The CEO of Uber, Travis Kalanick, has permanently left the company he co-founded. He is gone. (Hey, he could still make it back. Think of Steve Jobs of Apple, Jack Dorsey of Twitter.)
But there is a huge lesson I want to share for African entrepreneurs on the circumstances of his departure. I am not going to dwell on the toxicity of Uber’s working environment. Largely, he could have survived that as no one directly pointed to him as harassing any woman. Travis could have made it through the storm.
Today, my focus is on voting rights and why it matters. A group of Uber investors – Benchmark, First Round Capital, Lowercase Capital, Menlo Ventures, and Fidelity Investments – consolidated their power with a voting rights of combined 40%, and and demanded Kalanick resignation, according to a Fortune newsletter.
The former CEO was not happy, based on an email he sent to Uber staff – “I have accepted a group of investors’ request to step aside”, he wrote.
Lessons for Entrepreneurs
Travis remains on the Board of Uber and he owns the largest voting shares but that is less than 50% plus 1. This means that when investors bang together, he becomes a minority despite having the sole majority of voting rights. Travis did not secure his board control, at early rounds, leaving himself very vulnerable. That was disruption he left on the table.
Smart founders do all possible to stay ahead of that 50%+1 as Facebook and other companies have done.
Facebook CEO Mark Zuckerberg controls 60 percent of the voting power at the social giant, for example, and the company has even tweaked its stock structure to ensure that power doesn’t diminish over time.
At Alphabet, Google co-founders Sergey Brin and Larry Page control more than 52 percent of the vote combined.
As you raise capital, it is very important you do not lose focus on voting rights. Investors will use that to re-align the business and make you extremely powerless, even in your firm. They can kick you out, just as they did to Uber CEO.
Sure, you need the capital but you must be smart to ensure you have control in your company. There are cases of founders who received capital only to regret that because investors kicked them out. Movirtu case is a good example.
Stories of company founders who have ended up unhappy with their deals with VCs are rife in Africa, where the initials VC are sometimes disparagingly referred to as “vulture capital.”
Entrepreneurs can get themselves into trouble if they don’t understand the venture capital process, Ben White, the founder of VC4Africa, an online initiative formed to bring together investors and startups.
“The trick is to understand that any time the company requires cash, and you are not able to provide the capital yourself, you are most likely going to lose position in the company,” White said in email. “Experienced investors know this and will be thinking past their initial investment and into the second and third rounds. They will want to prevent the dilution of their position (say initially 20 percent) given new money is put into the business.”
You may wonder if the same thing happened in Jumia Nigeria as both founders left unceremoniously in a company they co-founded.
As Fortune noted, Travis built Uber – the largest, most valuable, most global, most disruptive, most quintessential Silicon Valley success story of this era. What happens to this company affects the entire tech industry – the companies, the investors, the culture, the regulations, the employees. He will be fine. We just have to learn from his present bump, nevertheless.