought to personally profit or steal from the investors, but lying is lying.

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

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.

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.

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.

A consequentialist might argue that it is, but then, consequentialists are wrong.

Given human nature, widespread belief in consequentialism as an ethical system would likely result is very bad consequences. So from the position that consequentialism is correct it is probably unethical to advocate as a correct viewpoint.

What if (purely hypothically) all consequentialists could agree on the same set of standards for what constitutes positive and negative utility?

How do you think this purely hypothetical conspiracy of consequentialists would go about convincing people to follow that set of standards?


Does money absolve a founder from potentially fraudulent behavior?

Only if you're willing to give a pass on that type of behavior based on generated returns. Wall Street has certainly historically been filled to the brim with that approach. The problem, typical even on Wall St., is that fraudulent behavior tends to be derived from the person's character, not a one-off. The odds are very high - in my opinion - that it would happen again. The Wall St. types that cross the line to generate returns, seem to frequently also light the house on fire given enough time.

It seems like newspeak to call people "greedy" for suing someone despite that they (nominally) made a lot of money for those people. It seems like the fund is insisting that its investments follow the law, not indemnify criminal actions, etc. Doing that to an investment that made you money seems the opposite of greedy.

How are we seeing this so differently?

> It seems like the fund is insisting that its investments follow the law

the fund is not the police or courts, though... right? it's not their "job" to ensure the law is asserted upon the land - at least not beyond their own avoidance of wrongdoing.

> not indemnify criminal actions

IANAL, but the state is the plaintiff in criminal cases. this case just seems to be benchmark asking that newly added board seats be removed.

> at least not beyond their own avoidance of wrongdoing

Such as enforcing that people contracted to carry out work on their behalf do so in a manner that conforms to their ethical stands?

A fund policing the habits of an investment is literally the people who own the business policing the actions of their employees -- I think most of us agree that a business has the right to enforce ethical standards on employees.

> not the police or courts

Both of these institutions are primarily complaint driven -- the fund filed a complaint that people they employed violated the rules of their employment and is asking the courts to make it right. (Slight more convoluted, but that's the gist of it.)

> state is the plaintiff in criminal cases

That has nothing to do with indemnifying someone from the financial consequences of their actions -- a third party can offer to pay your penalties.

> seems to be benchmark asking that newly added board seats be removed

Are there no prior cases where board actions to create board seats were reverse because of fraud? I'm skeptical.

But more to the point -- so what? We have well established law that you can revisit agreements made on a fraudulent basis and they're asking the courts to mediate just such a dispute.

I'm actually unsure how you think any of this should work based on your objections, aside from that corporate managers shouldn't be liable, even to the corporate owners, for their actions.

> A fund policing the habits of an investment is literally the people who own the business policing the actions of their employees

this seems to be equivocating on "policing".

> That has nothing to do with indemnifying someone from the financial consequences of their actions

you stated "criminal actions". if kalanick committed a crime, it is the state that pursues this in court. afaik all that is occurring is that benchmark is pursuing a civil case.

> Are there no prior cases where board actions to create board seats were reverse because of fraud?

are you referring to criminal or civil wrongdoing?

> I'm actually unsure how you think any of this should work based on your objections

it just seemed to me that you were suggesting private entities pursue criminals and "fight crime", perhaps as some form of vigilantism. ...perhaps like batman?

> if kalanick committed a crime, it is the state that pursues this in court

That's actually not how it works -- there can be both civil and criminal proceedings for a case, and very often criminal proceedings follow a complaint by a victim. The criminal proceedings deals with punishments related to breaking the law; the civil proceedings deal with damages caused to people (or businesses) by the crimes.

Also, indemnification has nothing to do with prosecution versus civil suit -- it's an agreement to pay the damages and fines related to the person's actions.

> suggesting private entities pursue criminals and "fight crime", perhaps as some form of vigilantism

They absolutely should!

By filing complaints and suing for damages that result from the actions of criminals -- which is what the fund is doing here.

A criminal may still be liable for damages via civil suit even if there's a lack of prosecution or an acquittal. People can (and should!) make use of the courts to pursue criminals.

This is a civil matter, not criminal. Yet.

The fund alleges that they were the injured party, because Kalanick lied about and/or didn't disclose facts which were material to their decision.

Besides, it's common practice at that level to inform law enforcement when crimes are suspected. See, for example, Pepsi calling the FBI when they were offered CocaCola's recipe.

> Travis makes each partner a $1 billion personally

On paper.

Yeah, not if the company gets banned from self driving car tech for 10 years or something. This will likely have an impact on the value of uber on paper or other.

*Before carry

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.

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.

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.


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.

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.

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).


VCs don't invest their own money. As an LP actually putting up capital, do you prefer your portfolio companies to be run by founders (expert in their particular business, lots of skin in the game in the form of common stock, idiosyncratic compared to your other portfolio companies' leaders, sometimes a little too conservative for a well diversified investor like you), or VC partners (expert in capital allocation, somewhat misaligned incentives, also involved in managing your other portfolio companies, likely too aggressive for an investor with actual downside like you)? It's not that obvious that the latter is an improvement.

VCs don't invest their own money.

I haven't been privy to details of many VC funded companies, but the ones I saw definitely had the VC General Partners investing their personal money side by side with money from their Limited Partners. That was reflected in the names on the preferred stock certificates from day one. (Probably don't do paper stock certificates any more).

I agree with your statement that "it's not that obvious" as to who should have control, and there are good arguments both ways. My personal inclination would always remain that the people putting up the money should have the final say.

Yeah, they definitely put up their own money - it's also public record :)

This is how reporters know a firm is raising another fund (beyond just expecting them to every 2 years). The amount/percentage of the total fund that the partners pay in themselves varies by firm and fund.

Here's the records from Benchmark's Fund 7

Partners put up $80mm of their own cash, in a vehicle named Benchmark Founders' Fund VII, L.P.: https://www.sec.gov/Archives/edgar/data/1507661/000150766111...

They then raised $425mm from LPs through a vehicle named Benchmark Capital Partners VII, L.P.: https://www.sec.gov/Archives/edgar/data/1507669/000150766911...

So the Benchmark partners have 16% of that particular fund, though keep in mind VC funds have different economics than just a straight up equity split. 16% is pretty high compared to some other firms I've reviewed, but I admittedly haven't taken the time to sample widely.

I wonder why they split GP vs LP money into two separate companies.

Because both sides negotiated that arrangement in good faith.

That may not be the case in this particular instance, but in general, both parties are adults, reasonably smart, and not operating from a position of duress.

So if you negotiate a deal that has a governance structure of that form, you are stilled owed control.

Because the terms of the deal dictate the allocation of control. There are many differences between investments and acquisitions, control being the most prominent.

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.

> 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?

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

There's nothing going on; therefore, these companies aren't going to fail?

I don't think AirBnB is going to die, everyone has reported them as being profitable for nearly 2 years now. Agreed with the rest though.

I think AirBnb and Redfin are the big bets that have worked well so far.

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