The executive leadership vacuum at Uber and a series of PR missteps and management blunders is exposing the contentious push-pull dynamic between private equity and venture capital investors and startups that usually plays out behind the scenes and rarely makes headlines.
The rancor has revealed divisions within Uber’s early investors and its founder and former CEO Travis Kalanick as players with large controlling interests in the company jostle with management over control.
At the heart of the issue is the real and perceived power wielded by early Uber funders like Benchmark Capital who feel entitled to some degree of say-so over management decision-making in exchange for making a relatively risky investment in unproven startups. In the case of Uber, these investors are increasingly concerned by the executive leadership vacuum and want to protect the company’s sky-high valuation in light of recent PR problems, workplace culture and executive shakeup.
Writes the Wall Street Journal:
Benchmark filed a suit against Mr. Kalanick, claiming he knew about misbehavior at Uber, including alleged sexual harassment, in June 2016 when he persuaded Benchmark and other shareholders to allow him to add three board seats under his control. The misbehavior led to a months-long probe into Uber’s culture by former U.S. Attorney General Eric Holder’s law firm, which issued an internal report in June. This contributed to Mr. Kalanick’s ouster as CEO that month.
Benchmark is seeking to force Mr. Kalanick off the board and have control of the three seats returned to the board. It said this week that it acted in part because Mr. Kalanick was impeding the search for his replacement.
There’s often a deal-with-the-devil quality to investment relationships between startups and VC funders. For startups with no track record, let alone profits, these are the investors that are willing to come to the table, and the funding has real and implied strings attached. Meanwhile, Kalanick is the poster boy for founder’s syndrome, in which charismatic founders wield disproportionate power and influence, leading to a wide range of problems as a business evolves beyond startup mode.
While we’re unlikely to see a power squabble out in the open like this, it’s undeniable that private equity investors are increasingly likely to throw their weight around and impose their will if they sense that their investment is a risk. One thing is certain, a situation like this where management is at odds with the owners is bad for everyone involved.