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Benchmark Capital Sues Travis Kalanick for Fraud
- tmh79 9y agowonder 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.
- uptown 9y ago> My assumption is that both parties will settle quickly but I could be wrong. What makes you think that?
- ameister14 9y agoThere is so much for both to lose if they delay - a settlement works better for the company and them
- stickfigure 9y agoEh? 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.
- tmh79 9y ago1) 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.
- whbk 9y agoTravis 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 9y agoAre there any similar wars between investors and majority share owners? I'm not familiar with the area.
- tareqak 9y agoTechmeme 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
- minimaxir 9y agoDirect link to complaint: https://www.documentcloud.org/documents/3922911-67730336-DE-Verified-Complaint-FINAL.html https://www.documentcloud.org/documents/3922911-67730336-DE-...
- deleted 9y ago[deleted]
- PhantomGremlin 9y agoIn 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 9y agoNobody 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 9y agoKalanick 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-with-saudi-arabia/ http://fortune.com/2016/06/02/ubers-no-good-very-bad-deal-wi...
- rmason 9y agoIf 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.
- onion2k 9y agoIf 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.
- thinbeige 9y agoBut 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.
- rhizome 9y agoI 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.
- sah2ed 9y agoI 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, ..." from https://mobile.nytimes.com/2017/03/18/technology/bill-gurley-uber-travis-kalanick-silicon-valley.html https://mobile.nytimes.com/2017/03/18/technology/bill-gurley... [1] https://mobile.nytimes.com/2005/01/26/technology/founders-of-web-site-accuse-backers-of-cheating-them.html https://mobile.nytimes.com/2005/01/26/technology/founders-of...
- deleted 9y ago[deleted]
- whack 9y agoThe 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 9y agoBoard 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.
- revelation 9y agoThere 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.
- thebmax 9y agoAgreed. 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.
- chinathrow 9y ago> Travis makes each partner a $1 billion personally On paper.
- jethro_tell 9y agoYeah, 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.
- arikr 9y ago*Before carry
- bearcobra 9y agoA question I've been pondering since the Martin Shkreli verdict, is fraud OK if the deceived parties still profit?
- deleted 9y ago[deleted]
- danielam 9y agoA consequentialist might argue that it is, but then, consequentialists are wrong.
- EthanHeilman 9y agoGiven 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.
- aresant 9y agoAmong 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-has-almost-nothing-to-lose-eef1116fea5e https://medium.com/@nikhilgabraham/why-anthony-levandowski-h... (2) https://www.documentcloud.org/documents/3922911-67730336-DE-Verified-Complaint-FINAL.html https://www.documentcloud.org/documents/3922911-67730336-DE-...
- openmosix 9y agoThe 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.
- jacquesm 9y agoIf there wasn't anything bad in the report we wouldn't be having this conversation.
- 9y ago
- pfarnsworth 9y agoWho 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 9y agoCare 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 9y agoMaybe 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.
- goldenkey 9y agoSnap is grade A trash compactor
- pfarnsworth 9y agohttps://news.ycombinator.com/item?id=14609184 https://news.ycombinator.com/item?id=14609184
- okuyiga 9y agoYou'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.
- sillysaurus3 9y agoStakes: 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.
- jacquesm 9y agoProbably voting and non-voting shares. https://www.cnbc.com/2017/06/12/uber-chief-travis-kalanick-gains-voting-rights-through-stock-buyback.html https://www.cnbc.com/2017/06/12/uber-chief-travis-kalanick-g...
- calvinbhai 9y agoI believe the voting power is not proportional to the equity. So it's possible that Kalanick still holds biggest voting stake.
- nradov 9y agoUber 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.
- benmathes 9y agoUber has different share classes with different voting rights https://www.nytimes.com/2017/06/12/technology/uber-chief-travis-kalanick-stock-buyback.html?_r=0 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.
- imsofuture 9y agoSo 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 9y agoPer 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.
- throwawy11111 9y agoBenchmarks 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)
- gjem97 9y agoWhy do they "need" to liquidate in the next year or two?
- cft 9y agoProb because the lifetime of the fund that invested is coming to an end? It's usually 10 years
- gjem97 9y agoWhat 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?
- pge 9y agoIt 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.
- philsnow 9y agoVC 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.
- baccheion 9y agoUber, 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.
- swampthinker 9y agoI 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.
- emrekzd 9y ago> 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?
- nthcolumn 9y agoBefore 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?
- epistasis 9y agoBenchmark, 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.
- taurath 9y agoTechCrunch 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 9y agoIf 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.
- deleted 9y ago[deleted]
- zxcvvcxz 9y ago> 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 9y agoHe who pays the piper picks the tune.
- sjg007 9y agoUber 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.
- deleted 9y ago[deleted]
- desireco42 9y agoI 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.
- WisNorCan 9y agoIt'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 9y agoWhy so many people?
- tristanj 9y agoMany 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 9y agodo they get paid okay?
- johnnyfaehell 9y agoDepends on what you consider "okay". For most people who will join I suspect they will think it's okay money.
- johnnyfaehell 9y agoDepends on what you consider "okay". For most people who will join I suspect they will think it's okay money.
- 9y ago
- gavanwoolery 9y agoI 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 9y agoAbsolutely 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 9y agoAs 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-ceo-travis-kalanick/ https://techcrunch.com/2017/08/10/benchmark-sues-former-uber...
- sergefaguet 9y agowill never, ever talk with Benchmark for any fundraising again. suing the CEO who made them ~ten billion dollars. what the actual fuck.
- zangiku 9y agoUntil 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.