
Who Are My Investors? - wslh
https://avc.com/2018/10/who-are-my-investors/
======
lordnacho
I've come across this problem a few times when running a hedge fund. To what
degree does one care where the money came from, aside from following AML
rules? I get the feeling you only write articles like that if you have more
people wanting to invest than you have capacity for.

\- A friend called, asking for a recommendation for a job he was applying for.
And advice about whether it was worth taking. Turned out, it was the firm that
managed Libya's (ie Gaddafi's) wealth. They were making a big push at the time
and needed a software developer. Was I going to tell him not to take the job?
How complicit are you if you write some exchange connectors for a dictator? He
ended up taking it, and they ended up in the news.

\- A gulf state sovereign fund called. We didn't even flinch to take it. I
think we just assumed they had a lot of oil money and didn't think any further
about it. If you read the news, there's some not nice things about the place.
Treating manual laborers badly, lack of proper rule of law, that sort of
thing. Took the money, didn't think about it much. Not sure I would act
differently now, to be honest. Basically the business needed the investment,
and there wasn't anything specific and horrible to tell us not to.

\- And where do you draw the line? What if a benevolent, enlightened,
prosperous but essentially a dictatorship state from the equator wants to
invest? And they could well claim to be a democracy. You'd be in endless
discussions about which investors to take, which presumably 99% of your
competitors would not have a problem with.

\- The family office of a guy who'd been in jail called. He was known to have
made his money in a seedy way, and tended to have large guys standing around
guarding him. I doubt if he actually was a gangster, just seemed to like
having a certain tough-guy air about him. Were we going to turn him down?
Again, business requirements prevailed. Basically, if it's legal to take his
money, most people will do so.

If someone does something horrible like with this journalist, and you are an
organisation that is large enough to have a PR footprint, you might care. If
you're just a small fish, you are always going to have huge pressure to take
the cash. I know what my partners would have done if I'd put up any resistance
in these cases; they'd have just ground me down with endless rationalizations,
and we'd have ended up doing exactly the same. People always find reasons to
do what they have decided to do, and not in that order.

~~~
tomasien
Good points but "where do you draw the line? It's not clear" is fair
observation but not a conclusion. You DO have to draw the line and just
because where to draw it isn't clear doesn't absolve you (or anyone!) from
drawing it.

~~~
npunt
Yeah exactly - this isn't a minor inconvenience, it's a fundamental part of
being in society.

I appreciate OP's point about lack of clarity, because yes, the capitalist
game has nothing to say about anything except following whatever you can get
away with. But that narrow game is being played in a much broader context of
society that exists because of a broader social contract and set of values
which keeps everything running.

The reasonable answer to where you draw the line is: when something is no
longer compatible with your value system. And if that's not clear, the issue
is that you haven't yet spent enough time defining your values. That's the
thing to talk about, research, consider, ask advice on, etc. People having a
solid, well-tested personal value system is critical to society's function,
because that informs how groups of people like companies then operate, and so
forth on up.

To make a bit of a broader (and possibly controversial) point on this, we're
in a situation right now where software engineering and finance are two fields
with the highest leverage in society, yet these fields are some of the least
concerned with values/ethics, from the point of view of both the education and
experiences people gain in these fields. Small parts of these fields may care
a great deal about values/ethics, but broadly speaking the situation we're in
is "with great power comes great unawareness of responsibility." It's weird
and scary.

The result of this lack of concern is that many powerful people have under-
developed and unsophisticated personal value systems, and consequently do not
know what to do in ethically nuanced, important situations like what OP is
bringing up. There's a whole lot of people in tech waking up to this
realization nowadays. It'd be nice if we were able to fix this at the source
and raise the next generation right, rather than flail around rediscovering
this every few years when yet another societal crisis hits.

~~~
lordnacho
> The reasonable answer to where you draw the line is: when something is no
> longer compatible with your value system. And if that's not clear, the issue
> is that you haven't yet spent enough time defining your values. That's the
> thing to talk about, research, consider, ask advice on, etc. People having a
> solid, well-tested personal value system is critical to society's function,
> because that informs how groups of people like companies then operate, and
> so forth on up.

This sounds nice, but nobody has a clearly defined value system. Can you tell
us what yours is?

Nobody can do that. At most people can write do is essays about why they
decided one thing or another. If you ask them enough questions, you find
contradictions.

I'm not trivializing what you're saying, either. I think you're onto a real
human desire for consistency.

But if you read a bit about how people have thought about moral decisions, you
find it's an endless rabbit hole. The history of moral thought doesn't have
any conclusions. It's not like we can pick utilitarians and say "yep, that's
the right one", because there are plenty of reasonable objections to any
principle.

~~~
barrkel
That's a universal argument against having any morals. I wholly reject your
apparent position. It is simply venal, wholly convenient for your own self-
enrichment, damn the consequences - it's pretty much evil personified. You're
a cog in a machine that runs on human suffering, and you're actively denying
your culpability.

Yes indeed, we only find out where our line is when we consider problems in
isolation. But just because you can only find out where the line is by poking
out some other line and finding out where the two cross over, is no excuse not
to define a line. It is absolutely not right.

~~~
lordnacho
You're beating a strawman here. I didn't say you can't make any moral
judgements. Yeah, read it again.

I'm saying you can't expect people to have a "value system". It's just not a
thing that someone other than a specialist would be able to enumerate.

> It is simply venal, wholly convenient for your own self-enrichment, damn the
> consequences - it's pretty much evil personified.

Well I hope that satisfies you to write. You, of course, had no skin in that
game.

------
dcposch
Pretty much every single comment so far is cynical. "No one really wants to
know how the sausage is made", lots of money is tainted anyway, it's just PR
fluff, etc etc. The classic HN Middlebrow Dismissal in full effect.

Counterpoint: cynicism is too easy. Actually giving a shit is harder, it's
uncomfortable, it involves compromise.

Yes, if you refuse investment from any country that has ever violated a human
right, you will raise $0. But that doesn't mean all money is created equal, or
that Fred Wilson's effort here isnt worthwhile.

He's simply calling for VCs to a) refuse money from the worst offenders and b)
be transparent about who their LPs are. He's also calling on startups,
founders, engineers etc to demand this transparency, to care who they
ultimately working for.

It's a simple ask.

~~~
AnthonyMouse
> Pretty much every single comment so far is cynical. "No one really wants to
> know how the sausage is made", lots of money is tainted anyway, it's just PR
> fluff, etc etc.

It seems like a deeper problem than that, which is that money is fungible.
It's the same thing as saying we shouldn't buy Saudi oil. If the only result
is that you buy some other oil and the people who would have bought that oil
buy the Saudi oil, nothing meaningful has changed.

To get a meaningful result you need one of two things. One is solidarity (i.e.
market power), but you never have that in a diffuse competitive market. The
other is to do something that isn't fungible. For example, if you actually
_use less oil_ (buy an electric car and solar panels, or support nuclear
etc.), it makes a proportional difference even at the individual level,
because then it isn't a matter of everyone having to act together to
accomplish anything, it's a matter of each person doing their share adding up.
Then the cost to them is in proportion to how many people act rather than the
cost being effectively zero unless you reach a critical mass you can't
achieve.

But there isn't any obvious equivalent to that for venture capital. For oil,
basically all of the foreign exporters are antagonistic, and burning oil
itself is harmful regardless of the source, so everything lines up for that
working as a mechanism of retaliation. But if solar/wind/hydro/nuclear/etc.
are the alternatives to oil, what is the alternative to _money_ supposed to
be?

To get anywhere on that front you need market power, which essentially means
something like government sanctions. But we don't do that because we still
need their oil. So it seems like we're right back to _stop burning oil_.

~~~
akiselev
Saudi Arabia is a counter example to your point: Iran has a considerable
amount of oil but because of unrelated geopolitical circumstances, it can't
easily sell that to the global market like KSA can. That imbalance has little
to do the nature of oil and a lot to do with the KSA-United States'
petrodollar and arms deals. The geopolitics of the world put KSA in a position
to capitalize on its oil wealth and trade it for influence, not the nature of
the product.

Currency may be fungible but the quality of investments an LP has access to
are not. The hope is that closing off the best avenues for return in an
oversaturated capital market will cause rich people with influence to put
pressure on the governments.

~~~
AnthonyMouse
> Saudi Arabia is a counter example to your point: Iran has a considerable
> amount of oil but because of unrelated geopolitical circumstances, it can't
> easily sell that to the global market like KSA can. That imbalance has
> little to do the nature of oil and a lot to do with the KSA-United States'
> petrodollar and arms deals.

It has little to do with oil and much to do with Trump making the Iran deal a
campaign issue and therefore doing everything he can to pressure them into
renegotiating. The outlier is Iran rather than Saudi Arabia. Russia and
Venezuela aren't having any trouble selling their oil either. Moreover, as
Iran's production is down, oil prices are up. This, ironically, actually hurts
the Saudis too, because it makes oil less competitive against alternatives in
the short term, encouraging faster adoption of alternatives that suppress oil
prices in the long term.

And Iran's production is only down because of US-led international sanctions,
which clearly falls into the category of market power. But they're also the
reason the US can't go after the Saudis at the same time, because until we
transition away from oil (which takes time), the US economy is still highly
sensitive to oil prices, which are already higher due to Iran. The Saudis are
actually doing Trump (not to say themselves) a favor by increasing production
during the sanctions on Iran.

~~~
richardknop
Trump is not an important player in this saga (yet, maybe after 2 full terms,
if he would get reelected, he will have more of an impact). Iran has been
sanctioned and prevented from selling their oil to global markets easily (thus
crippling Iran's income and economy) for a long time before Trump and through
multiple presidents from both parties. Sure, Trump made the Iran deal a
campaign issue but this goes decades back.

~~~
AnthonyMouse
Trump is clearly the impetus behind the _current_ international sanctions.
They had previously been removed by the UN under the Iran nuclear deal in
2016.

~~~
richardknop
Yes but it is continuation of a long trend that goes back decades and many
presidencies. The Obama and Iran deal was a deviation from standard US policy
of "Iran bad, Saudis good". So I'm just saying Trump has basically returned to
normal US policy on this front, it's not some extreme change of direction.

------
rajekas
I am several standard deviations to the left of Fred Wilson, but I can't
fathom why his decision is being greeted with so much negativity.

He might have taken dodgy money at some point (but he's willing to acknowledge
it) and now he's big enough to screen his LPs but he still didn't have to
write this piece. That he has chosen to do so is a sign of progress. Let's
give credit where it's due.

As a vegan, I want the world to stop eating slaughtered flesh, but I will be
the first person to applaud if McDonalds stopped purchasing factory farmed
meat (if only!). There's always the next frontier in our quest for justice and
all the more reason to applaud an act of courage.

~~~
hkyeti
Agree, too often we appeal to futility to justify (subconsciously) doing
nothing... there's a lot we can do, and most impacts follow a power law curve

------
mtrovo
I keep thinking what Iraqi startups would think about accepting american VC
money.

The thing is, international politics is really hard. I'm pretty sure that it
makes sense to track where your money is coming from but every single country
is going to have a different set of "worst offenders", and you will see that
the list carry a lot of political interest. I mean, we're looking at Erdogan
[1] pointing the finger at the Saudi's about how they're a ruthless regime.

Hell, go back 10 years and even the Saudi were in the other side of this
hardball game, what changed from there?

[1]
[https://en.wikipedia.org/wiki/2016_Turkish_coup_d%27%C3%A9ta...](https://en.wikipedia.org/wiki/2016_Turkish_coup_d%27%C3%A9tat_attempt#Possible_government_motives)

~~~
wp381640
American VC money is distinct from American government money. The same cannot
be said for Saudi, Qatar, UAE, Russia, the Central Asian kleptocracies, and to
some extent - China, etc.

~~~
sneak
The people who are ultimately in charge of Google Ventures fly from a federal
government airport on taxpayer subsidized jet fuel, and are currently
embroiled in a dispute with their labor force about building ML tools for the
military’s drone program—with the leadership being the initiators of the
program and the objections coming from the rank-and-file.

Don’t be so sure of the lack of integration here. If they’re willing to bend
for China’s censorship, why wouldn’t they bend for any manner of much-more-
palatable (to them) directives from their home government?

------
AndrewKemendo
At any business effort beyond hyper local markets, there is virtually no way
to avoid tainted money or unethical markets. You're going to have to
compromise somewhere. The question is, how and where do you draw the line?

At some point as a founder/fundraiser, you will cross paths with finance or
supply chains that support exploitation, coercion, violence or illegality.

The most successful business people don't seem to care about these cases, and
as long as they don't come with explicit connections that would be bad for
business or can't be managed, the more the merrier.

At any scale of business that is globally impactful, it's fundamentally
impossible to avoid these chains, so I'm not sure what the actual response
should be.

I've thought through many approaches here, from realpolitik pragmatism to
ethical fundamentalism but none feel correct.

~~~
dcposch
> I've thought through many approaches here, from realpolitik pragmatism to
> ethical fundamentalism but none feel correct.

So, vet your LPs case by case, discuss with your partners and use your moral
judgement.

If a North Korean or Syrian national wants to invest, you are legally required
to refuse, in the US.

Saudis? Legally allowed, but you have a moral imperative to refuse.

A Chinese firm, or maybe Jared Kushner's fund? That depends on your outlook
and situation.

Just be transparent about who your investors are.

\--

This idea that it's "virtually no way to avoid tainted money" is pretty
cynical and self serving, IMO.

~~~
rococode
> This idea that it's "virtually no way to avoid tainted money" is pretty
> cynical and self serving, IMO.

Perhaps the real intention behind that idea is more like: "you can avoid
tainted money but that money may go straight to your less scrupulous
competitors". If you don't take the money, someone else will, and they may use
it to beat you. To people whose primary focus is the growth of their own
business, that could be a big cost for upholding their own sense of moral
justice.

~~~
empath75
> To people whose primary focus is the growth of their own business, that
> could be a big cost for upholding their own sense of moral justice.

Not generally a fan of biblical quotes, but: "For what shall it profit a man,
if he shall gain the whole world, and lose his own soul?"

------
mindgam3
After 15 years working in Silicon Valley startups, I am as jaded and cynical
as they come, but this is really refreshing. A VC making a stand for values,
and having the balls to admit that his own hands aren’t entirely clean?
Outstanding. We need more conversations about integrity, and more high level
players with the integrity to admit that they have been wrong in the past.

------
mrleiter
Ben Hunt pointedly said in his recent article [0]:

"With Saudi Arabia, the ubiquitous private information was that Saudi Arabia
is a thug state and their Crown Prince MBS is a wannabe Bond villain. But no
one acted AS IF they knew this until a Missionary event – in this case
Turkey’s very public denunciations of the Saudi government’s murder of Jamal
Khashoggi – turned that private information into common knowledge, something
that now everyone knows that everyone knows."

He coined the term >common knowledge game< [1] as the "information, public or
private, that everyone believes is shared by everyone else".

In the case of MBS, or Saudi Arabia specifically, everybody (privately)
already had the information that this is a brutal regime. But they acted as if
no one knew this. Until the tragic and brutal death of an exiled journalist in
a consulate and the public denunciation by Turkey. Now it has become common
knowledge and actions must be taken accordingly.

[0] [https://www.epsilontheory.com/saudi-arabia-and-the-common-
kn...](https://www.epsilontheory.com/saudi-arabia-and-the-common-knowledge-
game/)

[1] [https://www.epsilontheory.com/sheep-
logic/](https://www.epsilontheory.com/sheep-logic/)

~~~
barrkel
It was ubiquitous information, but it lacked relatability, strategy and focus.

Erdogan has been playing this one very well. The chap is relatable - an
American resident, writing for a US newspaper, critiquing a government, just
the kind of thing westerners like to venerate in their cultural products.
Erdogan has drip-fed the media with information. Since it's so lurid, each
extra dose gets more headlines - it's concentrated, potent stuff. And he's
kept Saudi guessing - threatening that if they don't come out with the truth,
he'll release the details.

He'd lose all leverage if he actually did release everything, but the strategy
works very well. Everybody knows MBS almost certainly ordered this clumsy
attack in a very naive way. But Erdogan has used the unknowns of the
information, and gradual disclosure, as a lever to make Saudi replace their
lies repeatedly over time, eating away at their credibility. By keeping
western media on the boil, he encourages western politicians to say that Saudi
isn't explaining enough.

It's been very interesting to watch, a master class.

(It's not the common knowledge, or the crystalized idea that everybody knows
that everybody knows. That's not right at all. It's political pressure being
maintained by someone with leverage, a steady hand on that leverage, and a
strategy to move things. The lever is joined up: leaks -> western media ->
western politicians -> Saudi. Without the continuous pressure, this would all
blow over because democratic citizens have pretty short memories most of the
time.)

------
the_common_man
Practically speaking, what are we supposed to do here? Slack raised 250m from
Softbank which we know is driven be Saudi investment. Should we stop using
Slack? Honestly, I doubt anyone would do that despite all this "outrage". I
put it in quotes because all these principles are great to talk about but
people won't do even a small thing like leaving Slack in their companies.

~~~
QML
Don’t interpret the words given as a common prescription. Most of us don’t
have enough to make a global impact—only a local change. Wait and see if
Masayoshi Son, or SoftBank, will comment on the situation; see if Stewart
Butterfield, or Slack, will. If neither of them say anything, then that’s when
you should decide to continue using Slack or drop it; but don’t pretend you
were oblivious.

------
40acres
My general feeling is that no one involved _really_ wants to know how the
sausage is made. Recent events have highlighted Saudi Arabia as a major
investor and that's caused more focus but deep down I don't think engineers,
executives, VCs and everyone involved is really committed to getting the most
transparent view of money flows. Because at the end of the day it means less
money overall.

I think regulation would have to come into play to enforce transparency, do
firms disclose their largest investors when filing an S-1? Even if they do, is
it possible to get down to the root of each dollar? Shell companies exist for
a reason.

~~~
dwaltrip
I'll throw my hat on the side of wanting to know how the sausage is made. I'm
sure I'm not the only one.

I believe we are fully capable of making a better sausage, and doing it in
better way. There may be many difficulties along the way, but that's the case
with everything that is worthwhile.

------
throwawayinside
Mark Zuckerberg and senior FB execs are limited partner in several funds, such
as Greylock’s latest raise. When you pitch these guys on your next Facebook-
killing idea, beware.

Personally, I think there’s money in the Valley that’s as dirty as the Saudis.

------
refurb
I hate it when, just because something becomes a big media story (I.e. Saudi
Arabia killing a journalist) everyone comes out of the woodwork “oh dear! How
can we not do business with these people?”

When in fact, it’s been going on for decades and nobody gave a shit... until
now, when giving a shit can firm up your virtue signaling.

~~~
zt
Except, Fred made the decision about his LPs over the last 15 years...

~~~
jamiequint
There's nothing in the article to suggest that this is due to virtue though.
It may be just that USV has the luxury of raising from only top tier LPs given
their relatively small fund size ($1bn across 6 funds).

~~~
zt
You’re right. It is true that top quality LPs tend to be universities,
foundations, and pension funds. And with a funds USV’s size it’s pretty easy
to only fill it with those good guys. I was surprised they had any family
offices.

Before the global growth fund, Sequoia claimed that all of their LPs were not-
for-profits (although excluding pensions funds is usually for transparency
reasons).

Having said that, I don’t think that every top quartile fund could make the
same claim even if USV, Sequioa, and Benchmark could...

------
ssijak
"“Bad actors” doesn’t simply mean money from rulers in the gulf who turn out
to be cold blooded killers." \- like we all did not know that before the
referenced event?

~~~
ed_balls
As other commenter pointed out, we don't have enough information to judge the
situation beyond reasonable doubt.

MBS was selling himself as a reformer and everybody deserves a benefit of a
doubt. Maybe it was of one the generals that decided to kill the journalist.
Why would MBS risk all the deals he has made and about to made? Oil doesn't
give him that much leverage right now and sanctions could topple the
government.

I'm not trying to make a case for or against him. It's impossible for an
average person to know what is going on exactly.

~~~
ssijak
Yes you can know. It is not like this was the first bad thing Saudis have done
under his command.. Not to mention the usual evils of such oil nations like
spending bilions on personal yachts, art, mansions, etc..., having slave-like
labor in your country, kidnapping, behedings for many non-crime (in civilised
world) things, etc. "reformer" thing is a joke and a mask.

~~~
BeetleB
>Yes you can know. It is not like this was the first bad thing Saudis have
done under his command.

Depends on how bad you're talking about.

Saudis are not known as people who kill in _other countries_. They actually
have a robust reputation of _kidnapping_ them and bringing them to KSA (and
even of the known kidnapped ones, I think all are still alive). Even within
the country, they're known more for making people disappear - temporarily. As
in family has no idea where the person is - but usually find out about a year
later - and the person is usually in prison - not dead.

Saudi Arabia is known for executing dissenters - but not in a shadowy manner.
They arrest, they bring serious charges, and then execute publicly. When they
do this often enough, there is not much rationale for them to assassinate
people in their own country in a hidden way.

I feel that just because we know of many brutish things the Saudis have done
in the past, we are extrapolating to things they likely do not do often. The
opposite of the halo effect, if you will. I've seen this often, where people
conflate the different Middle Eastern countries and attribute the problems in
one country to those in the other - without evidence (e.g. believing honor
killings are common in Saudi Arabia).

I don't believe this scenario is at all the norm amongst the Saudi government.
I could be wrong, and would be happy to be shown otherwise.

~~~
richardknop
> Saudis are not known as people who kill in other countries.

What about Yemen? What about so many extremist Islamist organisations having
roots in Saudi Arabia? The 9/11 highjackers, Muslim Brotherhood, funding and
military support Saudis give to "rebels" in Syria and Libya?

~~~
BeetleB
I'm really not sure what you're trying to say. The killing of the journalist
is nothing like all the other things you mentioned - and some are so broad
it's almost like saying "Saudi Arabia is a country with an intelligence arm."

It again is a case of the opposite Halo effect. Because an entity is evil in
many ways, are we just going to assume they're evil in any way we like?

~~~
richardknop
The parent post said Saudis are not known for killing in other countries. I
gave examples of Saudis either directly killing in other countries (Yemen
bombing which is very controversial) or funding / helping extremist groups
that kill in other countries.

~~~
BeetleB
>The parent post said Saudis are not known for killing in other countries.

It was said within the context of current events. Let me revise my statement:

The Saudis are not know for killing their own citizens abroad in non-conflict
zones.

The point was that if I take all the examples you listed, I could make an
almost identical list about the US - funding and supporting questionable
militants, direct and proxy wars, direct and proxy torture, funding extremists
(Islamic and otherwise). But it would be a fairly big leap to go from there to
something like "It should surprise no one that the US killed one of its own
citizens in their own embassy."

(Personally, all the things you/I listed about Saudi Arabia/USA are a lot
worse, in my opinion, then what happened in Turkey - but that's a separate
discussion).

------
buboard
> that has found its way into the startup/tech sector over the last decade

That seems disingenuous "we stumbled upon some mountains of money"

------
detcader
The intent is good but I feel this is a pretty futile angle. On an aggregate
scale if you don't take authoritarian money, your competitor will and then
they will have more money than you.

Luckily these days we have a system of checks and balances on authoritarian
entities throwing around huge amounts of money to get what they want; it's
called democratic government. These days you can help democracy in your own
country by working directly on campaign finance reform and voter's rights in
your local communities and greater state and federal campaigns. So the people
in your government aren't mostly millionaires. That helps. But I've seen
first-hand working on these issues that they come off as unsexy and grindy to
many.

------
chutiyapanti
Well, please do correct me if am wrong, but I have always had the notion that
most instances of extreme wealth throughout the history has always been built
on some kind of unethical (unethical is a very mild word in my opinion)
activity, or let's say some activity that was unfair to a large amount of
other people.

Consider the wealth generated by Bill Gates or Mark Zuckerberg. I can't take
away from them the fact that they worked hard when they saw a great
opportunity and made themselves insanely wealthy in doing so, but history will
may not judge their actions in a way that they are shown as messiahs.

So I find all this discussion just a bit hypocritical to be very honest.

Comments most welcome to change my, rather cynical, opinion.

------
venantius
As a soon-to-be-regulated financial institution in the UK, we have to be
careful who our investors are (and that includes getting into who the LPs our
in our investors' funds). It's very easy to take cash, but nobody wants to
have that hard conversation with the regulators 6-12 months down the line when
they ask you to fully look up your cap table and you realize a quarter of your
company is Russian oligarch money / from the middle east / from questionable
shell corporations / etc. As regulators around the world get more serious
about money laundering, this will become an increasingly important question
for venture-backed firms.

------
jacquesm
The seeds for this were planted long ago, here was an interesting exchange
between PG and Fred Wilson:

[https://news.ycombinator.com/item?id=3144224](https://news.ycombinator.com/item?id=3144224)

------
mc32
The question posed by the CEO in question, while valid, is futile --verging on
naive.

To really mean it, you'll refuse: money, investment and goods from China,
Russia, Gulf, many African countries, Latin America, etc. to such an extent so
as to bring the world economy to a virtual standstill. In addition to refusing
money also No Oil from Saudi, Venezuela, Russia, or Goods from China, Minerals
from Africa...

It's well meaning perhaps, but utterly disingenuous. It's mostly CYA.

~~~
maxwell
> The question posed by the CEO in question, while valid, is futile --verging
> on naive.

From the article:

> The CEO asked his VCs because questions were coming up internally and he
> wanted to answer honestly and accurately.

The question was imposed on the CEO by "naive" employees who will quit if the
company took money from the Saudis.

~~~
samstave
When I worked for Savi Technologies (RFID tracking for DoD Weapons/Supplies) -
it was bought by Lockheed Martin.

The employees were financially screwed over in the deal.

Several employees - who were muslim - quit on the spot, as they refused to
work for a company owned by Lockheed...

------
abalone
I love that Wilson gives examples of ethical LPs like pension funds and
educational endowments. Much of the criticism here is “well if you refuse to
take tainted money then the world economy will grind to a halt.” But think of
it... if the business community stopped taking tainted money, holding everyone
to a high standard, that would be a powerful force to curb human rights abuses
in the world. We do have ethical alternatives.

~~~
nafey
Its a zero sum game. You might reject the investment but others wont

~~~
abalone
No, South Africa ended apartheid when the international business community and
their governments mostly decided to boycott them (after public unrest). It
turned businesses that supported apartheid into pariahs.

~~~
ed_balls
I guess China wasn't an option?

------
forgingahead
Interesting that "educational endowments" made it onto the list of "ethical"
LPs -- one could argue the opposite, given that the size of most of these
endowments are directly due to the easy credit market of student loans, which
is now a $1.6 trillion monster.[0]

[0][https://money.cnn.com/2018/06/05/pf/college/student-loan-
sta...](https://money.cnn.com/2018/06/05/pf/college/student-loan-
stats/index.html)

------
newnewpdro
This ball was set in motion long ago when we decided it was appropriate to
trade our money with these nations for their oil.

If we ever wanted to see that money again, we were going to be doing business
with them in the future.

It's not as if we were ignorant of their dismal records on human rights and
lack of democracy.

We've been throwing money at oil-rich nations for a very long time, and now
they have leverage in terms of buying power. What do we have to offer in
return? They can buy our startups, our land, and our weapons.

------
perseusprime11
This does not answer anything. Fred needs to list out all the sources by name
and amount of money.

------
rl3
Why is it assumed that this morally undesirable money would take the form of
an LP directly signed on with one's VC? Can't this money instead invest itself
with an existing LP that's seemingly on the up and up?

For example, say Goldman is an LP on one of your VC's funds from which your
company receives money from. Setting aside how morally dubious they are on the
face of it, they're otherwise a reputable and respected American company.[0]

However, where's their money coming from? On a larger scale Goldman absolutely
does business with the Saudis and has forever. On a smaller scale, I'm sure
there's any number of vehicles or ways to otherwise structure the money going
into a particular investment such that it'd be difficult for the eventual
recipient (i.e. the startup) to know exactly where it's coming from, let alone
the VC.

[0] [https://www.foxbusiness.com/business-leaders/goldman-
quietly...](https://www.foxbusiness.com/business-leaders/goldman-quietly-
sending-reps-to-controversial-saudi-conference-despite-ceos-comments) /s

------
simonebrunozzi
I've been following Fred Wilson for a long time (like many others!), and I
have a feeling that he genuinely cares, despite not enjoying full freedom on
what to say and do, because that's the compromise you accept when you take
money from others.

This topic, "Who are my investors?", is incredibly important, potentially
complex, and hard to judge or evaluate fully. Let me try to share my thoughts.

Your job as a VC is to manage money on behalf of others; specifically, LPs
(Limited Partners: pension funds, endowments, private funds, family offices,
etc) give you money for 10 years, and want you to bet on very risky startups.
VCs represent to them a specific asset class, with its geography, risks and
rewards.

VCs are typically paid 2/20 (2% of the amount invested is given to them every
year to pay for salaries and expenses; 20% is the "carry", or how much they
take from profits). The "2" is given annually, the "20" is given at
liquidation events (typically acquisitions or IPOs).

Each VC firm has its own approach to which money to accept. A simplified view
is that if you can afford to say "no" (in other words, you are offered more
money than you want to "raise" in your next fund), you typically choose based
on your principles and morals, to an extent.

If you cannot afford to say "no", I'd bet most VCs would simply take the money
they can get. Few decide they'd rather not be a VC at all, and stick to their
principles.

Sometimes it's hard to know where the money comes from, but in most cases you
get a general idea. Pension funds, etc, are straightforward. Family offices,
well, they represent the interest of a specific family, which is tied to what
business or inheritance or political situation allowed that family to gain
money. If there's such a thing as the Gaddafi family office, you know the
money comes from having been the dictator of Libia for decades.

On the VC side, the simplest thing to do would be to fully disclose who your
LPs are, how much they invested, and what's the exact entity that invested.

Doing so would have two ripercussions: one, LPs might want to pull out, and
based on their contractual agreement, might be able to do so; and two, you
will probably have a hard time raising a new fund in the future, because a lot
of powerful people will try to send a message to others.

A better solution would be for some very prominent VCs to "come out" all
together (USV, A16Z, Benchmark, Sequoia, Kleiner Perkins, Index, GC, etc), so
that their collective power couldn't be easily challenged by these powerful
people.

However... Can you imagine tens of rich VCs being able to agree on something
potentially destructive for the entire sector? What if money "dries out" for
VC funds?

But let's not forget about startups, either. What about them?

As usual, you might be in the position to say "no" if you are offered more
money than you need. Lucky you. But most of us (I'm a startup founder myself)
are not in that position. We have been, are, and will be presented with
opportunities where we might be interested in the "reputation" of that
investor, but really don't care much about everything else.

How many of us have thought about which LPs invested in our VCs? I bet very
few.

Imagine if, as a startup founder, I go out and publicly say that I refused
money from a certain VC because I don't like their LPs. What kind of signal
would I send to other VCs? Probably: "Seems a principled guy, but who knows?
He's probably nuts, and not someone I would invest into. Dangerous.".

If that's transparency that we want, it should be VCs AND startups together.
And my Italian pessimism tells me that this is even less probable than the "VC
collective" initiative I was describing earlier.

I feel that most human beings, when facing a decision where the future is at
stake, are not really capable of sticking to their principles, especially if
doing so means dire consequences for their business, their money, and even the
other people/employees involved.

A sad truth.

Message to Fred: this is an opportunity for you, and for other famous VCs, to
be a hero. You don't have to, but please think about it.

~~~
buboard
> However... Can you imagine tens of rich VCs being able to agree on something
> potentially destructive for the entire sector? What if money "dries out" for
> VC funds?

It's very hard to believe that SV has to rely on "dirty" money to survive.
Those tech VCs appear to be a politically-homogeneous group, which lives and
works in a specific city. It sounds like something that is very much doable,
tbh. And if SV cannot vet the money they rely on, how do they have the
audacity to speak out in unison on situations like Trump or Theranos.

------
jypepin
I've never been in the game, so it's hard for me to judge, and too easy to say
"yeah! Always do the right/perfect thing". I still appreciate this kind of
comments, especially is they help _some_ people, _sometimes_ make a better
decision.

But I think it's not always as straight forward as what the article is making
it sound.

A few following questions \- Pension funds? How proud should they be about
managing their money? I'm sure pension funds do a lot of shady things, have
corruption, etc. even the ones for teachers, firemen etc.

\- What if your company is doing something very good for the world, but has
trouble finding financing. Does it balances out? Is it better to let something
great for the world die in the name of not taking dirty money? Or vice versa?

\- Where do you draw the line? Related to my first question. A gulf dictator
is bad, but corrupted US funds are better? How about taking money from Leman
Brothers post-crisis for example?

~~~
timavr
The whole premise of good/bad money is misleading.

There is legal/illegal, which is super clear.

Good/Bad is really up to individual and company to decide. But if someone took
Saudi money which US government takes every week during Bill Auction, then
they shouldn’t be judged worse then the government itself.

And the US uses this money to pay teachers and firefighters which finishes in
pension funds, which at this point is clean money, according to Fred.

------
barrkel
One of the biggest upsides of capitalism, where upside is defined as increased
economic activity, is that it hides morally dubious actions behind a simple
monetary exchange.

You get to buy goods, and you only need to think about the price at checkout,
whether virtual or physical. You don't need to think about how much human
suffering or environmental degradation you're funding, where each sliver of
profit goes, and what plans those people have for your money.

If you have to visit your butcher and look them in the eye to buy your meat,
with sawdust underfoot to soak up any fluids from the carcasses still hanging,
you might have a greater appreciation for the sacrifice of the animal. All
nicely packaged up in plastic, in a standard unit, coming from a centralized
slaughtering system, it's easier to forget that your clicks & coins fund
killing. And that's just stuff we've largely morally made our peace with, at
least until there's an equivalently tasty alternative.

A large part of government regulation is to add back more eyes into the system
when your own eyes can't see beyond the immediate transaction and the supply
chain leading to the transaction is too long for you to research, never mind
perceive at the point of sale. Labour laws, food standards, inspections and
regulations - far more oversight is made necessary due to capital's natural
obfuscation.

------
kvm
Side question: why do VCs never disclose who their LPs are?

~~~
twunde
I think some do if you ask. I know for a fact that the founders of the company
I work for would ask for intros to some of the LPs as part of the fundraising
process (we do Enterprise b2b sales so they were mostly looking for sales
prospects). Protip: if an investor (potential or otherwise) tells you to let
them know if there is something they can do for you, look through LinkedIn and
ask for intros to sales prospects

------
walrus01
On the flip side of "we don't want dirty money from ethically questionable non
democratic states investing in our fund":

Things start looking really dirty, really fast when you look at what major
institutional investors put money into things that are highly ethically
questionable. For example a major Canadian pension fund was recently
discovered to be investing in private prisons/immigration detention facilities
in the USA.

[https://www.theguardian.com/world/2018/oct/12/canada-
pension...](https://www.theguardian.com/world/2018/oct/12/canada-pension-fund-
invests-in-us-immigration-detention-firms)

------
tomkit
Honorable, but it could also be a slippery slope: how far back do you look? If
an LP, or investor in general, uses their personally earned money, but they
earned it through capital gains from tainted money - let’s say from stock in a
company with human rights issues - do you ask about that and if so do you take
their investment?

If you only look at one degree, ie are your direct investors’ money clean, you
could also be targeted for laziness in the “supply chain” of your investors’
money. This is similar to problems with blood diamonds, organic foods,
unethical coffee etc.

What's needed is a framework and policy in the community for what's acceptable
due diligence.

~~~
cowpig
Slippery Slopes are a slippery slope.

If you reason about everything in extremes, how can any solution ever be
acceptable? The worst case for all real-world solutions are always bad.

~~~
tomkit
You can't. What's needed is a framework and agreed-upon policy of what is
acceptable due diligence in the community when taking investment money.
Varying degrees of "organicness" for startups - like what you see in the meat
section at Whole Foods.

------
diminish
>> Who are our investors and can we be proud of them? And do we want to work
for them?

> Sadly, the answer for many will be no and it will not be easy to unwind
> those relationships.

So fond structures are hard to reveal.

------
nodesocket
> They include large pension funds for public employees like teachers,
> firemen, police, and the like.

How is investing in internet startups part of teachers, fireman, and police
pension? It's just about the most risky and difficult investment to get right.
Most startup investors aren't successful and if they are it's because 50
portfolio companies fail and 1 or 2 exit for a billion.

I don't understand how the retirements of middle class Americans can be bet
(litterally craps style on green) on startups.

------
noddy1
This is an excellent opportunity for social pressures so curb behaviour. MBS
has 45 billion dollars in the vision fund, and if it doesn't work out well, he
will look stupid. If the vision fund loses ability to invest in the best
companies, this could potentially ruin their performance. Masayoshi Son and
MBS need to be sent a message that their ability to invest will be limited if
Saudi Arabia behaves in a shitty way.

------
timavr
Not naming LPs and stating that they are awesome is just using your influence
to whitelist market participants and is very self-serving.

Large pension funds have a lot of problems too, like
embezzlement/corruption/failing fiduciary duties.

So it is pretty binary, either you are transparent or you are not. And if you
are not, claiming that you are better then others, is just marketing.

It is pretty low to use someone tragic death to score some cheap deal flow
points.

------
tw1010
Founders should take into account the dirtiness of the investment commensurate
with how much leverage they have. But we shouldn't ostracise or penalize small
companies who can't afford to take into account where the money comes from. No
need to enforce an equally high ethical threshold on the whole startup
community.

------
leowoo91
Even giants have contracts among them, money is just money unless you give
control.

------
readhn
Dirty money (drugs, corrupt politicians, gangsters) is THE elephant in the
Western Room. Everyone keeps ignoring it as long as the money keeps flowing
into real estate, companies/start ups.

------
sanj
I applaud Fred’s efforts here. And I hope other firms follow his lead.

------
thoughtstheseus
An added issue here is that most money flowing from SWFs have a significantly
lower return target(cheaper money- in my experience), as compared to nearly
every domestic funding source.

------
protomyth
_“Bad actors” doesn’t simply mean money from rulers in the gulf who turn out
to be cold blooded killers._

If your knowledge of the House of Saud's crimes start with the death of one
reporter, then you really need to do some research. Just look at what
constitutes a capital crime in Saudi Arabia. Look at your colleagues and ask
how many of them would be jailed or executed?

If you were fine taking money from them a year ago, then I really question
what makes one more soul lost special for you? Realpolitik means nothing of
substance will be done because we have other enemies and $400/barrel oil would
not go over well just as I'm sure this incident too will fade before the next
storm.

------
mychael
The context for this post is that money is money and money is currently cheap.
VCs work hard to create the perception that their money is more valuable than
investor's money.

------
rajacombinator
If you’re willing to take this guy’s money after reading Hatching Twitter, I
doubt there’s anything that could convince you otherwise.

~~~
person_of_color
tl;dr?

------
enter_life
I have a feeling that this is going to be yet another wave that passes in a
few days without any long-term consequences :(

------
perpetualcrayon
One of the problems here is: are the venture capitalists, who are willing to
expose who their investors are, able to take on most of the businesses that
will one day be successful?

There will always be entrepreneurs unwilling to give up on their dreams just
because ethical investors aren't willing to invest in them.

Maybe this is another good argument for universal basic income. Those who want
to spend their lives as entrepreneurs never have to take money from bad actors
and will be able to grow their businesses organically based on the natural
success and will be able to reap all the rewards on their own terms.

------
jwr
I really like this. If we all started factoring moral issues into our
decisions, the world would start becoming a better place.

Unfortunately, people love to justify doing nothing. Approaches like
whataboutism, relativism, and convincing yourself that your decision doesn't
matter because X/Y/Z are rampant — as witnessed by comments under this post.

------
vasilipupkin
Wait till SV learns that DST is Putin’s money. Once you start down this rabbit
hole, where do you stop?

------
bilal4hmed
oh nice, I hope they dont take any Chinese money, any Russian money, any
African money, US money, European money, I hope they dont borrow money from
banks, from foreign banks.

------
flyinglizard
This moral high ground is a very tricky thing. We need to accept different
parts of the world operate differently and not to deny them from participating
in technology. You could find something uneasy about anyone and anywhere.
China, Israel, Gulf states, and of course USA itself.

------
someguydave
It’s racist to assume all Suadi money is corrupt

~~~
stephengillie
No, it's nationalist. Racism would be assuming all Arabic money is corrupt.

------
rdlecler1
I’m going to be cynical here. AVC is an established fund with a great track
record and can take a moral high road and ask others to do the same. But what
if they were 18 months into raising their first fund and still pushing for the
first close. Would they be so eager to take that high road?

~~~
jacobsheehy
> Would they be so eager to take that high road?

In my opinion it has been made clear that doing business honestly and with
morals will win in the long run. So yes they would have taken "that high road"
because, if you want to be cynical, that is the way to make the most money.

The only thing cynical about your comment is the idea that acting in bad faith
is more profitable than acting in good faith. I think that our society,
especially the financial part of it, knows that now.

~~~
qaq
Do you have any good examples ? I'd love to believe "doing business honestly
and with morals will win in the long run" I am not really seeing it play out
in the real world especially when big biz. is concerned.

------
wtvanhest
I find the way he describes "gulf interests" to be almost racist. Is money
from Kuwait the same as money from Saudi Arabia? Obviously not.

[Corrected syria to saudi Arabia]

~~~
wp381640
It is shorthand for UAE, Bahrain, Qatar, Kuwait and Saudi - countries that are
just a few of the handful remaining autocratic theocracies in the world with
terrible human rights records

~~~
wtvanhest
Those countries are wildly different in terms of human rights violations.

