When $8 billion is yours to lose: How Uber's top investor suffered through the wildest tech drama of the year

Key Points
  • Gurley's firm is sitting on about $8 billion worth of Uber stock and has been at the center of the boardroom drama.
  • Benchmark had huge wins in 2017 from the Snap and Stitch Fix IPOs.
  • He "powered through a really tough period of his life," said Zillow co-founder Rich Barton.
Kyle Walsh | CNBC

Maroon 5, Dana Carvey and David Blaine supplied the evening entertainment. The afternoons were for horseback rides, massages and 18 holes on some of the country's most famous golf courses.

It was mid-October at California's Pebble Beach, and about 75 of Silicon Valley's top executives and dealmakers joined their spouses for an intimate three-day event hosted by Frank Quattrone's investment bank, Qatalyst Partners.

The roster of morning speakers included Slack CEO Stewart Butterfield, former eBay CEO John Donahoe (who now runs ServiceNow) and the heads of corporate development from Google, Facebook, Amazon and Cisco.

Towering over the other featured guests -- physically at least -- was Bill Gurley from venture capital firm Benchmark.

A 6-foot-9 Texan and former Wall Street analyst known for his sharp commentary on the capital markets and criticism of cash-burning unicorns, the 51-year-old Gurley has had a remarkable year. He helped lead the Stitch Fix IPO in November and made a pretty penny from Snap's public market debut, with Benchmark holding over $2 billion of shares in the company after the March offering. On Thursday, health-tech start-up Brighter was acquired by Cigna.

Benchmark's 2017 exits

Company Exit Date Valuation at exit
SnapIPO3/2/2017$24.8 bln
eBagsacquired4/7/2017$105 mln
Engine Yardacquired4/25/2017undisclosed
Lithium Technologiesacquired5/30/2017undisclosed
Zenlyacquired6/21/2017$350 mln
Gigyaacquired9/25/2017$350 mln
Stitch FixIPO11/17/2017$1.4 bln
Peixe Urbanoacquired11/27/2017undisclosed

Source: CB Insights and company announcements

But talk to Gurley's friends and colleagues and you'll hear how he spent much of 2017 glued to his phone, losing sleep and eating poorly, obsessing over a single four-letter word: Uber.

Thanks to Gurley's 2011 investment in Uber, when the company was worth less than $50 million, Benchmark is now sitting on about $8 billion worth of Uber stock. That's an insane haul for any firm, but particularly one investing out of a $425 million fund.

What should have been cause for celebration had instead become a major headache.

During the eight months leading up to the Qatalyst event, Uber had hired former U.S. Attorney General Eric Holder to investigate sexual harassment and discrimination in the company, fired CEO Travis Kalanick and recruited Expedia CEO Dara Khosrowshahi to be his successor.

Travis Kalanick, billionaire and chief executive officer of Uber Technologies Inc., looks on during the Noah technology conference in Berlin, Germany, on Wednesday, June 8, 2016.
Krisztian Bocsi | Bloomberg | Getty Images

In a move that hasn't previously been reported, Gurley also joined the board's audit committee shortly after a video surfaced in February on Bloomberg, showing Kalanick yelling at an Uber driver who complained to him about falling fares. Gurley had decided it was time to take a more active role in righting the ship, according to people familiar with the matter.

Gurley then left the board in June. That move, sources said, was done in part to preserve his mental and physical health. He handed his seat to fellow Benchmark partner Matt Cohler.

At the Qatalyst event in October, the VCs and tech executives in attendance were eager to hear what Gurley would reveal about the drama.

During his 45-minute fireside chat, Gurley gave a candid assessment of his experience, according to four people in attendance who asked not to be named because the event was off the record.

He described the emotional exhaustion and personal pain he felt from firing and suing Kalanick and reckoning with the toxic culture that was brewing inside the company.

Overall, he said, the Uber shakeup was one of the most difficult experiences in his nearly two decades in venture capital.

'He felt obliged to everyone around him'

Gurley, whom Quattrone recruited to the West Coast in the 1990s, is rigorous with financials and company fundamentals. He commonly criticizes overvalued tech start-ups for having indefensible business models and chastises venture capitalists for herd investing. In Silicon Valley, he says, there are too many VCs chasing too few deals with too much money at too high prices.

It's a theme that Gurley addressed at the firm's limited partners meeting in early June, according to two people who attended but asked not to be named because the event was private. Investors were gathered for the day at Mourad, an upscale restaurant in San Francisco's South of Market district, to hear from partners in one of the best-performing venture funds of all time.

Benchmark's newest hires were upbeat. Eric Vishria gave a presentation on artificial intelligence. Sarah Tavel, the firm's first female partner who had just joined from Greylock Partners, offered optimistic thoughts on coming aboard. Stitch Fix CEO Katrina Lake was also in good spirits as she discussed her online business model.

But Gurley was more cautious. In addition to talking about the challenging state of venture capital, he acknowledged the firm's huge responsibility to properly manage its billions of dollars of unrealized gains -- which were almost entirely related to Uber.

Bill Gurley, general partner of Benchmark Capital Holdings Co.
Patrick T. Fallon | Bloomberg | Getty Images

The situation had been weighing him down for months. Fellow venture capitalist Chamath Palihapitiya, who hosts a poker game on Mondays that often includes Gurley, angel investor Jason Calacanis and Yammer founder David Sacks, said it was evident as far back as late 2016.

At a Christmas party in Palo Alto, while a group of close friends enjoyed the holiday festivities indoors, Gurley was outside on the porch on his phone with a "pained look on his face," said Palihapitiya, founder of venture firm Social Capital.

"He felt obliged to everyone around him -- his partners, employees and even the CEO -- to do the right thing," Palihapitiya said.

Nirav Tolia, the CEO of Nextdoor and a business partner of Gurley's for 19 years, wasn't at the party but he echoed that sentiment.

"Bill suffers when his companies are suffering," said Tolia, whose social network for neighborhoods counts Gurley as its first investor. "The magnitude of Uber is larger than anything any venture capitalist has ever dealt with."

At the June LP meeting, one investor said, it was as if Gurley "knew a storm was going to take place" and the rest of the world had no idea what was coming.

To a large degree, he was right. Soon after the meeting, the Holder report was released. It contained a scathing rebuke of Uber's culture and made 47 recommendations to the company. They included creating a board oversight committee, rewriting Uber's cultural values, reducing alcohol use at work events and prohibiting intimate relationships between employees and their bosses.

Uber investigation: Holder report comes at pivotal moment for fast-growing company
Uber investigation: Holder report comes at pivotal moment for fast-growing company

Kalanick, whose mother had recently been killed in a tragic boating accident, agreed to step away temporarily. Eight days after that, two other Benchmark partners -- Cohler and Peter Fenton -- surprised Kalanick at his hotel room in Chicago with a letter demanding that Kalanick resign. Gurley left the board at the same time.

"Very rarely do VCs get pressure-tested with really hard decisions along moral and ethical lines," Palihapitiya said. Gurley has "built the muscle to deal with it."

Perhaps the low point for Benchmark came in August, when the firm sued Kalanick for fraud and breach of contract, claiming the co-founder made "material misstatements" to the board and hid crucial information to gain more control. (Benchmark has reportedly agreed to drop the suit if SoftBank's plan to buy discounted Uber shares goes through.)

Even the search to replace Kalanick was tinged with drama. Leaks were flying around about candidates Meg Whitman and Jeff Immelt and which board members wanted whom. Instead, on Sunday Aug. 27, the offer went to Khosrowshahi, whose name had somehow stayed out of the headlines.

At the Pebble Beach gathering in October, Qatalyst CEO George Boutros conducted the interview with Gurley but didn't bring up Uber, sticking instead to less sensitive topics like corporate governance and the flood of capital from late-stage investors.

However, Gurley volunteered to go in a different direction.

While describing his year, he pulled out his phone and read an email from a female founder who expressed her horror at what she was reading about Uber and her disappointment that someone she respected so much had a part in it.

Stephen Curry, number 30 of the Golden State Warriors, celebrates with fans as venture capitalist Bill Gurley grins in the background.
Ezra Shaw | Getty Images

During the question and answer session, angel investor Ron Conway raised his hand. Rather than asking a question, Conway launched into a minute-long diatribe, thanking Gurley for having the backbone to stand up to Kalanick and not let a powerful founder run free. Conway's boisterous comment was met with a round of applause, in what one source described as a "rallying moment for the group."

A Qatalyst representative declined to comment or confirm details of the event, and Conway didn't respond to a request for comment.

Gurley declined to be interviewed for this story and has mostly avoided the press this year. At the annual Breakthrough Prize celebration in San Francisco earlier this month, he spotted a CNBC producer and flashed the peace sign before quickly ducking away from the many cameras that were flashing.

Full interview with Bill Gurley
PRO Uncut: Bill Gurley

However, he did join the set of CNBC's "Squawk Alley" on a Friday in mid-November, following the public market debut of e-retailer Stitch Fix. While he was celebrating with Stitch Fix founders and early employees, he couldn't avoid answering questions about Uber.

"Everything that happened this summer was a very difficult decision for us," Gurley said, alluding to the removal of Kalanick. "The two questions we get most often are, 'How could you possibly have done this?' and 'Why didn't you do it sooner?' Obviously, those are in stark contrast with one another."

No firm wants to be tagged as unfriendly to founders. But it may be more damaging to have a reputation for accepting weak corporate governance and ignoring bad behavior. Zillow co-founder Rich Barton, a longtime friend of Gurley's, said resolving the conflict was a real struggle for him.

"He grew a lot as a person and a VC, and powered through a really tough period of his life," said Barton, who's been affiliated with Benchmark for almost 13 years as a venture partner. "Many people would guess that going after a founder is not in the best interest of either the investors or the venture firm, not to mention the company itself."

A big donation back home

The turbulence Gurley experienced went beyond his professional life. In late August, as the Uber board was in the final stages of picking its new CEO, Hurricane Harvey was ravaging Gurley's childhood home of Dickinson, Texas.

Julie Masters, the mayor of Dickinson, a small town southeast of Houston, received a text message from Gurley on Aug. 29, two days after the Uber CEO decision. Harvey had leveled the city, causing destruction to about 80 percent of the homes.

"I'd like to provide a financial gift to help with the current situation," the message read.

Gurley grew up in Dickinson but hadn't lived there since graduating high school in 1984. His mom was a fixture in town for 38 years as a substitute teacher, library volunteer and school fundraiser, according to a blog post that Gurley published a week after the storm.

In a follow-up message, Gurley told Masters that he and his wife Amy wished to donate $1 million. "It's the right time to give back," he wrote.

A highway stands immersed in floodwaters from Hurricane Harvey in this aerial photograph taken above West Columbia, Texas, U.S., on Wednesday, Aug. 30, 2017.
Luke Sharrett | Bloomberg | Getty Images

Masters told CNBC that Gurley's donation, plus another $63,000 raised on top of it, was enough for the town to set up a grant program for hundreds of homeowners and dozens of businesses to each get a small but important sum of money.

"I can't even describe it," said Masters, whose house was partially destroyed in the storm. "For Bill to not have been here for that many years but to still hold that place in his heart really touched me."

Masters hadn't tracked Gurley's career and was oblivious to his ties to Uber. She knew he was tall but when asked to guess his height, she was off by five inches.

The Stitch Fix bet

One unambiguous bright spot for Gurley in 2017 was the Stitch Fix IPO.

Gurley was in New York for the festivities with a group of about 50 company employees and affiliates. They gathered at the Nasdaq for the IPO celebration on Nov. 17.

The day began at 8 a.m. and included a breakfast, a visit from the head of the Nasdaq and a tour of the floor and studios. The photo on stage for the 9:30 bell ringing shows Gurley in the back, head-and-shoulders above everyone else.

Katrina Lake, CEO of Stitch Fix and others, celebrate their IPO at the Nasdaq, November 17, 2017.
Source: Nasdaq

Steve Anderson of Baseline Ventures, the first outside investor in the personalized fashion service, said in an interview that neither Gurley nor anybody else was willing to write a check in in 2011 or 2012, the start-up's early days.

"Katrina and I decided that raising a round led by me that would get us to profitability would be the best option so we could control our own destiny," he said.

By the time Gurley came knocking in 2013, Stitch Fix had an unusually stable balance sheet. Benchmark led a $12 million investment, parlaying that into a stake worth $366 million at the time of the IPO and over $530 million as of Thursday.

Benchmark's Bill Gurley: Stitch Fix using big data at an 'unprecedented' level in retail
Benchmark's Bill Gurley: Stitch Fix using big data at an 'unprecedented' level in retail

Still, it was a surprising bet, according to Palihapitiya, who said that Gurley always talked about being "massively long Amazon" -- and short just about anything else in e-commerce.

Gurley explained his thinking to "Squawk Box."

"One of the unique things about Stitch Fix relative to all the other unicorns in Silicon Valley is they've run a very disciplined and profitable approach," he said. "The reason you never heard of them as a unicorn was because they never raised money above a billion because they didn't need to raise money."

Katrina Lake, co-founder and chief executive officer of Stitch Fix Inc.
David Paul Morris | Bloomberg | Getty Images

Intentionally or not, his comment came off as a thinly-veiled swipe at Snap and Uber, two companies that have counted on billions of dollars from venture investors to subsidize their growth. Gurley isn't on Snap's board -- that distinction belongs to Benchmark partner Mitch Lasky -- but it's still a marquee investment for the partnership and a company that's struggled mightily since going public in March.

Entering health care

As Gurley plots his next chapter, Silicon Valley insiders are waiting to hear what the future holds for Benchmark. The firm hasn't raised a new fund since 2013 and now that Gurley's over 50, he's old by Benchmark standards.

It's a firm that recruits partners in their 30s, with the view that youthful investors are more in touch with entrepreneurs and have the motivation to set the world on fire.

But there's no indication that Gurley intends to slow down. He's ramped up his investments in digital health, and in April announced a $6.25 million financing of Solv, a mobile app for booking same-day urgent care appointments. He also closed another deal that will be announced very soon.

For his almost 400,000 Twitter followers, Gurley wrote a tweetstorm on why, as a tech investor, he was turning his attention to health care and backing Solv. After spending three years researching the industry, Gurley said, he found that market failures related to regulation and payment processes presented opportunities while the rise of high-deductible plans tied to Obamacare had created "true consumers/shoppers for very first time."

Solv co-founder and CEO Heather Fernandez, previously an early employee at online real estate marketplace Trulia, spent many hours with Gurley in the back half of 2016 as she was looking to raise money and bring on advisers.

Like seemingly every tech entrepreneur, Fernandez was watching the Uber drama play out daily in The New York Times. She knew how much it was weighing on Gurley, but said that he still answered her emails, "was super-responsive at all points," and insisted on keeping their meetings, even if she called to suggest rescheduling.

He also started doing yoga, "which is not something I would have guessed," she said.

As all-encompassing as the Uber affair had become, Fernandez said that Gurley committed to Solv last year even as the turmoil around the ride-hailing company started to surface.

Fernandez recalls the conversation going something like this: "I told him, 'If I were you I don't think I'd be working. Are you sticking with this?' First, he said, 'Are you calling me old?' The second thing he said is, 'I'm in.'"

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