Bloomberg News

RadiumOne CEO Late Guilty Plea Shows Startup Male Board Weakness

April 30, 2014

Gurbaksh Chahal was the picture of a successful Silicon Valley entrepreneur, with the Lamborghini, the San Francisco penthouse, the immigrant rags-to-riches story and tens of millions of dollars. “And he’s single!” Oprah Winfrey said in a 2008 interview.

Life has changed. Chahal pleaded guilty April 16 to two misdemeanor counts of battery against his girlfriend. More than a week later, RadiumOne Inc. directors fired him as chief executive officer of the company he founded and was about to take public.

The board’s mistake was in not sacking Chahal sooner after an incident that took place eight months ago, said Jason Hanold, managing partner at Hanold Associates, an Evanston, Illinois-based executive search firm that focuses on technology.

“There was consternation, maybe hope, that it would all go away,” Hanold said. “A lot of the firestorm facing the company is going to be around the credibility of the board and the lack of decisiveness.”

For his part, Chahal said he could have persevered against the 45 felony counts he faced after he was arrested last August and accepted a deal under pressure from directors.

“The board didn’t want to wait and didn’t want me to fight the charges in court,” Chahal, 31, said in an interview. “The board was ecstatic that they were going to go on with the IPO.”

While the board did suggest preventing “prolonged court proceedings might be in the best interests of the company,” it didn’t press Chahal to plead, according to a memo to employees from new CEO Bill Lonergan. “Gurbaksh and only Gurbaksh made the final decision.” Lonergan declined to comment for this story.

All-Male Boards

Chahal’s story is playing out at a time when easy money and skyhigh valuations have given startup founders celebrity status. The flipside is that it can all unravel in an instant.

The case also highlights an aspect of Silicon Valley -- all-male boards -- that has come under fire. Startup boards are largely comprised of venture capitalists, 89 percent of whom are men, according to the National Venture Capital Association. The fact that RadiumOne’s board didn’t act until until a week and a half after Chahal’s plea and months after his arrest spurred a barrage of criticism in the blogosphere.

“Social media rapidly and dramatically amplifies and escalates awareness and action,” said Sharon Wienbar, a partner at Scale Venture Partners in Foster City, California. “Boards cannot table decisions as the intertwined ecosystem calls for immediate action.”

High-School Dropout

At RadiumOne, the six-member board consists of Chahal, former California gubernatorial candidate Steve Westly of the Westly Group, Robin Murray of Adams Street Partners, David Silverman of Crosslink Capital, Ajay Chopra of Trinity Ventures and Lonergan. None of the five members responded to requests for comment.

Known as G by friends and colleagues, the Indian-born high-school dropout wrote two blog posts -- on April 27 and April 28 -- defending himself after the felony counts were dropped as part of the plea deal. He paid $500 and was ordered to attend a 52-week domestic violence training program

While acknowledging in the first post that “my temper got the better of me,” Chahal denied hitting his girlfriend 117 times as accused and called the reaction an “overblown drama.”

Case Uncertain

It amounts to a public-relations disaster for San Francisco-based RadiumOne. As of last month, the advertising-technology company was on pace to generate $100 million in 2014 revenue and was in the final stages of preparing an IPO.

Even with the outcome of the criminal case uncertain and Chahal’s culpability in question, a company on track to go public has to move decisively, particularly when the CEO is involved, Hanold said.

Lonergan said in the memo to employees, which RadiumOne made public, that the board waited to act because “a person is innocent until proven guilty.” After the plea, Lonergan said the five directors asked Chahal to resign. When he showed no sign of doing so, “the board called a special meeting to terminate his employment,” Lonergan wrote.

Chahal emigrated with his family to the U.S. when he was a small child. They lived in a one-bedroom apartment in a San Jose housing project. At the age of 16, he started his first company, ad-technology company ClickAgents.com Inc., in the cramped apartment, home to seven people.

High Life

In 2000, he sold ClickAgents to ValueClick Inc., now known as Conversant, for $20.5 million in stock, which collapsed in value shortly after the deal closed. He then founded BlueLithium Inc., an online behavior-tracking tool bought by Yahoo! Inc. (YHOO:US) in 2007 for $300 million -- this time in cash.

Chahal started reveling in the high life. He was interviewed by Winfrey in 2008 as an eligible bachelor worth more than $100 million, “living the American dream in a big, big way.” The segment shows him driving a $240,000 Bentley and talking about buying himself a Lamborghini while he was still in his early 20s.

That same year, a camera crew followed Chahal around San Francisco’s rough Tenderloin neighborhood, where the entrepreneur posed as an average American for the Fox TV reality show “Secret Millionaire.” The protagonists eventually gave away a small portion of their wealth.

Civil Suits

At the beginning, Chahal is seen walking around his penthouse apartment, showing off the “famous G bed with the G pillow,” a panoramic view of San Francisco Bay, tightly-tailored Gucci and Versace suits, high-end cars and a love for gambling. His wallpaper was modeled after the decor of the Hard Rock Hotel and Casino.

“Vegas is my second home,” he said in the introduction.

Chahal founded RadiumOne in 2009. The company raised $33.5 million in funding from firms represented on the board, as well as DFJ Esprit. The startup would have marked Chahal’s first IPO.

The battery charges came as Chahal was grappling with other legal actions. In June 2013, he filed civil suits in state court in San Francisco against two former employees, requesting restraining orders to prevent them from harassing him. The requests were denied.

Juliet Kakish had been dating Chahal for 11 months when she called 911 on Aug. 5, 2013, according to the complaint filed in state court in San Francisco. Chahal hit Kakish in the head, kicked her and dragged her from the bed to the floor, according to the document.

Media Flurry

Kakish asked to have the charges withdrawn, according to a statement issued by Chahal at the time. He said he would “vigorously fight overblown and misleading charges of domestic abuse.”

While there was a flurry of local media coverage of Chahal’s statement and the charges, RadiumOne’s board was silent. The company pressed ahead with its ad-network business, which ComScore Inc. listed as the ninth-largest online ad network in January, with 169.7 million unique visitors.

By last month, preparations for the IPO were in full swing. RadiumOne had narrowed its search of lead investment banks to two, people with knowledge of the matter said at the time.

Then on April 16, Chahal pleaded guilty to one count of domestic battery and one count of battery. He was placed on three years probation and is subject to searches of his residence and property without a warrant, said Alex Bastian, Assistant District Attorney and spokesman for San Francisco District Attorney George Gascon.

‘Domestic Violence’

“Our office takes domestic violence very seriously, and we don’t tolerate it in our community,” Bastian said. The case was weakened, he said, because the victim didn’t cooperate and because a video from surveillance cameras in Chahal’s bedroom wasn’t allowed to be admitted in the case as officers hadn’t obtained a search warrant for it.

“The judge’s ruling substantially weakened the evidence we had for prosecution,” Bastian said.

Technology bloggers seized on the plea, heaping criticism on the company for not removing a CEO who had admitted guilt to battery. At RadiumOne, the board saw that “Gurbaksh’s ability to lead the company had been severely compromised,” Lonergan said in the memo, and Chahal was fired.

“The company will remain fully functional even with Gurbaksh on the board. He has no executive authority and because of the composition of the board Gurbaksh cannot impact any decisions affecting the business.”

‘Primary Focus’

Now the company’s “primary focus is on continuing to grow our business as fast as possible whilst remaining profitable,” Lonergan said, so as to “preserve our optionality on the timing of an IPO.”

While Chahal avoided jail time, he’s out of a job and confronted by a long road to redemption.

“I have two sisters, a niece and a mother and I had to look them in they eye and settle this case,” he said in the interview. “Imagine how that felt. I did that for the board,” repeating the contention his fellow directors forced his hand.

“This is not what entrepreneurism is about,” Chahal said. “This is about greed.”

To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net; Cory Johnson in San Francisco at cjohnson114@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Anne Reifenberg, Ben Livesey


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