Boardroom warfare puts company at risk
Power struggle continues to sow confusion and uncertainty for future of ride-hailing giant
SAN FRANCISCO » Leaders of the prestigious Silicon Valley venture capital firm Benchmark Capital on Monday posted an unusual letter in answer to an even more unusual question: Why did they sue the founder of Uber, a wildly successful portfolio company poised to make them billions of dollars?
It’s the question that has Silicon Valley buzzing as at least three warring factions of Uber investors fight for control of the ride-hailing giant’s board, in an all-but-unprecedented power struggle playing out in court, in the board room and in the media. Whoever wins will have a major role in shaping Uber’s future — the board is responsible for choosing a chief executive to replace ousted CEO Travis Kalanick. But some experts worry that instead of helping to steer the rudderless company, the board’s contentious infighting is sowing confusion and uncertainty among Uber’s customers and shareholders, and putting its nearly $70 billion valuation at risk.
“This is so crazy,” said Vish Mishra, venture director at Silicon Valleybased Clearstone Venture Partners. “I’ve never seen anything like this before.”
Benchmark Capital, one of Uber’s most prominent investors, last week sued Kalanick for fraud, asking a judge in Delaware to kick him off the board and block him from appointing his allies as directors.
On Monday, in a public letter addressed to Uber employees, Benchmark acknowledged the lawsuit may exacerbate short-term uncertainty,
but claimed recent “unusual circumstances” required “unusual action.”
“This isn’t about Benchmark versus Travis,” the firm wrote. “It’s about ensuring that Uber can reach its full potential as a company. And that will only happen if we get rid of the roadblocks and distractions that have plagued Uber, and its board, for far too long.”
Those roadblocks include ex-CEO Kalanick, who Benchmark claims has refused to withdraw from day-to-day operations of the company, and appears to be sabotaging the CEO search in order to create a “power vacuum” so he can return to the helm. The VC firm also claims Kalanick dragged his feet on making some of the changes recommended two months ago by former Attorney General Eric Holder and his team following an investigation into complaints of sexual harassment and other issues at Uber. Benchmark claims Kalanick failed to sign off on policies that would bring more diverse and independent directors to the board, and he and the company’s leaders have yet to appoint an independent chairperson, reform Uber’s cultural values or enable a new “tone at the top.”
The VC firm says it threatened to sue Kalanick more than a month ago, but held off to give him a chance to fulfill his responsibilities.
In response, Kalanick on Monday said he continues to “work tirelessly” with the board to hire a new CEO, refuting claims that he’s angling to reclaim his old title.
“Like many shareholders, I am disappointed and baffled by Benchmark’s hostile actions, which clearly are not in the best interests of Uber and its employees on whose behalf they claim to be acting,” a spokesman for Kalanick wrote in an emailed statement.
In a court filing Monday, Kalanick’s lawyers wrote they will attempt to push the case out of public court and into private arbitration.
Kalanick isn’t the only one upset by the Benchmark lawsuit. On Friday another group of investors, led by Shervin Pishevar of Sherpa Capital, launched a coup attempt to kick Benchmark off the board. The shareholders reportedly are demanding Benchmark sell at least 75 percent of its Uber holdings — thereby vacating its board seat — saying they have investors standing by waiting to buy them.
“Benchmark’s investment of $27M is worth $8.4 billion today and you are suing the founder, the company and the employees who worked so hard to create such unprecedented value,” the group wrote, according to a copy of a letter obtained by tech and politics news website Axios. “We ask you to please consider the lives of these employees and allow them to continue to grow this company in peace and make it thrive. These actions do the opposite.”
To make matters more complicated, Japanese tech firm SoftBank also is rumored to be shopping for an Uber investment. If the company buys shares from Benchmark or another existing investor, it could further shake up the shareholder dynamic.
It appears the task of trying to keep things calm in the boardroom during this upheaval will go to early employee Ryan Graves, the chairman of Uber’s board. Graves, who briefly served as Uber’s CEO before Kalanick took over in 2010, last week announced he’s giving up his role as senior vice president of global operations to focus exclusively on leading Uber’s board.
But he has a tough task ahead of him. The board dynamics have devolved into a “mess,” said Harvard Business School professor William Sahlman, an expert on entrepreneurship and venture capital. The Benchmark lawsuit could cause trouble for Uber by potentially lowering its sky-high valuation, he said. But it also could backfire against Benchmark — its aggressive campaign against Kalanick could make other entrepreneurs hesitant to work with the firm, Sahlman said.
Nevertheless, he doesn’t think Uber’s recent board troubles will be the company’s downfall.
“This is all going to settle down in the next few months,” Sahlman said, “and you’re going to see a shift in ownership structure, but it won’t have a material effect on the company.”