"like staying at hotels all the time, even though he lived an hour away by train"
Who invests in these things? Even more puzzling: how is it that these hucksters keep raising money to found another startup? I've seen this phenomenon before. I called them "financial serial killers" -- hustlers who raise money, vaporize it all, then raise again. They're "serial failed entrepreneurs," and we're not talking failures where they legitimately tried. We're talking failures that involve lots of stupid asshat money-burning and nothing much of substance at all.
My mind boggles. It's like there's some clique of investors out there who believe in supporting sociopaths as some twisted form of philanthropy. Either that or they're making money too through some as-yet-mysterious means.
I do have one total speculation:
Is it possible that there could be some kind of money laundering going on here? Are these money-burning "investments" actually something else? Sometimes stupid things actually aren't stupid if they're viewed from the right perspective, and things that make no business sense might actually make a lot of sense in some other way.
There was no doubt money laundering happening. We also had a consulting company we hired, that we "had" to use and we paid absurd rates to. I am sure there was money flowing under the table or to fund other shenanigans.
I have no idea how they kept raising money, outside to say, Video was hot at the time, and the corruption was buried in complicated accounting fraud so it wasnt front and center.
The thing I try to keep in mind is that nobody can make perfect decisions. We all have heuristics that work pretty well for us generally, and sufficiently clever/prepared people can abuse that.
For example, think back to Google Glass. There was a time when it was an amazing revolution about to happen. There are pictures of generally smart, experienced people wearing Google Glass and trying hard to look like the future. [1] How much got spent there? On the glasses alone, figure it was something like 100,000 units at $1500 each for a total of $150m. Google presumably spent a fair bit more on R&D and marketing, and plenty of other companies spent time and money on the platform.
Were all those people dumb? I never understood the appeal of Google Glass, so you'd think I'd be inclined to say so. But my take is that the people who gave that a go were just working with different heuristics than I am. Lord knows I've bought plenty of disappointing gadgets over the years. As long as we're write more often than we're wrong, the heuristics aren't bad, just not perfect.
So here I figure that most of the people who put in money weren't idiots; they just had different ways of judging. E.g., a lot of deals happen partly because of trust. But we all know that con men are people who are extremely good at manipulating trust-related heuristics.
You're right that there is no perfect heuristic, but Google Glass wad real and real stuff was done.
If you've ever been near or caught up in the whirlwind of one of these hustle jobs, it's obvious and unmistakable that nothing is "actually happening." They're not failed attempts to do something, but successful attempts to appear to be doing something. They're cons.
Well, from my perspective, Google Glass was an immense failure. Yes, they made a product, but not one that was actually useful for anything. (Really, I asked every Glass owner I could find what they were using it for.) At the time I thought it obvious and unmistakable that nothing would actually come of it. Was Glass better because people fooled themselves into putting forth even more unnecessary effort? Or was it worse?
That's not my point, though. My point is that from the perspective of the investors these things look great because they are optimized to appear that way. They may look dumb or pointless to people from other perspectives, of course. But it's like one of those optical illusions that only works when you stand in a particular spot. Every company does this with their investors. Every company does it with their customers.
I also think the dividing line between con and regular company is not as clear as you make it to be. How many people do you know that have stories of working at companies where the executives have no clue? E.g., the charismatic but coked-up executive, or the VP Sales who promises entirely impossible things on a regular basis. Stories where things only worked out because actually clueful people worked hard and made it happen. Or at least made enough happen that checks got cashed and customers didn't actually sue. I know a bunch of those stories, and I'd bet you do too.
I could easily imagine that this was not an out-and-out scam, but just something moderately more fucked up than places I've seen end up doing quite well.
"Hustlers", I loathe that word, but it's pervasive in the tech industry. I knew hustlers growing up, they sold cocaine cut with baking soda and screwed people over when they could. I don't understand how so many entrepreneurs use that word proudly.
I understand where that sentiment is coming from, but to be fair, I also heard the word growing up, but used to describe a certain kind of athlete - the kind who would dive into the bleachers to save a ball.
In that sense, it's like the word "hacker". A word with two diametrically opposed connotations. And it is interesting how two such potentially ambiguous words have assumed such a prominent place in SV culture.
I thought you had to meet certain criteria to become public, like showing X quarters of consecutive growth and bend-over-and-grab-your-ankles audits and such? Or is there some wild west of penny stocks and cocaine that I don't know about?
Maybe those regulations only apply to the exchanges.
Tangentially I read about an interesting money laundering technique once. Apparently you can take two low-volume stocks and use them to launder money by effectively committing financial fraud against yourself. It works like this:
1) Take a small amount of clean money and average into a position on a cheap low-volume stock.
2) Take the dirty money and use it to pump the stock by buying in and driving it up.
3) Sell your position on the clean side. Then pick another low-volume stock and do the same again.
Apparently variations of this technique can be used to smurf money across the market. You'll lose some in the transfer but that's cost. The dirty money appears to be "lost" in the market, while the clean side books short-term capital gains. I'm sure experts would know how to calibrate their smurfing rate to avoid SEC scrutiny and minimize side-channel losses. Seems like something that could be automated with an algorithm.
The illegal drugs industry kicks off such obscene profits that there's probably an enormous market out there for creative ways to launder it all.
I Think this is close to what he was doing. He had an investment bank friend that would just constantly sell and buy on the stock to look like there was "activity". In the end it was the same person selling and buying massive amounts of stock.
Who invests in these things? Even more puzzling: how is it that these hucksters keep raising money to found another startup? I've seen this phenomenon before. I called them "financial serial killers" -- hustlers who raise money, vaporize it all, then raise again. They're "serial failed entrepreneurs," and we're not talking failures where they legitimately tried. We're talking failures that involve lots of stupid asshat money-burning and nothing much of substance at all.
My mind boggles. It's like there's some clique of investors out there who believe in supporting sociopaths as some twisted form of philanthropy. Either that or they're making money too through some as-yet-mysterious means.
I do have one total speculation:
Is it possible that there could be some kind of money laundering going on here? Are these money-burning "investments" actually something else? Sometimes stupid things actually aren't stupid if they're viewed from the right perspective, and things that make no business sense might actually make a lot of sense in some other way.