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Comment by PhantomGremlin | Hacker News Reader

In my best Nelson Muntz voice: "Ha-ha".

The VCs have done this to themselves. They put up all the money, they should have never allowed themselves to be put into this situation.

Decades ago, when I was at startups, this was 100% clear, cut and dried. The Golden Rule. People who have the gold make the rules.

I'm sure this won't be a popular opinion, since more HN readers are founders and employees than are VCs. But don't simply downvote. Explain. Articulate why, after taking billions of dollars in VC money, you feel like you're still owed control.

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Nobody put a gun to Benchmark's head and forced them to take a deal that left so much control in Kalanick's hands. It was a reflection of the relative strengths of their negotiating position at the time. Kalanick is owed control because Benchmark agreed he had control.

The legal question is whether the various scandals that followed show in some way that Kalanick made that deal under fraudulent conditions. It has nothing to do with a supposed generic truism that VCs always deserve to control the companies they fund. Uber is actually a great counterexample to your rule. They appeared to be such a good investment, and so many VCs wanted in, that they were able to dictate very favorable terms.

Kalanick is owed control because Benchmark agreed he had control.

I agree. Given what was negotiated, the default starting position for the lawsuit is that Kalanick is owed control.

so many VCs wanted in, that they were able to dictate very favorable terms.

That is what I failed to fully appreciate. There is so much dumb money sloshing around that it forces smart VCs like Benchmark to agree to dumb things.

Here's now a Fortune pundit described the investment a Saudi Arabian sovereign wealth fund made in Uber last year:

Uber needed the money, and where else are you going to get $3.5 billion? No doubt, it must be tough to fundraise after you've already tapped out venture capitalists, private equity firms, mutual funds, hedge funds, Wall Street high-net worth clients, and strategic corporate and other sovereign wealth funds (yes, including from noxious Qatar).

http://fortune.com/2016/06/02/ubers-no-good-very-bad-deal-wi...

VCs don't invest their own money. As an LP actually putting up capital, do you prefer your portfolio companies to be run by founders (expert in their particular business, lots of skin in the game in the form of common stock, idiosyncratic compared to your other portfolio companies' leaders, sometimes a little too conservative for a well diversified investor like you), or VC partners (expert in capital allocation, somewhat misaligned incentives, also involved in managing your other portfolio companies, likely too aggressive for an investor with actual downside like you)? It's not that obvious that the latter is an improvement.

VCs don't invest their own money.

I haven't been privy to details of many VC funded companies, but the ones I saw definitely had the VC General Partners investing their personal money side by side with money from their Limited Partners. That was reflected in the names on the preferred stock certificates from day one. (Probably don't do paper stock certificates any more).

I agree with your statement that "it's not that obvious" as to who should have control, and there are good arguments both ways. My personal inclination would always remain that the people putting up the money should have the final say.

Yeah, they definitely put up their own money - it's also public record :)

This is how reporters know a firm is raising another fund (beyond just expecting them to every 2 years). The amount/percentage of the total fund that the partners pay in themselves varies by firm and fund.

Here's the records from Benchmark's Fund 7

Partners put up $80mm of their own cash, in a vehicle named Benchmark Founders' Fund VII, L.P.: https://www.sec.gov/Archives/edgar/data/1507661/000150766111...

They then raised $425mm from LPs through a vehicle named Benchmark Capital Partners VII, L.P.: https://www.sec.gov/Archives/edgar/data/1507669/000150766911...

So the Benchmark partners have 16% of that particular fund, though keep in mind VC funds have different economics than just a straight up equity split. 16% is pretty high compared to some other firms I've reviewed, but I admittedly haven't taken the time to sample widely.

I wonder why they split GP vs LP money into two separate companies.

Because both sides negotiated that arrangement in good faith.

That may not be the case in this particular instance, but in general, both parties are adults, reasonably smart, and not operating from a position of duress.

So if you negotiate a deal that has a governance structure of that form, you are stilled owed control.

Because the terms of the deal dictate the allocation of control. There are many differences between investments and acquisitions, control being the most prominent.

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