Benchmark Capital Sues Travis Kalanick for Fraud

The key point of conflict appears to be the following:

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"

I never understood this practice of investors/founders having such wide discretion when it comes to controlling board seats. It always seemed to me that board representation should be roughly proportional to equity ownership. If a founder/VC controls 30% of the equity, he should be given control over ~30% of the board seats. Such an arrangement seems like the best way to ensure that incentives are aligned, and to prevent drama/shenanigans like whatever led to this suit.

Agreed. Fuck Benchmark. Travis makes each partner $1 billion personally and this is how they treat him? They should be blackballed by every great founder out there. I had respect for benchmark but not anymore. They are greedy assholes.

Among the complaints of bad behavior:

"Kalanick [aquired] a self-driving startup that, according to a confidential report not disclosed to Benchmark (the "Stroz report") allegedly harbored trade secrets from a competitor . . . "

The Stroz Report was created when "Otto and Uber jointly hired an outside forensic expert Stroz Friedman. Friedman interviewed employees, including Levandowski and Lior Ron, reviewed their digital devices like mobile phones and cloud storage, and prepared a report recording the results of the investigation. . . Uber dangled a huge carrot for Levandowski to be truthful . . and agreed to indemnify him for any prior bad acts he confessed to committing. In other words, if Levandowski told Stroz what he stole, then the high priests at Uber have absolved him of his civil sins and Uber will pay for any resulting lawsuits or penalties"(1)

Maybe I'm reading between the lines, but it seems like they're saying in black & white that the Stroz report contains incriminating evidence that Levandowski DID "harbor trade secrets" from Google which will materially impact the outcome of Ubers broader legal woes . . .

EDIT - Reading further in the actual complaint ""if the contents of Stroz's interim findings had been disclosed to Benchmark at the time, they would have had a material impact on Benchmark's decision to authorize the board seats . . ." (2)

Sounds quite a bit like a smoking gun, that Benchmark probably realizes now is going to come to light.

(1) https://medium.com/@nikhilgabraham/why-anthony-levandowski-h...

(2) https://www.documentcloud.org/documents/3922911-67730336-DE-...

Who in their right mind, except for the utterly desperate, would accept money from Benchmark? Talk about letting the fox into the henhouse, you can't trust those guys whatsoever.

Nobody put a gun to Benchmark's head and forced them to take a deal that left so much control in Kalanick's hands. It was a reflection of the relative strengths of their negotiating position at the time. Kalanick is owed control because Benchmark agreed he had control.

The legal question is whether the various scandals that followed show in some way that Kalanick made that deal under fraudulent conditions. It has nothing to do with a supposed generic truism that VCs always deserve to control the companies they fund. Uber is actually a great counterexample to your rule. They appeared to be such a good investment, and so many VCs wanted in, that they were able to dictate very favorable terms.