San Francisco - When Uber Technologies was raising venture capital in 2013, it was one of
the hottest deals around – and no one was more eager to write a
check than Bill Maris and David Krane of Google's venture
capital arm.
Not everyone at Google Ventures, since renamed GV, agreed.
The firm already had an investment in a competitor, Sidecar, and
Uber was demanding what then looked like a sky-high valuation.
Maris and Krane prevailed, and the deal is now regarded as
GV’s greatest success. On paper, the firm's initial 2013
investment of $258 million gained about 14 times its value over
the next three years to more than $3.5 billion.
But now Alphabet Inc, Google's corporate parent,
is suing Uber for theft of trade secrets, alleging that one of
the top engineers in its self-driving car program decamped with
thousands of confidential files, including designs that helped
him start self-driving truck company Otto and then quickly sell
it to Uber. Uber denies those claims.
The lawsuit, filed by Alphabet’s self-driving car unit
Waymo, has jolted the fast-growing and highly competitive
industry that has sprung up around autonomous vehicles and ride
services, which are seen as the future of private road
transport.
Yet the confrontation was a long time in the making: the
complex relationship between the companies was tense from the
start, according to people familiar with the situation, and
soured further as they increasingly competed with each other.
Now, if the Waymo suit damages Uber, GV's investment in the
ride-hailing company stands to go down as a Silicon Valley
rarity: a large funding deal undermined by the firm's own
investors.
“Whatever Waymo gains, Google Ventures loses,” said Stephen
Diamond, associate professor of law at Santa Clara University.
The lawsuit is just one in a series of recent public
setbacks for Uber, including allegations of sexual harassment
that prompted an internal investigation, a video of Chief
Executive Travis Kalanick arguing with an Uber driver that led
him to make a public apology, and Uber's admission on Friday
that it used a secret tracking tool to avoid authorities.
“We have reviewed Waymo's claims and determined them to be a
baseless attempt to slow down a competitor and we look forward
to vigorously defending against them in court," Uber said in a
statement in response to the lawsuit. "In the meantime, we will
continue our hard work to bring self-driving benefits to the
world.”
A spokeswoman for GV declined to comment.
At any cost
Uber was more than just another investment for
then-fledgling Google Ventures, which needed a high-profile deal
to put it on the map.
Maris and Krane were early Uber fans, but it took about two
years for the pair to connect with Kalanick. When Uber investor
Benchmark finally brokered a meeting in May 2013, the Google
Ventures partners were determined to do a deal at virtually any
cost, according to two sources close to the transaction.
With other would-be investors waiting in adjacent conference
rooms at Uber’s San Francisco offices, Maris and Krane made
their pitch to invest. Kalanick pushed for a higher valuation,
without a board seat; Google Ventures pushed back, asking for a
board observer seat and a liquidation preference for protection
if Uber was sold at a loss, one of the sources said.
They finally came to terms, with a $3.5 billion valuation,
and there were signs that a broader alliance could be in the
offing. Separately, David Drummond, Google's senior vice
president of corporate development, had a social relationship
with Kalanick, and he joined the board.
A ride in a self-driving car and a meeting with Google CEO
Larry Page, recounted in Brad Stone's recent book "The
Upstarts," seemed to bode well for the relationship.
But conflicts emerged immediately. Kalanick, a tough
negotiator, wanted a discount on the software tools behind
Google Maps, the company's ubiquitous mapping software,
according to a person close to the transaction. The best Google
Ventures could offer was close contact between Uber and Google’s
mapping team, the person said.
Kalanick also wanted Uber to be featured prominently in
Google Maps, eventually giving customers a way to hail an Uber
ride directly from Maps, and Google agreed, a source close to
Uber said. But Uber felt Google dragged its heels on the
integration and found the initial rollout disappointing, the
source said.
Read also: 'I must fundamentally change and grow up'- Uber CEO
The friction only grew as Uber turned its attention to
autonomous driving, an area where Google had already established
an early lead. Uber announced its intentions in typically abrupt
style in early 2015, poaching 40 faculty and researchers from
Carnegie Mellon University to set up a self-driving lab in
Pennsylvania.
It bought mapping software firm deCarta and began investing
heavily in its own mapping systems. Meanwhile, Google launched
an on-demand delivery service, a market Uber is also chasing,
and began offering a carpooling service through driving app
Waze, which it acquired in 2013. The carpooling feature in
particular rankled Uber, a source close to the company said.
"Things escalated from frenemy to now enemy quite quickly,"
said Anand Sanwal, CEO and co-founder of venture capital
research firm CB Insights.
The tension bubbled to the surface last August, when
Drummond stepped down from Uber’s board.
Uber declined comment on any of its dealings with Google and
did not make Kalanick available for an interview.
Undermined
Uber’s aggressive culture was the subject of many
conversations at Google Ventures, a source close to the
transaction said. Hoping to influence the startup, the venture
firm at first encouraged a flow of talent from Google to Uber.
Yet that too ultimately created problems. Anthony
Levandowski, a key engineering manager at the self-driving car
unit, now called Waymo, began to talk openly about leaving the
company as the autonomous vehicle field blossomed, according to
Alphabet's lawsuit.
In January 2016, Levandowski and some colleagues quit
Alphabet to form the self-driving truck start-up Otto, which
Uber acquired later that year for $680 million. Alphabet claims
in its lawsuit that Levandowski had been in touch with Uber even
before he left Alphabet.
In the lawsuit, Alphabet alleges Levandowski downloaded
14,000 proprietary design documents and used them to create
Otto's - and later Uber's - version of a key autonomous vehicle
technology called Lidar, which uses light pulses reflected off
objects to gauge their position.
Uber and Levandowski deny the allegations.
Read also: Uber relies on stolen tech
The high-stakes legal showdown over whether vital
information was transferred between the two companies is perhaps
the logical conclusion of their opaque relationship.
All along, Uber remained mysterious to its Google Ventures
investors. Kalanick was adamant from the start that he would
share little information, and try as it might, Google Ventures
could not gain better visibility over time, two sources said. If
anything, Kalanick grew more tight-lipped as his business
matured.
“It was one of the few companies where we sat there and
said, 'Hope it goes well,'" one of the sources said.