Psychopaths in Startupland
He looked me dead in the eye and told me that his recently launched app with 1200 installs would have millions of users and be raising $30M on $125M pre within the year, and that he expected to exit in 18 months for hundreds of millions of dollars. He was raising $2M on $32 pre, after having drip raised $12M at successively higher valuations from “high net worth” individuals, and every piece of “value” that he could articulate was “happening next month” or “in late stage discussions with senior executives representing a potential xx.”
I have never understood the person who can look you dead in the eye and lie in a business setting. I know they exist. There are cons and frauds everywhere who maybe tell the same lie so often they begin to believe it, or I don’t know what, but for every overt con or fraud, there are 10 founders out there overrepresenting themselves or their opportunity, intentionally, albeit in less extreme form. On some level the market rewards misrepresentation and deception…which is a total bummer.
I read this tweet recently referencing Chamath from Social Capital…which read “Before @chamath invests in a co., he asks himself, “Is the CEO a psychopath?” If so it’s a buy.” I was so taken back by it, because 1) I think Social Capital is a very interesting fund and have enjoyed reading and listening to their thinking over the past few years (especially because so much of what they preach is about leveling the world’s playing field for the underrepresented and disadvantaged), and 2) because only a psychopath could make a statement like this…and I didn’t think Chamath was psychopath (i hope he’s not, and that this quote was taken our of context, or perhaps just not fully thought through or articulated). But how many psychopath’s walk amongst us? I believe it’s the same impaired empathy and remorse characteristic of a pyschopath that enables a founder to look another human in the eye and defraud or intentionally mislead them for gain. What Chamath identifies, I fear correctly, is that this is a behavior and characteristic that can lead to tremendous success and gain. Just as my friend in the first paragraph had amassed $10M doing this, many have gone on to amass hundreds of millions, if not billions the same way. Some of these psychopaths eventually are exposed…and they end up going to jail or paying steep fines (Madoff, tons of hedge fund magnates, Worldcom, etc. etc.), but many are not, and eventually become legitimized in their success…and their lack of empathy and remorse may not manifest in the form of deception or even breaking the law…but their ability to make decisions for their own and their shareholders gain, without consideration for their customers, employees, partners, or anyone else who is in the way of success is a trait that I fear the ruthless in startupland have come to revere and select for.
I have zero interest in working with the guy in the first paragraph (even if by some grace of god they do go on to make tremendous amounts of money) and I have zero interest in funding any other psychopath for that matter. We have a responsibility as investors to return capital to our LPs, but we have a greater responsibility to our species not to enable those who lack empathy and who will win at ANY cost. This is a moral case for demanding character and ethics in the founders that you back. But as data becomes more abundant, and as it becomes harder for pyschopaths to hide behind shiny magazine cover veneers, there is increasingly a business case as well. I doubt the board members who invested in Theranos and RadiumOne are very happy with their outcomes…and more and more I see public figures and leaders having to reckon with the immoral decisions they make along the way. Going forward, investing in psychopaths will be an expensive strategy (note: i am aware that VC is hits driven business, power law, blah blah blah…but i’ve seen billionaires live like they’ve won for seven or eight decades only to end their life in disgrace with nothing…funding psychopath’s is shortsighted).
I cannot be anything but genuine and honest…it makes me a shitty salesmen…and it always has…but i’d rather be a shitty salesmen than a fraud or a psychopath…and I will only ever back those who I believe have the capacity for empathy and remorse…no matter how much of a “killer” they might be.