Due to having an unusually distracted day yesterday, I haven’t had a chance to dig into the lawsuit that Benchmark, the venture capital firm that led Travis Kalanick’s ouster from Uber’s CEO post, filed against Kalanick. You can read the filing here. On a very quick pass, what was striking was the allegations read a lot like accusing Kalanick of acting like a normal, as in greedy, CEO. And that’s before you get to the fact that until pretty recently, the VCs prized Kalanick for his hyperaggressiveness. So now they act if it was a big surprise?
For those of you who missed the fun, here’s a quick overview from the New York Times:
Benchmark, a Silicon Valley venture capital firm that is one of Uber’s largest shareholders, filed suit against Mr. Kalanick on Thursday in Delaware Chancery Court, accusing the former chief executive of fraud, breach of contract and breach of fiduciary duty.
At the heart of the suit is how Mr. Kalanick obtained outsize control of several Uber board seats in 2016, which Benchmark said he achieved through “material misstatements and fraudulent concealment” of information. Mr. Kalanick’s “overarching objective is to pack Uber’s board with loyal allies in an effort to insulate his prior conduct from scrutiny and clear the path for his eventual return as C.E.O. — all to the detriment of Uber’s stockholders, employees, driver-partners, and customers,” the suit said.
The suit added that Mr. Kalanick’s position on Uber’s board “is thus improper and inequitable, and should be invalidated.”
And the Financial Times flags that the suit has only increased divisions within the board:
One early Uber investor, Freada Kapor of Kapor Capital, told the Financial Times she was concerned that the lawsuit and board divisions would mean less focus on the cultural changes that the company had committed to make, including implementing the recommendations prepared by former US attorney-general Eric Holder.
“With what is going on now, I don’t think anybody is paying attention to those recommendations,” Ms Kapor said.
“As an investor, I’m apoplectic,” said another shareholder. “The people who founded the company are increasingly at loggerheads.”
Based on the press reports, and a very cursory skim of the filing, I checked in with our Uber expert Hubert Horan, since the suit seemed like a gambit as opposed to a real case. From Hubert:
My guess is the immediate issue is just the CEO hire, which was due to be made in the next couple weeks. I think Benchmark wants a strong outsider (like Immelt) who can at least give the appearance of being totally in charge and will get the press to stop asking questions about “cultural” issues. I think all the stories about how Travis envisions himself making a “Steve Jobs-like” return to power is what triggered this suit. And it is unclear how the Board could ever come together to support any particular hire. If the CEO hiring process collapses, then Uber is quickly back to being a laughing stock in the press. Also unclear why anyone would take the job to work under a dysfunctional board incapable of backing their decisions. It may be that Whitman told Gurley that Travis’ meddling was a dealbreaker.
Much of what’s in the Benchmark filing seemed like pretty weak tea. I just don’t see how a court would invalidate a May 2016 agreement to expand the Board from 8 to 11 members because of major problems other Board members didn’t discovery because Travis deviously concealed them (the Board had no idea there was a sexual harassment problem!!!). I assume the suit is a pure PR gambit. But it clearly starts an open war where there can no longer be a diplomatic settlement and one of the two sides ends up being totally humiliated. Benchmark has decided that if Kalanick keeps hanging around absolutely nothing of any importance can be resolved and they get totally screwed in the end. Remember that Kalanick’s shareholding is almost the same size as Benchmark’s (much larger if you include his allies like Camp and Huffington), so however this ends one very large block of shareholders or another will feel seriously aggrieved.
I’m sure Benchmark is also thinking about Softbank, but that’s a couple of moves away on the chessboard. The Softbank deal might be wishful thinking on Benchmark’s side, but (if it were to happen) it is a deal that provides major immediate benefit to Benchmark while creating risk for everyone else, and that might be a legitimate reason for Kalanick to oppose it. Less legitimately, I’m sure Kalanick is totally opposed to anything that creates any appearance that Uber isn’t still worth $68 billion. Even if Kalanick quits the Board. and Immelt (or someone like him) takes over, Benchmark’s hoped for liquidity event may not happen. But if Immelt replaces Kalanick, he’d clearly be working for the outside investors, and wouldn’t be working for any of Travis’ friends or anyone in management.
Pass the popcorn.