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.
Benchmark partner Bill Gurley also helped the board at Nextdoor relieve 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.
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.
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 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.
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 meant that removing the CEO was not simple, and utlimately required founder Adam Neumann to agree to step down.
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.
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.
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