For the past week, Uber's board members have been embroiled in conversations over a thorny question: what to do about Benchmark, the venture capital firm that is one of the ride-hailing company's largest shareholders.
While Benchmark had long supported Uber's management, the investor had recently turned against the company's top echelons. In June, Benchmark helped oust Uber's co-founder, Travis Kalanick, as chief executive. Last week, the firm escalated its actions against Mr. Kalanick by suing him for fraud and saying he should be removed from Uber's board. Then on Monday, Benchmark published anopen letter to Uber employees intimating that the company had dark secrets that had not been revealed.
Uber's board was blindsided by Benchmark's lawsuit, according to three people with knowledge of the matter who spoke on the condition of anonymity. News of the suit led to a flurry of emails and phone calls between directors in recent days over what to do. Benchmark owns a 13 percent stake in Uber and also holds a board seat.
Benchmark's influence on Uber's board, however, is now diminished. Benchmark's board representative, Matt Cohler, recused himself from a board committee that discusses litigation issues until the lawsuit is resolved, the people with knowledge of the matter said. The change means that for the time being, Benchmark will have restricted access to information about legal battles that are set to shape Uber's future.
More from The New York Times:
The world's biggest tech companies are no longer just American
A 2:15 alarm, 2 trains and a bus get her to work by 7 a.m.
Fiat Chrysler joins BMW in race to make self-driving cars
For Benchmark, this puts the venture firm further out on a long limb. The firm, which has backed companies including eBay, Snap and Twitter, became one of Silicon Valley's most successful start-up investors by keeping a low profile in its partnerships with entrepreneurs. Now with Uber, the firm is mired in a bitter and highly public fight while it is being isolated on the company's board.
The battle has caused other Silicon Valley investors to take Benchmark to task. Shervin Pishevar, an early Uber backer who is leading a coalition of other investors, has asked Benchmark to sell its shares in the ride-hailing company and leave its board. In a letter this week, Mr. Pishevar called Benchmark's lawsuit against Mr. Kalanick "irrational in the extreme" and its other actions "culpably wrongheaded."
"I can't help but wonder how recent events will impact founders' views towards raising capital from Benchmark," Michael Boswell, a tech entrepreneur, wrote on Twitter. He called Benchmark's actions against Mr. Kalanick "ruthless."
Tweet: "I can't help but wonder how recent events will impact founders' views towards raising capital from Benchmark
Anand Sanwal, chief executive of CB Insights, a research firm that tracks the venture capital industry, said that litigation between founders and venture capitalists had never been seen "at this scale or in as public a way."
Representatives for Uber and Uber's board declined to comment. A spokeswoman for Benchmark declined to comment beyond a statement earlier this week on the litigation. "Resorting to litigation was an extremely difficult step for Benchmark," the statement said. "Failing to act now would mean endorsing behavior that is utterly unacceptable in any company."
On Thursday, Mr. Kalanick filed his opposition to Benchmark's lawsuit in Delaware Chancery Court, saying in the filing that the case should be subject to arbitration and that there would be a pending motion to dismiss it.
Mr. Kalanick argued that Benchmark's suit stemmed from a "public and personal attack" on him. He said that Benchmark "outwardly supported" him through May before executing a secret plan to oust him "at the most shameful of times," less than two weeks after the funeral of his mother, who had died in a boating accident. Benchmark could not "demonstrate a threat of imminent irreparable harm" to Uber if he stayed on the company's board, Mr. Kalanick said in the filing.
Benchmark, which was founded in 1995, has developed a reputation for prescient start-up investments. It rode the late 1990s dot-com boom by backing companies like eBay and Palm. The company is also known for its network of influential tech executives, including Meg Whitman, the chief executive of Hewlett Packard Enterprise.
But Benchmark has been involved in disputes with entrepreneurs, sometimes leading to legal trouble. In 2005, most of the founders of a start-up called Epinions, which Benchmark had invested in, sued the firm and one of its partners, Bill Gurley, among others, accusing them of withholding information in an ownership deal. The suit was eventually settled.
Silicon Valley's memory of such episodes was often short because of Benchmark's success. The firm, which invested $5 million in the e-commerce company eBay, reaped a 50,000 percent return when it went public in 1998. Twitter, Zillow and New Relic were also lucrative investments. More recently, a $21 million investment that Benchmark made in Snap became worth more than $2 billion when the social media company went public in March.
Benchmark invested in Uber in 2011, putting in an initial $12 million at a valuation of around $60 million. (That stake is now worth more than $8 billion.) Mr. Gurley, Benchmark's most prominent partner, also took a board seat at the company. He has since promoted Uber on his blog, Above the Crowd, and on social media.
"'Uber is a great place to work w/ loyal employees!'" he wrote on Twitter last year in response to an article on the technology news site TechCrunch about the company's aggressive employee retention tactics.
Mr. Gurley has warned start-ups of irrational exuberance in recent years, saying that a combination of easy money, high valuations and reckless spending had created a "risk bubble" in the industry. The message may have been applicable to Uber, which had raised money at ever higher valuations, burned through billions of dollars and did not file to go public.
Initially, Mr. Gurley and Mr. Kalanick appeared closely linked. But as Mr. Gurley privately cautioned Mr. Kalanick about overspending and overexpansion, their relationship frayed. The investor encouraged Mr. Kalanick to get Uber out of China, where it was spending billions, for example. Mr. Gurley also advised Uber to hire a chief financial officer and think seriously about going public, according to four people with knowledge of those talks.
Thanks in part to such fretting, Mr. Kalanick would sometimes reference the character Chicken Little, who always claimed the sky was falling, when speaking of Mr. Gurley, according to a person who spoke on condition of anonymity to describe the conversations.
Benchmark's ability to work with Uber became strained. This year, Mr. Gurley became worried that he did not get the full results of an internal Uber study that examined the reputation of the company and Mr. Kalanick, according to two people with knowledge of those conversations.
Eventually, the relationship disintegrated. Benchmark spearheaded the effort to push Mr. Kalanick out as chief executive in June. That same month, Mr. Gurley left Uber's board, and Mr. Cohler replaced him.
A spokesman for Mr. Kalanick said that Mr. Gurley and Mr. Kalanick were never close, that Mr. Kalanick never called Mr. Gurley Chicken Little and that Mr. Gurley received the entire report about the reputation that Mr. Kalanick and Uber had among consumers.
Until Benchmark sued Mr. Kalanick, the venture firm had not publicly admonished Uber's executive team. In its lawsuit against Mr. Kalanick, Benchmark claimed that it had no inkling until this year that Mr. Kalanick was mismanaging the company or that Uber's culture was deeply troubled. The ride-hailing company had made headlines for years in its clashes with legislators and regulators, among other issues.
Now Benchmark must prove that there was fraud at Uber that it had no way of knowing about, said Bart Friedman, senior counsel at the law firm Cahill Gordon & Reindel.
"If they didn't know, they created this monster by looking the other way," Mr. Friedman said.
— Mike Isaac contributed reporting.