As company founders have amassed historic amounts of funding, they have also attained greater control and autonomy. That has allowed entrepreneurs to pursue aggressive tactics and foster troubling cultures for longer than ever before in the tech industry, observers say.
Silicon Valley knew well the aggressive corporate culture that was key to Uber’s global dominance — and all about that culture’s downsides.
Tech workers had seen it in lawsuits filed against the ride-hailing service, candidates turning down jobs at the San Francisco company and those fleeing the firm amid a drumbeat of scandals and critical news articles. So the 47 structural and policy recommendations handed down by attorneys to the ride-hailing company last week weren’t revelatory.
But for venture capitalists, the stark assessment underscores a growing concern: As company founders have amassed historic amounts of funding in the last five years, they have also attained greater control and autonomy. That has allowed entrepreneurs including Uber co-founder and Chief Executive Travis Kalanick to pursue aggressive tactics and foster cultures that trouble workers and investors — with limited checks on their power — for longer than ever before in the tech industry, observers say.
“Are we as investors giving up too much of the store to entrepreneurs?” said Jonathan Tower, who recently founded investment firm Catapult VC after working at TriplePoint Capital. “Maybe during this boom period, we’ve become too founder-friendly.”
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Had Uber been created in a different era of the tech industry, the 8-year-old firm probably would have been publicly traded by now — or at least nearing the day of an initial public offering. And many of the changes that former U.S. Attorney General Eric Holder and Tammy Albarran put forward would have long been in place. Those would include substantial performance reviews for senior executives, an oversight committee on the board of directors, a well-oiled human resources department and clear guidelines on romantic relationships between employees.
Such bureaucracy, which often comes as large startups prepare for an IPO, has long been seen as a curb on growth by entrepreneurs who prioritize fast decision-making and rapid expansion.
“You don’t want to snuff out that germ of innovation at an early stage,” Tower said.
But despite Uber reaching more than 12,000 employees, Kalanick — who announced Tuesday that he would take an indefinite leave of absence — has been able to delay the introduction of accountability measures typical for companies of its size. Boundless cash from investment firms around the world has given companies leeway to stay private. Venture capital fundraising alone has topped $55 billion in three straight years, according to research firm Preqin.
With no shortage of investors knocking at the door, the power of any single one has also taken a hit, according to venture capitalists. That limits the amount of oversight they can exercise.
“They are chasing the same deals, pushing up the valuations, and softening deal terms,” Tower said.
Uber, like many tech companies, has different classes of shares that give some owners — founders and early employees — more voting power. Some Uber shares allow the owner to cast a single vote, while other shares come with 10 votes.
Uber is a private company, and it is not clear how many of those super-voting shares Kalanick owns, or the extent to which he and other insiders control the firm’s super-voting shares. A company spokesman did not respond to questions about share structure and Kalanick’s voting power.
But analysts say Uber is like other big tech companies — including Alphabet, Facebook and chat app maker Snap — in that Kalanick controls a majority of Uber votes either by himself or with fellow board members (co-founder Garrett Camp and early employee Ryan Graves).
Natasha Lamb, a managing partner at investment firm Arjuna Capital, said this type of share structure makes it easier for problems to fester.
“Uber’s record on sexual harassment, diversity and company culture has been a big hit to their brand,” Lamb said. “You run into these issues because of culture, and the voting structure entrenches that culture.”
Kalanick was allowed to start operating in a vacuum the second his company raised $258 million in 2013 from GV, the investment arm of Google parent company Alphabet, said Amit Shah, a partner at Artiman Ventures.
“In the high times, when you’re a hot company, you can get away with anything,” Shah said. “It’s a delicate balance — what makes Silicon Valley tick is the lack of too much structure, and the way current public-company boards have to operate is a nightmare for business.”