Why Benchmark's Suit Against Travis
Kalanick is a Brilliant Move
The VC firm is sitting, and
squirming, on an $8 billion gain with no exit in view. Suing the ex-ceo of Uber
could flush out a buyer while sending the message to startups that the grownups
are in charge again.
For the umpteenth
time, especially in the last few months, we are seeing why the Valley isn't
just hyper-insular; it's often flat-out ignorant of how people think about and
react to things in the real world. They're so out of touch with basic
commonsense considerations that they fail to see or recognize things that seem
frightfully obvious to mere mortals. I guess, as the old Simon & Garfunkel
song goes, we sometimes hear what we want to hear and disregard the rest. I'm
not talking about the blowup at Google over gender stereotyping. (I'll save
that one for a later column) I'm talking about Benchmark's suit against former
Uber CEO Travis Kalanick for fraud, breach of fiduciary duty and breach of
contractual obligations.
Notwithstanding the SV
community's phony protestations to the contrary, Benchmark's suit is a
brilliant move-- not a blunder--a strong opening gambit to pull off something
that was increasingly looking like a distant and faint hope. It's a classic
strategy cross that melds market manipulation and a variation on Brer Rabbit's
briar patch pitch, where the rabbit begged Brer Fox not to toss him in the
brambles, knowing full well that if the Fox did exactly that he could escape. I
see Benchmark-- having bitten the hand that has theoretically fed it billions--
hoping and praying that someone will "shame" it into selling its
position in Uber. What a clever way to bail on a bad situation: claiming that
you were trying to be the bigger person, or at least a good sport under trying
circumstances. Otherwise, Benchmark has no easy way to exit an investment that
is sinking in value daily.
Benchmark's suit to unwind the not-so-recent steps by Kalanick
to expand the Uber board with additional seats, under his control, is just the
latest example of the willful suspension of belief and reality that it takes to
try to operate with a seemingly straight face in the Alice in Wonderland world of the Valley. It's clear that
Benchmark has failed to convince SoftBank or anyone else to buy even a decent
portion of its Uber position. Nor can the company really go flat out in public
and admit that it's trying to dump the stock and lock in enormous profits
without triggering yet another spin or two of the vortex that keeps sucking
down Uber's stock price. An announcement like that might very well trigger a
wholesale run on the Uber piggybank and a wild whirlpool of lost billions
circling the drain. So, Benchmark is setting things up where growing numbers of
well-intentioned third parties, including early investor Shervin Pishevar, are
demanding that it sell its Uber position, (lately worth about $8.4 billion),
and get off the board. How great for them is that?
Forget about the fact that the bozos at Benchmark agreed to the
terms of the deal they made (and are now trying to renege on) regardless of
what or when they knew about the ongoing behavior at "Boober"
because, for years, greed has totally trumped governance in all of these "unicorn"
companies. The little boys have all the control, and the different classes of
voting stock allow them to run the show in ways and with degrees of freedom
that would never have been acceptable to any prudent investor in the past.
It's even more
remarkable to hear that the SV community at large is so allegedly upset and utterly
unnerved by Benchmark's radical failure to follow good form and just swallow
hard and "suffer" in silence. I'm talking about all the handwringing
and "oh my goodness gracious" teeth-gnashing over the idea that -- in
the simplest terms-- a VC firm sued an entrepreneur. And, worse yet, that the
guy initiating and directing the suit was a director of the company up until
about 15 minutes ago, when he replaced himself with a younger guy from his
firm. This is just not cricket and it's no way for a grown-up VC firm to act
because it could spoil the likelihood of future deals.
None of this behavior is ever supposed to happen in the Valley
because who would want to do business with such a litigious venture firm? VCs
are supposed to be good-natured people who simply suck it up when they lose
hundreds of millions of dollars and, in this even crazier case, when they are
literally more than $8 billion ahead of the game on their piddly $27 million
investment. (Benchmark owns about 13% of Uber.) The common wisdom is that the
Valley is a very closed off little world and those Benchmark guys will never
get a good deal done again. To this canard I say, baloney. No one on the West
Coast has a shorter memory or less reluctance than entrepreneurs to do business
with anyone with funds (a good entrepreneur would borrow cash from his
grandmother) except maybe Hollywood producers who'd work with the Devil if he
had a hot concept.
Benchmark has a very
big problem: a winning net position valued at around $8 billion, but no way to
get off the sinking ship and liquidate that position before things get even
worse. Almost any action by the firm would drive the value of Uber down even
further and cost it even more money. So, Benchmark's partners sued over a
relatively insignificant board matter. Everyone knows that Travis is not coming
back; still, Benchmark said a lot of nasty things about TK and is now sitting
back and watching other people try to convince them that the best thing to do
"for all concerned" would be to sell out. The irony alone is amazing.
And, of course, the
ultimate jury on whether this works is still out because of that old adage:
that the value of anything ain't what you say it is; it's what someone else is
willing to pay you for it.
