Greed is good, at least, at least according to Michael Douglas in his Academy Award winning role as Gordon Gekko in the 1987 movie Wall Street. Gekko went on to say that greed “captures the essence of the evolutionary spirit.”
And perhaps it does. But greed in the hands of a few powerful parties can also destroy a great institution. Greed seems to be fueling the quickly disintegrating situation at what has been the world’s most valuable (its latest valuation approximating $70 billion) private company. With the board blasting Benchmark Capital for its dubious ethics in filing a lawsuit against the recently ousted CEO, a co- founder resigning, internal issues festering around an alleged culture of sexism and bias, an intellectual property rights scandal perpetuated by Google relating to self-driving cars and a high profile search for a replacement CEO, this company is in turmoil.
Benchmark Capital’s legal complaint purports that Kalanick fraudulently created three new board seats, explicitly reserved for Kalanick’s appointment, that he is using to regain his throne. A lawsuit from a Venture Capital firm is certainly unprecedented and in this case pretty impotent. According to its own lawsuit Benchmark was complicit (voted in favor) in this action that created these new seats and clearly knew that Kalanick controlled them. It’s hard to imagine that a court will now or should step in to undo a shareholder vote.
What is worse is that at no time did Bill Gurley (Benchmark’s Board designee) or his fellow board members step up when the first bad-behavior allegations came to light. The board’s reaction to the bias and sexism allegations was with a mostly internal investigation and also failed to develop a successor strategy while publicly struggling with a deteriorating culture and reputation. All indications were that Benchmark and other investors were “all in” on Kalanick while their investment’s value bulged. Have things changed that much in just a few months?
Companies like Uber are termed unicorns in the venture capital investment world – companies without established profitability but valuations above $1 billion. Top tier venture firms vie against each other to make investments early and ride the steeply increasing valuation slope of these investments. Far be it for one of these firms to antagonize one of these founders. The community of successful founders is a very tight one – one that no self respecting venture capital firm wants to be ostracized from.
So why is it that Benchmark that lead the “A” round of investment in Uber and certainly one of the most savvy VCs in the world didn’t protect itself against the potential consequences of Kalanick’s actions or have a process in place to ensure that when it was time they could replace Kalanick without a public confrontation? Was it that the heat of the deal clouded their vision? And why now is Benchmark willing to risk its reputation with founders of its future investments to file this very public law suit against Kalanick?
Rich or King? Noam Wasserman, the founder and managing director of the Founder Initiative of USC identified that founders need to decide whether their goal is to make the most money possible from their venture or whether their true desire is to be the CEO. His study pointed out that this is a binary choice and those founders not willing to choose one often end up with neither. Dr. Wasserman urges investors to ensure the founders they are backing have made a clear choice and govern their investment decisions and behavior with this in mind. According to Wasserman, to be effective, these candid discussions need to occur right up front.
Benchmark Capital and the long list of angel and institutional investors all had this opportunity with Uber. They just blew it. Despite the ten percent ownership that Kalanick still controls (worth $7 billion on paper) he appears more interested in being “king” than in stepping back from his former role and reaping the rewards of being a billionaire several times over. Benchmark and its other board brethren are experienced enough to know these types of things can happen and should have had a plan in place. Benchmark’s reactive lawsuit appears to be a very weak attempt to regain the legal high ground. It is too little too late!
If Benchmark was paying attention, why would they have agreed to expand the board with these three additional seats they are now accusing Kalanick of fraudulently obtaining? Most of what is currently playing out with Kalanick’s behavior is not a surprise to anyone. Kalanick’s bad-boy behavior was well known from his prior ventures. One of his startups was sued for $250 million and had to declare bankruptcy. His next venture ended up with a successful exit, but not before one of its high profile investors, Mark Cuban, asked for his money back. That is not to say that Kalanick is not an uber-successful founder worthy of backing. Benchmark along with its co-investors simply ignored all that due diligence just to get onboard of this rocket ship of an investment. Their lawsuit now seems like whining. Greed is good? But flying too close to the sun can melt your wings.
