One of Uber’s biggest investors is suing Travis Kalanick for control of the company

Under siege on all sides.
Under siege on all sides.
Image: Reuters/Kim Kyung-Hoon
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Benchmark Capital is attempting to wrest control of Uber from ousted CEO Travis Kalanick.

The venture-capital firm sued Kalanick on Uber on Aug. 10 in Delaware Chancery Court. The complaint alleges that Kalanick concealed “his gross mismanagement and other misconduct at Uber” while procuring more seats on the company’s board, which he is now attempting to use to facilitate his return as chief executive.

“Kalanick’s overarching objective is to pack Uber’s Board with loyal allies in an effort to insulate his prior conduct from scrutiny and clear the path for his eventual return as CEO—all to the detriment of Uber’s stockholders, employees, driver-partners, and customers,” states the lawsuit, which was first reported by Axios.

Uber declined to comment and Benchmark did not immediately respond to a request for comment. A spokesperson for Kalanick told Axios the lawsuit is “completely without merit and riddled with lies and false allegations,” and “a transparent attempt to deprive Travis Kalanick of his rights as a founder and shareholder and to silence his voice regarding the management of the company he helped create.”

The backstory

Kalanick was forced to resign from Uber as chief executive in late June in a shareholder coup orchestrated by Benchmark and other board members. The search for his replacement has deeply divided Uber’s board and the company, with a small but vocal faction of employees petitioning for Kalanick’s return to an operational role. Kalanick retains a seat on Uber’s board of directors and is also a member of the five-person committee tasked with finding his successor.

Benchmark is among Uber’s biggest backers. The firm first invested in 2011 and at present holds about 20% of Uber’s voting power, 36% of preferred stock voting power, and 0.5% of Uber’s class B common stock, according to the complaint. Kalanick holds approximately 10% of Uber’s stock, including approximately 16% of its voting power and 35% of its Class B common stock.

Uber was supposed to be one of Benchmark’s biggest wins as the company upended the taxi industry and achieved a valuation of nearly $70 billion. Instead, it has become a nightmarish reputational liability for Benchmark, one of Silicon Valley’s most elite venture-capital firms. Months of scandal have alienated drivers and riders, demoralized employees, caused top executives to depart, and undermined Uber’s storied valuation.

Benchmark was said in July to be looking for an exit, including a possible sale of its shares to Japan’s SoftBank. The lawsuit is an even more drastic course of action.

The complaint

Benchmark alleges that in May 2016, Uber sought to increase the number of voting members of the board from eight to 11, with the three new seats filled with individuals “designated by Travis Kalanick.” The complaint alleges that the board restructuring was a preemptive maneuver by Kalanick, who feared losing his job as CEO if his managerial misconduct at Uber were ever uncovered. Kalanick did not disclose any wrongdoings and, in June of 2016, Benchmark approved the changes to the board.

Then 2017 turned into Uber’s year of scandal. Benchmark’s complaint rehashes Uber’s ongoing litigation with self-driving carmaker Waymo, its mishandling of a rape incident in India, its “pervasive culture of sexism, discrimination, and harassment,” and its “Greyball” program designed to deceive regulatory authorities worldwide. Benchmark alleges that these incidents were known by Kalanick when he sought additional board seats and either downplayed (in the case of the Waymo litigation) or concealed entirely.

On June 20 of this year, Benchmark and other investors “representing approximately 40% of Uber’s voting power” asked Kalanick for his resignation.

“The ink was barely dry on Kalanick’s resignation letter when, on or around June 22, 2017, he resigned from the Board seat reserved for Uber’s CEO (as required, since Kalanick was no longer CEO) and immediately purported to re-appoint himself to one of the three Board seats he fraudulently acquired,” the complaint states. It adds that Kalanick has refused to move forward with an amended voting agreement, saying he is “not ready to sign.”

What Benchmark wants

Benchmark is seeking to have the 2016 changes to Uber’s voting board members invalidated, arguing that Kalanick did not properly disclose his conflicts and other relevant information. Benchmark claims that had it known then about Kalanick what it does now, it would not have supported the amendment to Uber’s board structure.

The VC firm also wants Kalanick off the board, and claims its investment in Uber is “significantly threatened” by Kalanick’s continued presence, his efforts to weigh in on Uber’s daily operations, and potential influence over future directors and executives. Benchmark has requested a preliminary and permanent injunction that bars Kalanick from participating in any board activities, taking any actions regarding his and other disputed board seats, or doing anything to disrupt Uber’s ongoing operations.

Kalanick has not taken kindly to his ouster. Recode reported in July that Kalanick had continued to meddle with daily operations, leading top executives to ask the board for help reining him in. Meanwhile, the rest of Uber’s leadership remains in turmoil. The company is missing a COO, CFO, and SVP of engineering, among other top positions. Earlier on Aug. 10, Ryan Graves, Uber’s first employee and briefly its CEO, said he would step away from his role as SVP of operations in September, though he will remain on Uber’s board.