Friday Letter: Disruption

High profile companies attract high volumes of news coverage. If you're Uber that poses challenges for your management and your investors

Everybody loves a juicy story and the recent press coverage of a senior Uber executive's colourful proposals to silence critical journalists made at a Manhattan restaurant unsurprisingly spread far, wide and fast. It also prompted considerable discussion about the character of the individual, the rest of Uber's management, the company and, by extension, the firm's investors too.

Until relatively recently, the car-sharing service seemed an irresistible force, and the venture capital and private equity groups backing it had every reason to believe they were sitting on a super investment. Brilliant idea? Tick. Well executed? Tick. Profitable and growing like weed? Very much so.

Uber, which started with $200,000 in seed money from its founders in 2009, has now seen investments from Goldman Sachs, TPG, Kleiner Perkins, BlackRock, Wellington, Fidelity, Google, Jeff Bezos and many others. This week, those investors and others led by Goldman Sachs gathered in a room with CEO Travis Kalanick at the Bellagio hotel in Las Vegas to decide if they want to keep going along for the ride. Recent accounts from the two-day pitch note that if Kalanick is successful at raising another billion to add to his already $1.5 billion balance sheet, Uber's valuation could be north of $30 billion when the dust settles.

To some of those pragmatic heads assessing the company's investment potential though, the media coverage of this latest incident was diminishing one of Uber's key assets: its brand. And that could mean that customers would migrate to competing services, preferring to avoid any relationship with what appeared to be a more than competitive and less than ethical company. Yet, up to now Uber's growth has been spectacular – the Bellagio crowd heard that its revenues have been growing at 40 per cent a quarter and that it would have an annualized revenue run rate of over $10bn in 2015 – so talk of its stalling is at best premature.

Still, the reputational risk for these investors is hard to ignore. Outside the doors at the Bellagio, former Uber customers were organizing a boycott of the service, and the company itself was scrambling to bring on a privacy czar to combat a Senate probe. Recently leaked documents from the company called for “weaponizing” opposition research against existing taxi companies, apparently in addition to journalists, fuelling debate around business standards and what critics saw as further evidence of the company's arrogant and aggressive attitude.

Even though there are conflicting media accounts about what happened at the Waverly dinner, Uber is now going to have to continue to grow in an environment where almost no one is likely to believe anything positive about the company, and may choose its competitors on that metric alone. The longer this negative publicity continues, the more likely it is that the gaze will widen to Uber's blue chip private capital backers.

How Kalanick weathers the storm will be a lesson for other CEOs, but it is already a lesson for investors looking for innovators – disruptors come can come at a price far greater than just their multiple.

In the era of Twitter, 'weaponized' information no longer stays within the bounds of a hotel ballroom, and the real drivers of growth – consumers – can read that same information and head for the exits. VCs and GPs are going to have to manage these issues early on and perhaps in entirely new ways.

The Uber co-founder isn't alone when it comes to being a CEO with attitude, but that also requires a product or service that can easily surmount issues (real or perceived) around its creator. That reality can make life more difficult for backers caught between a good idea and the worst intentions. If private equity wants to think of itself as a force for positive growth, it will have to choose carefully between those who wish to disrupt and those who are plain disruptive.