by Isaac, Mike
The Holder report event was supposed to contain the fallout. Travis Kalanick was stepping away, the company would take steps to rebuild its brand—there was a possibility everything would shake out just fine.
But the meeting had been a disaster, derailed by David Bonderman’s sudden sexist remark. And Kalanick had no intention of laying low. The very next day, Kalanick was on the phones, calling up department heads and members of the executive leadership team, running the business as if he hadn’t just pledged to the entire world that he intended to stand down. Within the week, Travis began working with Uber engineers during his so-called “leave,” who would carry out his orders without informing the board.
The simple solution would be to step in and insist Travis’s leave be made permanent. But Kalanick wasn’t going anywhere; he had completely ignored his promise to go on leave. Travis would fight any further attempt to sideline him, and Gurley knew Travis well enough not to underestimate him in a fight.
Gurley’s qualms were as much philosophical as practical. Benchmark’s image was based on its reputation as a “founder friendly” venture capital firm. When hedge funds or private equity firms invested in a founder’s company, the founder often had to accept a more heavy-handed approach to governance. Bonderman, for instance, had no qualms about criticizing Uber’s burn rate. Bonderman was a private equity man, though, and venture firms wanted to be seen as “founder friendly.” Benchmark was there to support its portfolio company, to help in recruiting top executives, to contemplate strategy, and give welcome advice. If they ousted Kalanick permanently, would the next Uber, the next Facebook, the next big thing, ever let Benchmark invest again?
Beyond Benchmark’s reputation, there were other practical matters: money. Uber’s valuation by then had swollen to an enormous $68.5 billion. Uber was worth more than even Facebook at its private valuation peak, and Benchmark had invested at the ground floor. The firm’s initial $11-million stake was now worth billions of dollars, easily one of the greatest venture capital investments in Silicon Valley history. Now, Benchmark’s Uber shares were in serious jeopardy. Every new negative press story chipped away at Uber’s valuation, which tarnished Bill Gurley’s incredible play, and meant less money in the end for shareholders.
Some investors were turning on the company publicly. Mitch Kapor and his wife, Freada Kapor Klein, both early investors in Uber, had long been active in so-called “impact investing,” a socially conscious approach to capitalism. “We feel we have hit a dead end in trying to influence the company quietly from the inside.” the two wrote in a public blog post. “We are speaking out publicly, because we believe Uber’s investors and board will rightly be judged by their action or inaction. We hope our actions will help hold Uber leadership accountable, since it seems all other mechanisms have failed.”
It was a message from a founder that made Gurley realize just how bad things were. One afternoon that summer, as Gurley was checking his inbox, a new email popped up on his screen. It was from Katrina Lake, the chief executive of Stitch Fix, a much-loved, successful e-commerce company that sold personally styled outfits to customers over the internet.
Gurley knew Lake well. Benchmark had led a $12-million round of venture funding in 2013, back when the young company was showing promise—Lake had created Stitch Fix in her bedroom, during business school—but was still far from a sure thing. By 2017, Stitch Fix had gone public in a successful IPO, netting Benchmark hundreds of millions in returns. As a board member of Stitch Fix, Gurley and Lake had grown close over time. He believed in her company, and she trusted his advice.
Lake’s email was brusque. “It’s demoralizing and sad that something like Uber can even exist and even thrive,” she wrote. “And I’m disappointed that someone I respect so much has had a part in it.”
For Lake, the Uber story was deeply personal. Lake stood out as one of the most prominent female chief executives in Silicon Valley. As she traveled the path from running a small startup to a multimillion-dollar enterprise, Lake had dealt with her share of sexist scumbags. At one point during Stitch Fix’s ascent, Lake was sexually harassed by one of her own venture capital investors, Justin Caldbeck. Caldbeck sat on her board of directors as an observer until Lake insisted he be removed after the incident. She knew how awful the bro-friendly culture of tech companies and venture capital could be for women.
But after she read about Susan Fowler, about what happened in India, about the torrent of other scandals flooding out about Kalanick, Lake felt ashamed for her company to be spoken about in the same breath as Uber. To think that her mentor was idly standing by—even abetting it—bothered her.
To Lake, being an entrepreneur in Silicon Valley wasn’t just about doing novel things with the latest in tech. It was about building companies that lived by the values that founders wanted to see in the world. “I’m hopeful that Stitch Fix can be a living, breathing counter-narrative, a company that is successful because of its values and not in spite of it.”
Gurley responded quickly, thanking her and expressing his gratitude. “It’s been a nightmare,” Gurley wrote. Gurley’s investment in Uber had made his reputation, but Lake’s email was a kick in the ass.
When Benchmark held its next partner meeting after the Holder presentation, the group agreed: Benchmark needed to do the “right thing.” Kalanick needed to go.
But Benchmark couldn’t do it alone. Gurley needed help.
There was a reason Kalanick had kept such tight control on his investors: if the day ever came where the venture capitalists turned on him—just like Michael Ovitz did with Scour—he wanted to be able to defend himself.
He had done well. Over time, Kalanick slowly eroded shareholder power and influence. Kalanick withheld as much information as possible, hindering investors’ basic ability to understand the company’s finances. Investors grumbled. They had invested a great deal of money in Kalanick’s company, and they felt they had a right to know how the company fared and what decisions Kalanick was making with that capital. One investor said Kalanick treated them like mushrooms: he fed them shit and kept them in the dark.¶¶¶¶¶¶¶¶ Kalanick thought they should be grateful even for that.
Investors seemed to intuit as much. As Uber’s valuation rose, few of them attempted to meddle. Legally, Kalanick’s position was indefensible; investors who owned a high percentage of a company had rights to information about that company. His response, according to at least one investor, was to call their bluff: “So sue me,” he told this person. “What’s your rep going to be in this industry if you sue your own company?” He was right.
What’s more, over time Kalanick had amassed so-called “supervoting shares,” a more powerful class of stock that gave him more votes per share than the one-vote-per-share common stock most other investors held. Kalanick held an enormous amount of supervoting shares, a scenario he engineered in Uber’s earliest days, as did two of his allies, Garrett Camp and Ryan Graves. And his pile of common stock shares was only getting bigger by the day. If Uber employees wished to cash out some of their stock through an internal repurchase program, Kalanick required Uber employees to sell those shares back to him. With each passing day, as employees left or sold shares through normal turnover and attrition, Kalanick’s voting power grew stronger.
Supervoting shares wouldn’t save him in every situation. Some decisions—like voting an executive out of the company, for instance—were only decided by full board vote.
There, Kalanick had another advantage: he effectively controlled the board of directors. Of the eight-person board, most were aligned with him: Arianna Huffington, Wan-Ling Martello, Yasir al-Rumayyan, Ryan Graves, and Garrett Camp all followed Kalanick’s lead. And in 2016, during the $3.5-billion Saudi investment round, he negotiated for himself another ace in the hole. The terms of that round, all of which were unanimously agreed upon by the board, gave Kalanick the ability to appoint three additional board members whenever he desired.
In the
summer of 2017, as outside scrutiny intensified, Graves and Camp began to worry. But both the men felt indebted to Kalanick. Camp had never wanted to run Uber in the first place, and had been content to be a back-seat passenger. Graves had spent much of the past few years at Uber partying and traveling, yet the CEO never hung him out to dry. Graves evidently felt like the CEO truly cared about him—like they were “bros.”
Whenever Camp, Graves, or anyone else in Kalanick’s orbit began to chafe at his actions, he usually responded with some version of the same placative sentiment: “Do you know how much money I’m going to make you?”
The line almost always worked.
By mid-2017, everyone who had money tied up in Uber felt helpless. Kalanick wouldn’t have asked for their help anyway; over the years, he had managed to alienate key investors through subtle betrayal and financial skullduggery. His goal was to undermine his investors before they ever had a chance to do the same to him. To accomplish that goal, he executed a series of preemptive strikes over a period of eight years.
Shawn Carolan, a partner at Menlo Ventures, had negotiated a board observer seat during his firm’s early investment. Kalanick made sure it came with no voting power. Rob Hayes, a VC from First Round Capital, was fortunate enough to invest in Uber during its “seed round,” one of the earliest stages of fundraising. Along with a sizeable stake in Uber, Hayes secured himself a board seat.********* But during the Series B round of funding, Kalanick altered the contracts in a way that stripped Hayes of his voting seat and limited his access to information. Chris Sacca, an ex-Google lawyer turned investor and founder of Lowercase Capital, once considered himself a friend to Kalanick. Sacca’s $300,000 early investment in Uber also gave him a sizeable portion of the company. But when Sacca began attempting to buy up shares of Uber from other early investors—a practice known as “secondary share purchasing”—Kalanick turned on him. The CEO stopped allowing Sacca to attend board meetings as an observer; the two rarely spoke afterwards.
Gurley knew all this. He had secretly been talking to the spurned VCs for months, all of them back-channeling, worried about whether their investment was going to implode. As he rallied the group of investors, Gurley began reaching out to other people for advice. He contacted law professors at Stanford, whose backgrounds included expertise in corporate governance and white-collar crime. He spun up lawyers from Cooley and Paul, Weiss, two top-tier Valley firms that regularly consulted tech companies and VCs. He hired a crisis public relations firm. And he proposed a plan that would rely on all of them to work together. Gurley knew Kalanick would never step down of his own volition. They had to force his hand.
The plan Gurley devised was simple. He would lead a syndicate of Uber’s largest shareholders—Benchmark, First Round, Lowercase, Menlo—all of whom collectively held a more than a quarter of Uber’s stock. They would approach Kalanick with a letter that put forward a simple request: Step down from your position as chief executive for the sake of the company. If Kalanick refused to do so, the group would go public. They would call up the New York Times, tell the reporter the entire plan, and their letter to Kalanick would land on the front page of the paper the next morning. That was strategic, too; going public would help rally more of Uber’s dozens of investors to the cause.
Gurley assumed that Kalanick would dismiss their letter and decline to step down even after they confronted him. For that moment, Benchmark hired Steven Rubenstein, the crisis communications expert, who would handle outreach to the press once the reporter for the Times went live with the story.††††††††† Gurley knew it was important for the syndicate, not Kalanick, to control the public narrative. With Arianna Huffington’s help, Kalanick could try to gain sympathy from outsiders and paint the venture capitalists in a horrible light.
If everything went sideways, the syndicate had a secret weapon. The lawyers discovered a flaw in Uber’s company charter. Currently, the group all held a significant amount of Class B stock, classified as “supervoting shares,” which carried ten votes per every one share they held. But if the syndicate deployed its “nuclear option,” it could force everyone to convert all supervoting “Class B” shares to Class A shares, which carried only one vote per share. While that would severely curtail Benchmark’s supervoting power, it would also rein in Kalanick’s supervoting power as well. The result would be a scramble to build coalitions of shareholders that could seize power. But the group didn’t want to go there quite yet; giving up its supervoting power was a last-resort technique.
The most important factor was time. Gurley’s syndicate needed to give Kalanick a strict deadline to answer the syndicate’s demands. Gurley knew Kalanick, like a rock climber looking for a toehold, would search for any weakness in the syndicate’s attack. With enough time and effort, Kalanick would find one, exploit it, and sink them all. He was a survivor; they needed to box him in.
On the day they decided to confront Kalanick, Gurley orchestrated a conference call with the syndicate and its advisors. Gurley was down at Benchmark’s Woodside office, holding court in the firm’s main conference room, an airy space with a dozen black leather and metal Steelcase chairs encircling a long, polished hardwood table. Benchmark had been pitched by a who’s who of valley founders at that table. He had signed high-profile term sheets there, and held countless discussions about portfolio companies like Uber, Snap, and Twitter. But on June 21, 2017, Gurley would use the room as mission control for the syndicate’s attempt to oust Travis Kalanick from his position as chief executive. The call that morning covered logistics of the day’s events. At one point, Gurley took a moment to explain why they had to move so quickly and decisively, and what they were risking if they moved ahead. A cadre of other investors, lawyers, and associates listened in.
“Did you ever see the movie Life?” Gurley asked everyone on the conference call. “The one with Ryan Reynolds in space, with that black goo alien they captured? Once they find the alien, they place it in an indestructible box inside a lab in their spaceship to keep themselves safe while they perform tests on it. Then, eventually, the alien escapes. It gets out of the box somehow, and ends up killing everyone on the spaceship. It heads to earth to kill everyone there, too. All because it got out,” he said.
The syndicate members listened quietly on the line, wondering where Gurley was going with this. Some of them chuckled to themselves; Gurley loved analogies.
“Well, Travis is exactly like that alien,” he said. “If we let him out of the box—at any point during the day—he’ll destroy the entire world.”
Chapter 28 notes
¶¶¶¶¶¶¶¶ The investor cribbed the line from Mark Wahlberg’s character in The Departed, the Academy Award–winning Martin Scorsese crime drama from 2006. Wahlberg, a cop, was referring to his combative relationship with the FBI.
********* Hayes’s seed investment of $500,000 bought First Round Capital a 4 percent ownership stake in Uber. Eight years later, that investment was worth more than two billion dollars. Similar to Gurley’s bet, it would prove to be one of the most successful tech company venture capital investments of all time.
††††††††† Rubenstein, ironically, had nearly been hired by Travis Kalanick months ago, after the video showing him screaming at a driver went viral.
Chapter 29
REVENGE OF THE VENTURE CAPITALISTS
The day before Gurley’s conference call with the syndicate, Travis Kalanick was supposed to be in San Francisco. But on June 20, he wasn’t home in his apartment at the top of The Castro. Nor was he pacing in his bunker at Uber’s headquarters on 1455 Market Street. Instead, Kalanick was two thousand miles away, working on his laptop.
It was eighty degrees in Chicago that Wednesday, warm and humid but not yet the sweltering blanket of deep summer in the Midwest. Kalanick was there to interview Walter Robb, the former co-CEO of Whole Foods. The CEO thought Robb a potential candidate to become Kalanick’s new chief operating officer. For the inter
view, Kalanick had rented a private conference room on one of the uppermost floors of the Ritz-Carlton Chicago, downtown, off Michigan Avenue. Kalanick liked flashy hotels and nothing was more baller than working from the top of the Ritz.
Travis’s trip to Chicago threw a wrench in the syndicate’s plan. They all knew he was still working around the clock—people kept calling Gurley to tell him Kalanick hadn’t taken leave—but they didn’t know he was interviewing people to be his second-in-command‡‡‡‡‡‡‡‡‡ in a different state. For their plan to work, they would have to travel to Illinois.
By the summer of 2017, Gurley and Kalanick weren’t speaking. Gurley knew he couldn’t be the person to fly to Chicago that day and persuade the CEO to tender his resignation. Kalanick had come to resent Gurley’s nagging, his worrying, his insistence that Kalanick accept change. The minute Gurley walked into the hotel room to negotiate a surrender, Travis would tell the six-foot-nine Texan to go fuck himself. They needed a neutral emissary.
The syndicate picked Matt Cohler and Peter Fenton. Cohler, a brilliant early Facebook employee who joined Benchmark in 2008, was practical, realistic, and frank; he could deliver the news to Kalanick in a sober way that the CEO could understand. Thin and fair, with curly brown hair, wide eyes, and rosy cheeks, Cohler had just turned forty, but he looked at least a decade younger. After Gurley, Cohler knew Uber the best. He was there in the beginning when Gurley first approached Kalanick to source the deal. At the very least, Cohler was a familiar face that Kalanick wouldn’t immediately want to punch.
What Cohler lacked, though, was a high level of emotional intelligence. That’s what Peter Fenton brought to the table. Fenton was one of the most charismatic Benchmark partners, able to meet a young startup founder and put them at ease with a soft touch and bright smile. Like Cohler, Fenton looked young despite pushing forty-five; dirty green eyes, a high forehead, and sandy blond hair gave him more of a “boy-next-door” vibe than the driven, experienced venture capitalist he was. He was a tough negotiator, but reasonable, able to yield when necessary, making the other party feel like they were being heard. It was a great quality for someone who needed to close deals or, in this case, break tough news to someone.
