Thursday, August 10, 2017

"Scoop: Benchmark Capital Sues Uber's Travis Kalanick for Fraud"—UPDATED

After four years of posting on the Ubester I think we first used the F-word earlier this year:

Jalopnik: "Uber Is Doomed"
Readers who have followed the Uber story over the last few years, especially if you read Izabella Kaminska at FT Alphaville, know that despite posting on the lurid details from time to time (us more than she) our (and her) focus has been on the business/finance/econ aspects of Uber, although the political economy and other social science stuff can't help appearing, because what Kalanick built was in his own image....

...So yeah, although the focus has been on the quantifiable, the soft science stuff is there as well and may be the thing that takes Uber down. At least that's the charitable interpretation, that Kalanick, blinded by hubris didn't see the flaws in the business plan.

The less favorable interpretation is that he knew all along and kept pushing in the hope that magic would happen.
That would be a fraud.
One additional note: Benchmark (along with First Round) is an early, early investor:
"Mathematical Model Explains Why All Hipsters Look the Same":
This and the rabbit post below are an attempt to distract Uber's late investors, the currently-being-raised series F and February's series E Uber investors, from the earlier news out of California.
The series A guys, First Round, Benchmark et al. should still be okay.  
(they ponied up $11 million at a $60 million valuation)
Can you imagine what the late-round guys are thinking?

From Axios:
The battle between Benchmark Capital and Travis Kalanick just went nuclear, with the venture capital firm suing the former Uber CEO for fraud, breach of contract and breach of fiduciary duty. The complaint was filed earlier today in Delaware Chancery Court.

Key graph, per the suit: "Kalanick, the former CEO of Uber, to entrench himself on Uber's Board of Directors and increase his power over Uber for his own selfish ends. 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 CEO—all to the detriment of Uber's stockholders, employees, driver-partners, and customers."

Why it matters: If Benchmark's suit is successful, Kalanick would be kicked off Uber's board of directors -- thus eliminating any faint hopes of him returning to the company in a substantial role.
What to know: Benchmark was an early investor in Uber, and has a seat on its board of directors. It also helped spearhead the move to have Kalanick resign in June, and tensions between the two have contributed, in part, to the slow pace of finding a replacement. Oh, and venture capital firms don't usually sue fellow board members of their single most valuable investment.

Complaint: 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" — which Benchmark claims included "pervasive gender discrimination and sexual harassment," and the existence of confidential findings (a.k.a. The Stroz Report) that recently-acquired self-driving startup Otto had "allegedly harbored trade secrets stolen from a competitor." Benchmark argues that this alleged nondisclosure of material information invalidates Benchmark's vote to enlarge the board.
Moreover, Benchmark alleges that Kalanick pledged in writing -- as part of his resignation agreement -- that the two empty board seats would be independent and subject to approval by the entire board (something Benchmark says was the reason it didn't sue for fraud at the time). But, according to the complaint, Kalanick has not been willing to codify those changes via an amended voting agreement....MORE