Last week, many investors were left with an egg on their faces after FTX’s valuation went from $32 billion to zero in a minute in New York. VCs kept wondering, “What the hell happened?” And they still wonder, “Wait – did I do something wrong? Is it me?”
Why yes, actually it’s you.
People are led to believe that, for the most part, investors are clear, data-driven people who carefully examine the financial underpinnings of the companies they invest in. There is little room for emotions such as jealousy or the fear of missing out (FOMO). Of course not. And these people who invest billions of dollars certainly have their eye on the ball, right?
Well, not exactly.
In a surprisingly honest tweet today, former SoftBank COO Marcelo Claure, who resigned in late January after a reported battle over pay, had this to say about the FTX fiasco:
This is from the same man whose former company also invested a lot of money in WeWork, another spectacular example of poor judgment on the part of investors. Steve Jobs once said, “Everything around you that you call life was made up by people who weren’t smarter than you.” Jobs was talking about building products back then, but apparently that includes the people who fund the startup ecosystem.
While it’s good that Claure was so open, honest and reflective, perhaps we should all remember that investors are no smarter than anyone else. They are human beings after all, and their classic lack of self-awareness coupled with the myopia of venture enthusiasts may be the problem. Most investors and the founders they invest in are white males, and you get double points if you go to Stanford, Harvard, or MIT. These people are given the mantle of genius in everything they do and touch. The next Warren Buffet is rarely, if ever, predicted to be a black man.
Black founders constantly describe the higher bar they have to meet compared to their white counterparts. Long and wide, this bar stretches from acting and music to banking and venture capital. In an interview with londonbusinessblog.com last year, Bambee HR founder Allen Jones described his experience as a gay black man trying to get money in Silicon Valley:
They take bets they consider a little safer – entrepreneurs who look like a certain profile – white, cis-gender men who come from Stanford and Harvard who match the profile of trust. They’ve built in some kind of anti-bias determination so that they automatically get the benefit of the doubt for those pedigrees and those profiles.
Jade Kearney, founder of She Matters, an app aimed at connecting women of color with healthcare professionals dealing with postpartum health issues, told londonbusinessblog.com in February how she faced all sorts of obstacles beyond what startup founders faced. when she went looking. for financing. “It’s all crazy and challenging,” she said. “So when we’re in the room, we’ve obviously been able to jump over all the hurdles to get there, and there’s usually one or two of us in the room. So to say you’ve come here, you’re… [unique], and we’re not going to give you money, it’s crazy, really. It is much.”
Private market investors seem to operate less like venture capitalists and more like atmosphere capitalists – giving money to people who are like them, the way they sound and generally like them. This leads them to take risks – of course, because that’s what the investment game is about – but not so much in the companies that actually get through the due diligence. Instead, they slide to the ones that pass their respective vibe checks. There is no balance. There is no honesty. And therein lies no genius.
Last year, women-only companies raised just $7.7 billion — or 2.4% — of total investment, according to PitchBook. That number skyrocketed to $49.1 billion for mixed-gender teams, demonstrating how a man’s presence can seemingly double or even triple a woman’s worth. As of October 15, only 1.9% of the total funding had been raised by women-only teams.
The numbers are so bleak, it’s sad. In the third quarter, Black founders raised a whopping $187 million. To put that in perspective, disgraced WeWork founder Adam Neumann raised $350 million from a16z for an idea that hasn’t even launched yet.
Investors know that women and minorities outperform when it comes to investing and building businesses, but that was never really the point of this game, right? They enjoy playing games with each other, circling each other, falling up and down, and laughing when the markets collapse as they meet for drinks and talking about how they will get them back on their feet. The key here is that they nothing but want to interfere with each other.
When Sam Bankman-Fried (until recently CEO of FTX) launches his next company, people will defend the investors who are again throwing millions at him. “He’s proven he can build a multi-billion dollar company, he takes risks, he’s just a kid, we all make mistakes sometimes.” This speech was written by the devil that we have all come to know. Women and minorities are not allowed to take risks, be children and sometimes just screw it up.
Sequoia has already reduced its own $200 million investment in FTX to zero. That number, too, is more than what the black founders received this quarter, and it’s rare to see a company founded by a black person worth more than $10 billion, let alone $32 billion. Meanwhile, Softbank revealed days ago that it had a nearly $100 million position in FTX, which it has written off to zero. Meanwhile, Sam is doing now a letter-by-letter countdownone tweet at a time, in the direction of how it looks another confession. So far he has typed “What happened” and had yet to reach “d” at the time of publication.
Ultimately, we are dealing with this widespread myth that investors are risk averse. This is not true. They like to take risks, but only on white men who meet their narrow criteria. It’s part of the thrill. And they don’t have to fund minorities or women, as no law or legislation believes they should. Forget the cries and the calls; this is all about vibes, remember? a white man could play video games during an investor call or come to a meeting dressed as SpongeBob’s pineapple house and probably take home a check anyway.