Yesterday, Benchmark, the highly effective venture firm and also a majorUbershareholder, filed a lawsuit against the companys recently ousted CEOTravis Kalanick at a remarkable movement. The lawsuit seeks to remove Kalanick from the plank, while removing three extra board positions that it says Kalanick hunted (and won) approval for final year, partially by withholding crucial information from the plank.
The fundamental problem: When Kalanick resigned as CEO, he also resigned from his board chair, but he immediately re-appointed himself to one of those outstanding and fraudulently secured chairs, says Benchmark. It now alleges that Kalanick finally hopes to package the plank to facilitatehis desired re-appointment as Ubers CEO, and it intends to prevent that move.
The suit throws Kalanick at an extremely unflattering light yet again. However, if I were an investor at Benchmarks funds, Id be just as mad with the venture firm. What was Benchmark believing, providing Kalanick three new board chairs and carte blanche to do with them whatever he liked? Its beyond belief that the firm wasnt acutely mindful of Kalanicks management style per year ago as it consented to this crummy deal. It had front row seats into what was occurring at the company not to mention unfettered access to the endless media coverage that Ubers controversial company culture has received since its initial launch in San Francisco. AFebruary blog article by former Uber Laboratory Susan Fowler might have put off the chain of events leading to this moment, but nothing new triumphed between this past year and this season besides social websites scrutiny along with growing public outrage.
It seems a little to me as if they painted themselves into a corner, and now theyre crying about it, says succession expert Jeff Cohn of Benchmarks lawsuit. It was poor and unusual governance clinic, and now its come back to bite them. Adds Cohn, There was always doubt around Kalanicks style.
We reached out to Benchmark before this morning. The firm hasnt responded to our request as of this writing.
Regardless of the unprecedented nature of the lawsuit Benchmark has been sued in the past with a former portfolio firm but has never uttered one of them, so far as we know it isnt surprising, looking back at the past ten years or so.As one institutional investor with many years of expertise (and a penchant for solitude) tells us, Giving away three board seats is far away from normal operating procedure, however as youve seen as time passes, the leverage has shrunk from shareholders to founders, and now theres this worship of their genius entrepreneur founder who will do no wrong.
The problem, continues this individual, is that, thats bullshit. It started with the Google guys, subsequently Mark Zuckerberg. Now we’ve Snap, which gave shareholders no voting rights in any way, and is also backed by Benchmark, notably.
Asked if Benchmarks own investors might have the stomach to sue Benchmark, this individual jokes that each VC now could probably be sued by [their own institutional investors] for their overly relaxed approached in managing startups.
Either way, he considers that Benchmarks lawsuit which he predicts that a misstep is a completely obvious outcome of all this excess and absurdity of their last few decades. Its like when youre a parent and you spoil your kid and he turns out to not be what you expected. Are you really going to adore him or cut him off?
Benchmark has obviously made its decision cutting off ties to Kalanick for this litigation but the movement puts Benchmark at a particularly precarious position.
Not only does the lawsuit feel disingenuous, but the six-person partnership considered among the very best companies in the world and also a unique choice to fierce rivals such as the sprawling Andreessen Horowitz, in addition to the more metrics-driven Sequoia Capital has now made plain that when push comes to shove, it will be so founder-friendly after all.
Even for apparently thick-skinned Kalanick, that has to sting. Given Benchmarks reported 10 percent stake in Uber, its partners each stand to make hundreds of millions of dollars out of the business in carried interest.
They were riding the gravy train, and now theyre sticking it to him, says that the institutional investor of Benchmark. The optics, he notes, arent great. These guys are all billionaires anyway, but this could undoubtedly taint their reputation.
A second institutional investor that also considers Benchmark must shoulder more of the attribute, agrees that founders may become wary of the firm following its recent activities. However he notes that even this worst-case scenario isnt likely to turn off Benchmarks backers.
Every [restricted partner] will still re-up with Benchmark, says the next investor. Between Benchmarks early bets on Uber and Snap, also as Benchmarks early investment at the co-working juggernaut WeWork, currently valued at $20 billion, the fund that possesses a standing in Uber [and these other] is still one of the greatest funds ever.
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