Benchmark was the poster boy for 'founder-friendly' VCs, but after WeWork and Uber its reputation is looking tarnished

Bill Gurley

Martin Roscheisen has been fired twice by the boards of startups
he led.

Even so, Roscheisen says he would gladly work again with the
venture capital firm that pushed him aside in one of the two
episodes. 

Roscheisen, who is now chief executive of venture-backed
diamond-maker Diamond Foundry, described that incident as a mutual
decision he reached with a venture capital firm partner on the
board who asked him to resign when it became clear that the startup
was struggling to grow users.

But to take money again from the “the
backstabber of all founders
“?

Unthinkable, Roscheisen said.

The “backstabber” he’s talking about is Benchmark Capital, a
renown Silicon Valley venture capital firm which was in the news in
September for its role helping to remove WeWork’s charismatic and
controversial cofounder Adam Neumann from the helm.

Benchmark is one of the most respected investment firms in the
tech world, with a history of backing big hits like Twitter and
Snap
and a carefully crafted reputation of supporting, and
understanding, entrepreneurs. This reputation is now under scrutiny
as the events at WeWork and other startup interventions by
Benchmark raise questions about the firm’s true character.

The spotlight comes as the notion of the “founder-friendly”
venture firm — a trend that Benchmark is largely responsible for
creating — is being reconsidered across Silicon Valley and the
broader investment community. The idea that startup founders are
infallible looks more tenuous amid tales of excess and bad
judgement at some high-profile firms. 

“There’s just so much competition for the best deals and the
best founders, that venture capitalists were tripping over
themselves to say who could be the most founder friendly,” said
Mark Suster, a two-time entrepreneur and general partner at Upfront
Ventures in Los Angeles.

“Then there are people who are old enough and wise enough, to
have a long enough lens, to say, ‘You know what, governance
matters.’ … It’s not the popular thing to say right now,” Suster
said, in defense of Benchmark’s behavior.

A spokesperson for Benchmark declined to comment.

A pattern or a co-incidence?

For critics of Benchmark, the last few years provide plenty of
ammunition.

In 2017, the San Francisco firm along with other investors
pressured Uber’s cofounder and chief executive Travis Kalanick to
quit. It
also sued Kalanick
, alleging that he misled them in order to
add board seats under his control. Benchmark
was expected
to see its stake hit approximately $8.25 billion
in value after Uber went public.

The firm also relieved Nextdoor founder Nirav Tolia of his
duties as chief executive last year, sources familiar with the
talks told
The Wall Street Journal
. Tolia did not respond to a request for
comment.

“I don’t know how you explain to founders, ‘Hey, the way I do
early-stage investing is — I bet on founders,’ and then you have
this track record of explicitly not betting on founders,” said
Delian Asparouhov, a principal at Peter Thiel’s venture capital
firm Founders Fund.

“That to me is what feels morally corrupt (about firing
founders). You have this dichotomy between what you’re pitching to
the next founder and what your actions actually reflect,”
Asparouhov said.

Travis Kalanick

Benchmark, based in San Francisco, attracts founders with its
impressive track record. The firm
has modest fund sizes
and still managed to take 25 companies
public in the last decade, including Uber, Dropbox, GrubHub, and
Yelp, PitchBook said. It now has 33 startups in its portfolio,
compared to Kleiner Perkin’s 90 and Sequoia Capital’s 74.

Read more: How WeWork
spiraled from a $47 billion valuation to talk of bankruptcy in just
6 weeks

Some investors say the chief executive ousters at WeWork and
Uber, which was also backed by Benchmark, are more coincidence than
correlation. The firings happened in the span of two years and took
place at consumer-facing companies, which gave them more prominence
in the media, said Semil Shah, a seed-stage investor at Haystack
and a venture partner at Lightspeed in Menlo Park.

“There is a risk that if the collective board does not feel like
the CEO is the best steward of the enterprise, that option is on
the table,” he said, referring to the option of ousting a CEO.
“It’s not a Benchmark thing. This happens at other funds.”

benchmark and silicon valley vc exit

Benchmark owes part of its success to the way it actively
manages its portfolio. But as the firm tries to woo founders, its
reputation among them and its response to the unfolding
founder-friendly debate could determine its future ability to land
the hottest deals.

Founder Fund’s Asparouhov said any venture capital firm that has
a history of firing founders could lose out on the most
sought-after deals. A small number of founders who have prior
experience working at a white-hot startup are more likely to create
“extraordinary returns,” he said, and are also more likely to know
about the firm’s track record.

Though these insider-founders are in the minority, “when it does
come up, it tends to be painful for the investment firm,” he
said.

‘Bill wants to win’

Heather Fernandez’s account of working with Benchmark shows the
firm’s appeal. Her company Solv, which is working to bring
convenience and transparent pricing to healthcare, raised money
from the firm in 2017 and had partner Bill Gurley join the
board.

Fernandez described the Benchmark partner as a “thought
partner.” Before the startup raised a cent of capital, they met and
spoke on the phone often to fine-tune the idea and plan for
challenges ahead.

“The role of an early-stage investor is to dig in with you,” she
said.

Others say Benchmark can turn on a dime if it feels its payday
is at risk.

An entrepreneur who spoke on the condition of anonymity said the
firm helped unseat him at his own startup when it was
underperforming so the firm could replace him with a chief
executive “in their network who they already know and trust.”

Roscheisen, the entrepreneur who was ousted twice, felt
scorned.

His firm Nanosolar, founded in 2001, had raised half a billion
dollars to develop a cheaper and highly efficient solar cell. The
problem was getting the technology to market. It was still untested
at scale by the time Nansolar signed
more than $4 billion in orders
in 2009.

bill gurley benchmark

As a board member, Gurley had a latent presence, Roscheisen
said.

“Gurley was stunningly clueless about the industry that
Nanosolar was operating in even after eight years on the board,” he
said, adding that the investor was “weak in the knees at the first
blow of a bit of wind.”

After years of delays and unsolved product issues, Roscheisen
said the board forced him to resign. Geoff Tate, a former chipmaker
executive who replaced Roscheisen as chief executive,
confirmed.

“Bill wants to win,” Tate said. “Bill has a smart mind, and he’s
going to question things if he thinks it’s going the wrong
direction.”

Gurley did not return repeated requests for comment.

Fernandez, the healthcare founder, said she expects her
investors to have her back. But she knows being founder friendly
has limits.

“If a board is hearing from the executive team, from employees,
from customers, that there is a problem with the CEO, or if you see
a destruction of value happening, I have a hard time believing that
they’d say ‘We’re going to stand by this person no matter what,'”
she said. 

In defense of Benchmark

The setup at WeWork gave the firm reason to fire another
founder.

Neumann had locked up control of parent corporation The We
Company ahead of the planned initial public offering. Its filings
to go public, called an S-1, revealed that Neumann had
20 votes per share
with his superpowered stock, about double
the industry standard. He also owned an interest in four buildings
that WeWork leased, received personal loans from the company, and
bought the trademark to the “We” name so he could license it at
cost.

Read moreWeWork
details CEO Adam Neumann’s web of loans, real-estate deals, and
family involvement with the company

Outside observers
have criticized investors
, including SoftBank, for giving the
founder so much power.

“People will say why would the VCs ever do that? How could they
be that stupid? Sometimes, it is what it is,” Mike Maples, Jr., a
partner at venture firm Floodgate, said. “Your job is to make money
for your investors.”

Maples said if he passed on an investment opportunity because
the founder had more voting shares than other directors, and the
company went on to give massive returns, his firm lost. So did the
university endowment or hospital that’s invested in the firm as a
limited partner and could have built another building on
campus.

There are other stakeholders to consider, said Shah, an
investor.

“I think when any top firm — it doesn’t matter if it’s
Benchmark or your next top firm — I think they’re making a
decision on behalf of a number of key constituents,” he said,
“which include everyone from employees to the key executives at the
company who may mutiny to their limited partners and protecting
their principle investment.”

Being founder-friendly is overrated

Venky Ganesan, managing director of Menlo Ventures, said being
seen as founder unfriendly can hurt a venture firm’s
reputation.

The problem is, he said, what it means to support entrepreneurs
has changed since he joined the venture business almost 20 years
ago. Ganesan related founders to teenagers and investors to
parents.

“These are people who have great potential, but we need to make
sure they turn into responsible adults,” he said. “You set
boundaries, curfews, and consequences. … Now the role has
changed. They have become friends. We want to go and have a beer
with them.”

The events of the last few months could shift expectations
again.

“People think founder friendly is you saying yes to everything,”
Ganesan said. “It’s about helping you make the best decisions you
can. Sometimes, it might mean saying no. We help you by saying
no.”

For Benchmark, which needs to win favor with a new generation of
startups, the ability of founders to take such a nuanced
perspective could make all the difference. 

SEE ALSO: The
Takedown of Travis Kalanick — the untold story of Uber’s
infighting, backstabbing, and multimillion-dollar exit
packages


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Benchmark was the poster boy for 'founder-friendly' VCs, but after WeWork and Uber its reputation is looking tarnished