Just as Elon Musk’s revolutionary Hyperloop technology was starting to look like a serious business model, there are signs that one of the most promising companies commercializing the technology may be facing some serious internal problems. Hyperloop One is one of the two most prominent companies trying to develop commercial versions of the Hyperloop. The company is now facing an explosive lawsuit from one of its co-founders, which may end up permanently derailing the firm’s ambitions.
Hyperloop One is based in downtown LA and claims to be building a fifth mode of transportation based on Elon Musk’s original concept. The company has reportedly raised roughly $100 million to try and disrupt the transportation industry. In the lawsuit, Brogan BamBrogan, one of the firm’s co-founders, alleges that the company’s top leaders have misused funds, breached their fiduciary duties, and generally lined their own pockets rather than working to develop the company itself. The suit names Shervin Pishevar, Joe Lonsdale, and Robert Lloyd as defendants among others.
To get a sense for the magnitude of the lawsuit as well as the backing behind Hyperloop One, consider the following. Pishevar is an early Uber investor and hosted Barack Obama at his San Francisco home for a fundraiser last year. Lonsdale is a co-founder of Palantir Technologies – a private company worth roughly $9 billion based on media reports around its most recent VC fundraising efforts. Lloyd was reportedly on the short list to replace Cisco CEO John Chambers.
BamBrogan's claims are explosive and could literally upend the venture capital world. Among other infractions, BamBrogan claims that Pishevar started dating the company's outside public relations representative and increased her pay from an already rich $15,000 per month to $40,000 a month (more than any Hyperloop One employee). Lonsdale allegedly insisted that his brother's two-person firm be hired as Hyperloop's exclusive investment bank, despite that two person firm having "no notable experience with companies building hardware and engaged in infrastructure development, and few independent contracts with international and top-tier funds." Related: Kazakhstan Moves Towards Becoming A Top 10 Oil Producer
BamBrogan’s claim is backed by other investors, and it is clear that there is a lot of drama at Hyperloop One right now – Pishevar’s brother was caught on security cameras leaving a noose on BamBrogan’s chair as the drama started to play out. BamBrogan is a colorful character by all reports, but he does have a serious credible background as an engineer including a stint at SpaceX, another company disrupting the transportation world.
BamBrogan has left Hyperloop One, and at this point it is reasonable to see the lawsuit as primarily a mechanism to act as a whistleblower rather than for BamBrogan to see any particular personal gain. With that said, the world of venture capital has always been a high risk one. VCs pour incredible mountains of money into high octane start-ups that either take flight or implode. The result of that process is that it is highly likely many VC portfolio companies waste some amount of their funding. After all, do VC companies really need the ping pong tables, fancy soirees, and lavish new tech perks that sometimes are present?
None of this is an indictment of the VC system, which works incredibly well in general, but it is a hard economic truth that VC cash will be wasted if portfolio companies are not monitored very closely. Only time will tell if that is an issue with Hyperloop One, but this is definitely a story with more drama than one would normally find at a typical tech company.
By Michael McDonald of Oilprice.com
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