investors – Uber Scandals

March 26, 2018April 3, 2018

Overlapping investor SoftBank sought to reduce competition

As Uber announced its sale of Southeast Asia assets to Grab, some flagged the overlapping investor that facilitated the transaction. In particular, SoftBank (a Japanese investment firm) held shares in both Grab and Uber. Owning part of both companies, SoftBank stood to profit no matter which one prevailed in the markets where both operated — but stood to lose if the firms engaged in continued competition with each other.

Furthermore, SoftBank specifically sought to broker peace between Grab and Uber: When investing in Uber in December 2017, SoftBank sought a discount exactly because it could influence Uber’s competitors across Asia.

Similar concerns arose from SoftBank holding shares in both Uber and Ola, a ride-hailing competitor in India. Discussing those overlapping holdings, SoftBank told the Economic Times of India: “we are hoping that we make peace between them at some point.” Such a “peace” could raise competition concerns in so far as it entailed competitors agreeing not to compete.

See Edelman’s critique of SoftBank’s role as well as economist Martin Schmalz’s tweet on the impact of cross-ownership.

March 12, 2018March 12, 2018

Tensions between Kalanick and mega-investor Bill Gurley

Benchmark Capital general partner Bill Gurley and Travis Kalanick started off thinking highly of each other and working closely, but their relationship deteriorated. Business Insider offers details:

Initially, Gurley saw Kalanick as young and inexperienced, needing guidance and not always listening to advice. Gurley pressed Kalanick to find a mentor and hire an experienced CFO. Later, Gurley wanted Kalanick to stop losing so much money, reduce growth plans, and increase profits.

BI describes Kalanick’s response:

Kalanick, meanwhile, began to see Gurley as a drama-filled drag, perpetually appearing on CNBC to whine about a possible tech bubble. He pushed communications with Gurley off to his wingman, Michael; it was a cold-shoulder strategy Kalanick had used with others, including Whetstone, when he felt he didn’t need them anymore.

Eventually, Gurley worried that his investment in Uber could be worthless. Worried about Uber’s culture and the many lawsuits and government investigations, he said he had trouble sleeping; he gained weight and took up yoga. His concerns reflected worries about both his own investment and funds from Benchmark’s other partners and investors.

January 18, 2018February 12, 2018

Benchmark’s Bill Gurley worried that his investment in Uber could go to zero

Bill Gurley, a partner at Benchmark Capital and an early investor, became increasingly concerned about Uber’s tactics and activities. Bloomberg reports that he worried his firm’s investment in Uber, at that point nominally worth billions of dollars, could go to zero.

December 15, 2017

Early investor resigned due to allegations of sexual misconduct

Shervin Pishevar, one of the earliest investors in Uber, resigned from his investment firm (and hence ended his affiliation with Uber) in the face of allegations of sexual misconduct. He denied the allegations.

In November 2017, Bloomberg reported that five women had accused Pishevar of using his position to make unwanted sexual advances.

November 28, 2017December 30, 2017

SoftBank valued Uber at a 30% discount from prior valuation

Japanese holding company SoftBank offered to purchase shares of Uber at a $48 billion valuation, a 30% discount from Uber’s most recent valuation of $68.5 billion. The key news causing the discount was the set of scandals that arose during 2017 — broadly, those summarized on this site.

The transaction ultimately went forward at the 30% discount.

September 27, 2017November 27, 2017

Investors mark down their holdings in Uber

In litigation challenging various Uber misconduct, plaintiffs point out that Uber’s investors have begun to mark down their investments in the companies. Vanguard and T. Rowe Price reportedly marked down their shares by as much as 15%. Plaintiffs say that Uber’s loss in market capitalization was at least $18 billion.

September 27, 2017September 29, 2017

Texas firemen retirement fund claims Uber misled them about risks and law-breaking

In a lawsuit, the Irving Firemen’s Relief & Retirement Fund alleges that Uber and its former CEo Travis Kalanick knowingly misled them while raising funds, including failing to disclose that the company had broken laws.

The lawsuit chronicles a variety of Uber improprieties including “Greyball” evasion of law enforcement, “Hell” tracking of rivals, allegations of intellectual property theft from Google, sexual harassment and other human resources violations, knowingly renting out recalled and unsafe vehicles, and theft of a passenger’s medical records.

The lawsuit seeks class-action treatment for Uber investors.

complaint

August 12, 2017September 29, 2017

Other investors ask Benchmark to sell its shares and exit Uber’s Board

In response to a Delaware lawsuit by Uber investor Benchmark Capital Partrners, other investors in Uber asked Benchmark to sell its shares and step down from Uber’s board. Full letter from the other investors. In part:

We do not feel it was either prudent or necessary from the standpoint of shareholder value, to hold the company hostage to a public relations disaster by demanding Mr. Kalanick’s resignation, along with other concessions … Accordingly, we would request that Benchmark help the Company realize its full potential by allowing the necessary work to be done in the Board Room rather than the Courtroom.

Axious summarized the situation: “It was shocking enough for a major venture capital firm to sue the CEO of a highly-valuable portfolio company. For other VC firms to then make this sort of counter-move against a peer is similarly unprecedented. It’s a brave new world in Silicon Valley.”

August 11, 2017September 29, 2017

Uber investor alleged former CEO Kalanick interfered with CEO search

In a lawsuit, Uber investor Benchmark Capital alleged that former Uber CEO Travis Kalanick is interfering with Uber’s CEO search. Benchmark says “various potential candidates have withdrawn from consideration because of Kalanick’s continued participation in the search and his efforts to re-assert influence over the company.” In a letter to Uber employees, Benchmark explains the impact of Kalanick’s actions:

Travis’s failure to make good on this promise, as well as his continued involvement in the day-to-day running of the company, has created uncertainty for everyone, undermining the success of the CEO search. Indeed, it has appeared at times as if the search was being manipulated to deter candidates and create a power vacuum in which Travis could return.

August 11, 2017November 23, 2017

Uber investor challenged “fraud” by former CEO Travis Kalanick

In a Delaware complaint, Uber investor Benchmark Capital Partrners challenged “the fraud, breaches of fiduciary duty, and breaches of contractual obligations perpetrated by” former Uber CEO Travis Kalanick “to entrench himself on Uber’s Board of Directors and increase his power over Uber for his own selfish ends.” The lawsuit focused in part on Kalanick’s “fraudulently obtain[ing] control” of three new seats on Uber’s boards through “his material misstatements and fraudulent concealment … of material information” that would have led Benchmark to reject the request.

Benchmark said Kalanick engaged in “gross mismanagement and other misconduct” which it summarizes as follows:

Kalanick’s personal involvement in causing Uber to acquire a self-driving vehicle start-up that, according to a confidential report not disclosed to Benchmark at the time (the “Stroz Report”), allegedly harbored trade secrets stolen from a competitor; an Uber executive’s alleged theft of the medical records of a woman who was raped by her Uber driver in India; a pervasive culture of gender discrimination and sexual harassment that ultimately prompted an investigation by the former U.S. Attorney General Eric Holder; and a host of other inappropriate and unethical directives issued by Kalanick.

Benchmark said Kalanick “knowingly concealed these matters from” it and other investors.

Benchmark explained its approach and its concerns in a letter to Uber employees.

In a statement, Kalanick replied: “I am disappointed and baffled by Benchmark’s hostile actions, which clearly are not in the best interests of Uber and its employees on whose behalf they claim to be acting.”

Kalanick moved to send the lawsuit to arbitration, avoiding a deposition that Recore said could have been “damaging.” On August 30, 2017, the Court agreed, ending the public litigation docket and putting all further proceedings in confidential arbitration.

Litigation docket