SF Startup Exit Masterclass 2018

1. Why Real Boards Really Matter...
Lessons Learned from Uber
Adam J. Epstein
June 19, 2018
HAX Exit Masterclass – San Francisco

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“Boards meet only periodically, but their responsibility
is continuous. Directors whose knowledge is derived
only from sporadic meetings are not fulfilling their duty
to shareholders. Likewise, executives who view boards
as a nuisance only undermine themselves and the
company’s prospects for long-term growth.”
Larry Fink, CEO (January 2018)

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5. Lehman
Board
Composition
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Stanford post-mortem: “…there is a
notable absence of financial services
expertise on the board.”
• Retired McKinsey consultant
• Former CEO of IBM
• Former CEO of Halliburton
• Former CEO of Salomon Brothers
• Former CEO of Vodafone
• Theater Producer
• Former CEO of Telemundo
• Former CEO of Sotheby’s
• Former Navy Rear Admiral
• Actress

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7. Zenefits:
Lehman Part
II
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At the time Parker Conrad resigned in
February ‘16, the company had raised more
than $500m, and was valued at $4.5b.
They subsequently paid fines in multiple
states for selling insurance without licenses;
future is unclear, valuation has been halved
(at least).
Board at the time the scandals came to light?
• 3 insiders
• Only 1 outside director (VC investor)
• None had any insurance industry exper.

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9. Theranos:
Lehman Part
III
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Company sought to design a new
methodology for efficaciously testing blood
with just a “pin prick” of your finger.
Success would require highly advanced
biochemistry.
Their independent board members:
• Two former Secretaries of State
• Two former Senators (1 was a doctor)
• Former Secretary of Defense
• Retired Navy Admiral
• Retired Marine General
• Retired CEOs of Wells Fargo and Bechtel
• Retired epidemiologist

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11. Darden Restaurants (NYSE: DRI)
• Darden owns, among other companies, Olive Garden
• Sales in 2011: $7.05b; Sales in 2014: $6.2b
• Stock price in 2012-2013: stuck in $40-$50 range
• In 2013, DRI underperformed S&P by 15%, and some peers by ~ 30%
• 2014: Activist investor (Starboard) replaces the entire board
• Two years later…
➢Revenues move to $7b from $6.2b
➢Net income from cont. operations moves to $359m from $183m
• Now…
➢Stock is > $90
➢Company spun off real estate into another pubco with valuation > $1b
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The Board’s Actual Role

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Board’s Can’t Manage Risks...
They Don’t Understand

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Overboarding & Celebrity...

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Scale

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Culture

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Dual-Class Companies

21. Concluding
Thoughts
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• Think about what happened at Darden
Restaurants and at Uber.
• Travis Kalanick is one of the best
entrepreneurs in the history of the U.S. He
created... a verb. If he couldn’t scale Uber,
what makes you think you could?
• It’s time for everyone in the Valley to learn
from the largest asset manager on earth.
Better governed companies make more
money.

22. CONTACT INFORMATION
Email: ae@thirdcreekadvisors.com
Phone: (415) 730-1915