For the umpteenth time, especially in the last few months, we are seeing why the Valley isn't just hyper-insular; it's often flat-out ignorant of how people think about and react to things in the real world. They're so out of touch with basic commonsense considerations that they fail to see or recognize things that seem frightfully obvious to mere mortals. I guess, as the old Simon and Garfunkel song goes, we sometimes hear what we want to hear and disregard the rest. I'm not talking about the blowup at Google over gender stereotyping (I'll save that one for a later column). I'm talking about Benchmark's suit against former Uber CEO Travis Kalanick for fraud, breach of fiduciary duty, and breach of contractual obligations.

Notwithstanding the SV community's phony protestations to the contrary, Benchmark's suit is a brilliant move--not a blunder--a strong opening gambit to pull off something that was increasingly looking like a distant and faint hope. It's a classic strategy cross that melds market manipulation and a variation on Brer Rabbit's briar patch pitch, where the rabbit begged Brer Fox not to toss him in the brambles, knowing full well that if the fox did exactly that he could escape. I see Benchmark--having bitten the hand that has theoretically fed it billions--hoping and praying that someone will "shame" it into selling its position in Uber. What a clever way to bail on a bad situation: claiming that you were trying to be the bigger person, or at least a good sport under trying circumstances. Otherwise, Benchmark has no easy way to exit an investment that is sinking in value daily.

Benchmark's suit to unwind the not-so-recent steps by Kalanick to expand the Uber board with additional seats, under his control, is just the latest example of the willful suspension of belief and reality that it takes to try to operate with a seemingly straight face in the Alice in Wonderland world of the Valley. It's clear that Benchmark has failed to convince SoftBank or anyone else to buy even a decent portion of its Uber position. Nor can the company really go flat out in public and admit that it's trying to dump the stock and lock in enormous profits without triggering yet another spin or two of the vortex that keeps sucking down Uber's stock price. An announcement like that might very well trigger a wholesale run on the Uber piggybank and a wild whirlpool of lost billions circling the drain. So Benchmark is setting things up where growing numbers of well-intentioned third parties, including early investor Shervin Pishevar, are demanding that it sell its Uber position, (lately worth about $8.4 billion), and get off the board. How great for them is that?

Forget about the fact that the bozos at Benchmark agreed to the terms of the deal they made (and are now trying to renege on) regardless of what or when they knew about the ongoing behavior at "Boober" because, for years, greed has totally trumped governance in all of these "unicorn" companies. The little boys have all the control, and the different classes of voting stock allow them to run the show in ways and with degrees of freedom that would never have been acceptable to any prudent investor in the past.

It's even more remarkable to hear that the SV community at large is so allegedly upset and utterly unnerved by Benchmark's radical failure to follow good form and just swallow hard and "suffer" in silence. I'm talking about all the handwringing and "oh my goodness gracious" teeth-gnashing over the idea that--in the simplest terms--a VC firm sued an entrepreneur. And, worse yet, that the guy initiating and directing the suit was a director of the company up until about 15 minutes ago, when he replaced himself with a younger guy from his firm. This is just not cricket and it's no way for a grown-up VC firm to act because it could spoil the likelihood of future deals.

None of this behavior is ever supposed to happen in the Valley, because who would want to do business with such a litigious venture firm? VCs are supposed to be good-natured people who simply suck it up when they lose hundreds of millions of dollars and, in this even crazier case, when they are literally more than $8 billion ahead of the game on their piddly $27 million investment. (Benchmark owns about 13 percent of Uber.) The common wisdom is that the Valley is a very closed off little world and those Benchmark guys will never get a good deal done again. To this canard I say, baloney. No one on the West Coast has a shorter memory or less reluctance than entrepreneurs to do business with anyone with funds (a good entrepreneur would borrow cash from his grandmother) except maybe Hollywood producers who'd work with the devil if he had a hot concept.

Benchmark has a very big problem: a winning net position valued at around $8 billion, but no way to get off the sinking ship and liquidate that position before things get even worse. Almost any action by the firm would drive the value of Uber down even further and cost it even more money. So, Benchmark's partners sued over a relatively insignificant board matter. Everyone knows that Travis is not coming back; still, Benchmark said a lot of nasty things about TK and is now sitting back and watching other people try to convince them that the best thing to do "for all concerned" would be to sell out. The irony alone is amazing.

And, of course, the ultimate jury on whether this works is still out because of that old adage: the value of anything ain't what you say it is; it's what someone else is willing to pay you for it.

Published on: Aug 15, 2017
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