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Technology

Some start-up founders are ‘nervous’ about dealing with Benchmark after it sued Uber

Gabriel Puliatti is an up-and-coming company CEO who, at some point in his career, will need to raise money from investors.

Don’t count on Benchmark Capital being one of them.

After Benchmark filed an unprecedented lawsuit against Uber’s former CEO on Thursday, Puliatti now says there is “no way” that he will accept an investment from one of Silicon Valley’s most prestigious venture capital firms.

And he’s not alone. In the immediate aftermath of the suit, Benchmark is facing a sharp backlash from founders who are concerned that the firm is not as supportive of founders as all firms stylize themselves to be.

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The lawsuit, which asks a judge to remove Uber founder Travis Kalanick from the company’s board, reflects an aggressive posture from a venture firm that thinks Kalanick is hurting the company’s bottom line.

But what could now hurt Benchmark’s business is a new fear factor that has gripped a young class of entrepreneurs, who perhaps see Kalanick’s ouster as a cautionary tale for their own companies down the road.

“I personally was very shocked by the timeline of affairs during the week (of) Travis’s resignation,” Puliatti, the founder of a startup called Emptor, said. “I empathized a lot with Travis then.”

Puliatti said that afer recent events, he and his co-founder are now more seriously considering not raising money from venture capitalists at all — and said that even if they did, he has decided that he won’t “ever sit down” with Benchmark.

Venture capitalists and entrepreneurs forecast the lawsuit will have a chilling effect on the next generation of talent, with one telling Recode that Benchmark will now undoubtedly have to answer “awkward questions in a lot of deals for the foreseeable future.” Hazem Awad, a Qatari investor, said that he understood that sort of thinking these days.

“Any entrepreneur would naturally feel nervous about working with Benchmark, at least for the time being,” said Awad. “Because in the back of their mind (mine included) will always be the question of, ‘What will happen if things get that bad?'”

To be sure, Benchmark remains one of the most prestigious firms on Sand Hill Road, so industry peers still predict that they’ll have young founders pounding at their doors regardless. And even if Benchmark’s relationship with Uber frayed at the end, their collaboration still produced billions of dollars for both parties — a success by the standard metrics of Silicon Valley that shouldn’t go unnoticed by the current crop of rising star founders.

But even the fact that some entrepreneurs are thumbing their noses at Benchmark speaks to just how controversial the lawsuit is in the industry.

No other prominent Uber investors have yet said they publicly support the lawsuit, effectively leaving Benchmark to fight this battle by itself. And Kalanick’s team of course has denounced it as an attempt to “silence his voice.”

Founders have long been encouraged to be choosy about the backers who serve on their boards, with savvier CEOs knowing full well that their investors could push them out of their own companies as they grow. But the fracas at Uber seems to have heightened the senses of some budding entrepreneurs.

“It would be naive to think that this won’t be front-of-mind for many founders raising in the very near future,” said Shayan Mohanty, a young founder.

As details of the unexpected lawsuit ricocheted through the tech community, several founders were quick to recoil on Twitter.

The “cost of accepting investment from Benchmark just went through the roof in minds of founders everywhere,” said one entrepreneur in Hong Kong, Larry Salibra.

“I can’t help but wonder how recent events will impact founders’ views towards raising capital from Benchmark. This shit is ruthless,” wrote Michael Boswell, the CEO of a design startup called Cue.

Benchmark did not respond to a request for comment.

Venture capital firms often now take pains to potray themselves as founder friendly, offering simpler term sheets and perhaps a suite of operations, marketing or financial services that founders can call upon to boost their products. But Benchmark’s — and any firm’s — ultimate obligation is to its shareholders, not the founders, and Benchmark argues in the lawsuit that Kalanick is hurting the company’s value.

And to be sure, this is not Benchmark’s first time legally jousting with a founder they once funded.

Yet several founders said that this unusual lawsuit could have lasting effects, even if it solves a short-term problem that is specific to Uber. Some of that anger centered personally on Benchmark’s Bill Gurley, who until recently sat on Uber’s board, for initiating the litigation.

“Man. I wouldn’t take @bgurley money to start a McDonalds franchise at this point,” wrote Rick Barber, a venture capitalist. “It’s a good last deal to do, though. Go out with a blaze of glory, Bill.”

By Theodore Schleifer, Recode.net.

CNBC’s parent NBCUniversal is an investor in Recode’s parent Vox, and the companies have a content-sharing arrangement.

Source: Tech CNBC
Some start-up founders are ‘nervous’ about dealing with Benchmark after it sued Uber

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