Uber’s Travis Kalanick punches back against the Benchmark lawsuit targeting him
Uber’s co-founder and former chief executive, Travis Kalanick, has struck back at venture capital firm Benchmark.
In seeking to dismiss a fraud lawsuit Benchmark filed against him, he called the suit a “smear campaign” and characterized the firm’s partners as ruthless opportunists who staged an “ambush” on him, threatening and demanding he quit, less than two weeks after his mother’s funeral.
Kalanick’s motion to dismiss, filed Thursday, came a week after Benchmark sued him, alleging that he misled the ride-hailing company into approving three new seats in 2016 on Uber’s board of directors and granting appointment powers to Kalanick.
In his filing, Kalanick categorically disputes each of Benchmark’s claims and paints the early Uber investor as a callous organization that schemed against him while he was mourning the death of his mother, who was killed in a boating accident weeks before he was pressured to resign as CEO.
Kalanick’s filing does not mention, however, that days after his mother’s funeral and before what Kalanick called Benchmark’s “ambush,” former U.S. Atty. Gen. Eric H. Holder Jr. and his firm released the results of their investigation into problems with Uber’s culture — results that, in part, implicated Kalanick.
Kalanick challenged the following claims in his motion to dismiss:
• Benchmark’s lawsuit alleges that Kalanick kept certain damaging events secret from the firm, such as the mishandling of an Uber passenger’s medical files, the company’s problems with sexual harassment and litigation from Waymo over trade secrets. Benchmark said that had it known about those things, it would not have approved three new board seats and given Kalanick free rein over those seats.
Kalanick said Benchmark knew of those issues. He also said that when Benchmark handed him a letter June 20 pressuring him to resign, the letter made no mention of Benchmark being “fraudulently induced” into creating the three board seats and had expressed that the investor was “deeply grateful for your vision and tireless efforts over the last eight years.”
• Benchmark’s lawsuit claims that Kalanick had played a long game in securing the three board seats so that he could assign himself a seat when he was inevitably ousted from the seat reserved for Uber’s CEO once the aforementioned events came to light.
Kalanick contradicted this, saying that Benchmark knew about those events when it asked him to resign, yet still explicitly agreed he should “retain one [seat] for yourself.”
• Benchmark alleges that Kalanick’s ongoing involvement with Uber’s board is creating uncertainty and impeding the board’s ability to find a new CEO.
Kalanick hit back, saying that the board has eight directors, of which he is only one. (Three of the company’s 11 board seats remain empty: two over which Kalanick has appointment power, and one reserved for the CEO.)
Kalanick’s filing frames Benchmark’s lawsuit as a personal squabble between one of Uber’s earliest investors and its co-founder — and as one that does not benefit Uber.
“Benchmark initiated this action as part of its public and personal attack on Travis Kalanick,” Thursday’s filing says.
It goes on to describe the timing of Benchmark’s actions as “shameful,” claiming that 11 days after Kalanick buried his mother, Benchmark principals showed up at Kalanick’s hotel room, pressured him to resign as Uber’s CEO and threatened a public campaign against him if he refused.
In response, a Benchmark spokesperson directed The Times to a statement that it previously had issued.
“Resorting to litigation was an extremely difficult step for Benchmark,” the statement said. “But the Holder report cannot be ignored. Failing to act now would mean endorsing behavior that is utterly unacceptable.”
Holder’s report advised the board to consider having Kalanick share or reassign some of his duties, though it did not say Kalanick should be removed as CEO.
Uber declined to comment.
A last resort
This week’s events are the latest in a saga of Uber stakeholders jostling for control of the San Francisco company, which has a valuation of about $70 billion.
Although Kalanick painted Benchmark’s lawsuit as part of a personal vendetta, business and corporate governance experts said lawsuits of this nature from venture capital firms tend to be a last resort and are not taken lightly.
Benchmark took a huge risk filing this lawsuit, according to Erik Gordon, a professor at the University of Michigan’s Ross School of Business.
Regardless of what happens in the courtroom, Gordon said, Benchmark is risking its reputation among entrepreneurs. Top-tier investment firms build their name on sticking with start-ups and entrepreneurs through thick and thin, Gordon said, and taking legal action against a founder it once supported could undermine that reputation.
“In Benchmark’s mind, it’s not about Uber,” Gordon said. “It’s about saving Uber from Kalanick, because they see a company with tremendous potential that keeps getting clobbered because of the things Kalanick has said and done.”
Experts expect there to be some behind-the-scenes maneuvering to resolve the matter before the lawsuit advances any further. Benchmark may try to convince other investors and board members to side with it, Gordon said, or the lawsuit might compel Kalanick back to the negotiating table.
But even that is a long shot, according to Eric Schiffer, chairman of private equity firm the Patriarch Organization, which is not an Uber investor.
“If you were dealing with the average CEO of a venture-backed company, they’d normally look at a lawsuit like this and decide to negotiate instead,” Schiffer said. “But with Travis ... I doubt he’s going to stop until he gets what he wants.”
Some investors who are not on the board believe Benchmark’s lawsuit is a necessary step to protect Uber’s brand. Others, such as early investor Shervin Pishevar, have been less enthused.
“Benchmark is holding the company hostage and not allowing it to move forward in its critical executive search,” Pishevar, who is not a member of Uber’s board of directors, said in a letter to Benchmark obtained by Recode. “The claim in your letter that your litigation efforts speed up on-boarding a CEO [is] disingenuous or delusional.”
Pishevar urged Benchmark to resign from the board. Benchmark has shown no inclination to do so.
In order to get a judge to agree to issuing a preliminary injunction, the onus is on Benchmark to prove that without immediate court intervention, Kalanick’s ongoing presence on the board would cause irreparable harm to Uber. That could be difficult to prove, according to legal experts, because Kalanick does not control a clear majority of the board, and even if he did, the possible outcomes are speculative.
Beyond the courts, Benchmark has limited power in determining Kalanick’s future on the board because it owns only 13% of Uber (compared with Kalanick’s 10%), has 20% of Uber’s voting power (compared with Kalanick’s 16%) and has only one seat on Uber’s board of directors.
“If the lawsuit fails, I think they’re going to be out of bullets,” Schiffer said of Benchmark. “Unless they can get enough people on the board to coalesce, but if that was going to happen, it would have already happened. I think they did this out of frustration, because they couldn’t get enough people to support them.”
3:40 p.m.: This article was updated with comments from Erik Gordon and Eric Schiffer.
11:30 a.m.: This article was updated with additional details about Kalanick’s filing, Holder’s report, and Benchmark’s stake in Uber.
This article was originally published at 8:40 a.m.