
Pushback against Saudi funding endangers Silicon Valley valuations - AndrewBissell
https://www.epsilontheory.com/funding-secured/
======
netcan
Whether this murder-scandal blows over or not, it makes the case for a random
"one-damned-thing-after-another" version of history.

One day, the real-politic thing works. All money is green. A feudal monarchy
makes a fine ally. The next it isn't, it doesn't. The next day, one little
murder in the journalist persecution capital of the world threatens to blow up
the entire alliance, military, political & economic.

Saudi Arabia's had an erm.. "eventful" power transition (MBS') but it isn't
_fundamentally_ different. It's a monarchy in the real, undiluted sense. Laws
and courts are mostly religious. There are no rights, on paper or in practice.
No freedom of speech, affiliation, religion or concious. No pretense of these
either. Religion & Monarchy share power with eachother. Neither are bound by
rule of law or by the people in any way.

Are these barriers to alliance, trade or investment? Whatever your answer, I
don't see what Khashoggi's murder changes. Yet, this murder (or some other
catalyst event, if this blows over) _can_ change everything.

It really does seem like random chance.

~~~
rdtsc
> A feudal monarchy makes a fine ally. The next it isn't, it doesn't. The next
> day, one little murder in the journalist persecution capital of the world
> threatens to blow up the entire alliance, military, political & economic.

Just like selective law enforcement is a tool used to oppress and exert power
so is selective outrage used to drive public opinion.

There is something odd about this case. It is a terrible crime of course and
should be condemned. But it seems we went from the head of Interpol
disappearing in China and everyone not caring much, to let's start a war with
SA over a journalist most people haven't heard of before. Something is unusual
and I feel there is more to the story and more to the motivation to push the
story at this point in time.

~~~
naeem
Is Russian bot-net spreading and inciting outrage through millions of fake
accounts in order to destabilize SA in the Middle East roaming too far into
tin-foil-hat theory?

~~~
Bartweiss
Not tinfoil hat stuff, but not a particularly good strategic move for Russia.

SA-Russian relations have been strained by Syria, but they've actually
improved substantially since mid/late 2016. MBS was in Moscow talking military
issues in May 2016. And in September SA signed an agreement with Russia to
limit oil production, widely seen as a major win for SA and OPEC more broadly.
At the time, MBS explicitly told the _Washington Post_ (of all papers) that he
intended to coordinate with Russia to encourage them to move their regional
focus from Tehran to Riyadh.

In 2017, they followed that up with a massive three-part contract selling
Russian weapons to SA, committing Saudi money to energy investments in Russia,
and bringing Russian petrochemical plants into SA. Later in 2017, the Saudis
started pressuring the US to drop sanctions on Russia over Ukraine.

Saudi/Russian relations aren't perfect, but they've improved substantially.
And more importantly, the improvement is heavily tied to MBS personally and
his new direction for the country.

Meanwhile, Turkey is heavily pushing this story via the Istanbul consulate
angle, in what's generally described as an attempt to destabilize a regional
competitor and personally undermine MBS and his new direction. (Turkey
likewise has strained-but-improving relations with Russia thanks to the work
of its new strongman leader.) Depending on who you listen to, some of the
extended Saud family is _also_ advocating for this to become a crisis in order
to oust MBS and return SA to its older positions.

So I can't really see what Russia gains from striking out at SA now,
especially via a line that does less to weaken the country and more to weaken
a specific leader who's been more friendly to Russia than his predecessors.
This looks like a regional spat between two states Russia has been courting,
plus an internal fight on which Russia sides heavily with MBS.

------
chriselles
I had a few lectures with Professor Ilya Strebulaev from Stanford GSB back in
2016.

[https://www.gsb.stanford.edu/faculty-
research/faculty/ilya-s...](https://www.gsb.stanford.edu/faculty-
research/faculty/ilya-strebulaev)

He wrote a few articles.

1)How much VC drives the US economy(October,2015):
[https://www.gsb.stanford.edu/insights/how-much-does-
venture-...](https://www.gsb.stanford.edu/insights/how-much-does-venture-
capital-drive-us-economy)

2)Unicorns are overvalued(May,2017):
[https://www.gsb.stanford.edu/insights/silicon-valleys-
unicor...](https://www.gsb.stanford.edu/insights/silicon-valleys-unicorns-are-
overvalued)

In class in 2016 Ilya Strebulaev(who has arguably the best VC dataset in the
world) stated that 92% of VCs surveyed believed unicorns were overalued and a
correction was likely.

He also told our class a very memorable and self effacing story of how he
placed a bet with a colleague for a bottle of nice wine on the future date of
bankruptcy of GM.

In order to win the bet, the GM bankruptcy had to occur prior to X date.

GM’s bankruptcy was date X+1, thus losing the bet.

A lesson on timing. Even when you’re “right”, you can be wrong.

Perhaps a Saudi assassination “string” pulled too hard for too long could see
a cascading effect.

It’s inevitable we will see a correction in valuations.

But I also think it’s pointless to fear it.

That time is better spent building a sustainable business on a fair valuation
with more challenging access to capital.

YC’s suggestion for YC Batch(as well as all other) startups to be careful with
not accepting money and scaling a startup at excessive valuation sounds like a
solid one in this climate and the likely future.

~~~
hiram112
> GM’s bankruptcy was date X+1, thus losing the bet. A lesson on timing. Even
> when you’re “right”, you can be wrong.

Anyone who has tried their luck at day-trading has learned their lesson, i.e.
"The Market Can Remain Irrational Longer Than You Can Remain Solvent".

~~~
nradov
Plus once politics becomes involved, economic rationality goes right out the
window. There's no way to reliably forecast that.

------
raverbashing
"endangers"

So you mean just founded startups with no revenue won't be valued at millions
of dollars out of thin air then?

~~~
anonymous5133
It will mean ALL companies will be valued at less because there will be less
money being thrown at these companies. Saudi money is all over silicon valley
and early stage tech companies.

~~~
fgheorghe
So in the name of higher valuations we should accept criminal money?
Interesting thought.

~~~
x220
>criminal money

First of all, it's Silicon Valley. Check your ethics at the door.

Secondly, it's not illegal if it's not against the laws of a country (and in
this case, if the crown prince of a monarchy orders something, that's as close
to legal as it gets). You could say that it's immoral, but that's a different
statement, and you shouldn't conflate "illegal" with "immoral".

~~~
hobs
>First of all, it's Silicon Valley. Check your ethics at the door.

Flip or not, this is gross.

Calling a murder not a crime because a king decreed it is mind boggling. You
shouldnt conflate "illegal" with "criminal".

~~~
x220
If a king decrees it inside an absolute monarchy, it's not a crime. That's
literally how absolute monarchies work--the monarch has absolute and
unaccountable power.

Edit: if you disagree, please tell me why.

~~~
oytis
I disagree because positivism is not the smartest legal theory in my view. We
all know Godwin's law, but nazi crimes is probably the best example of how
something done by people with absolute power was considered and persecuted as
a crime.

------
danboarder
That headline makes it sound like a bad thing... yet many are concerned that
valuations are inflated. So perhaps this is a blessing in disguise?

~~~
AndrewBissell
To the extent that rich valuations are propped up by Saudi money, I think it's
a great thing for them to come back down to earth.

~~~
AndrewBissell
And speaking more broadly, I don't subscribe to the "higher valuations and
asset prices == better" ideology, so the headline didn't read in a negative
way to me. :-)

~~~
repsilat
Raising at a high valuation means more money for less dilution. Sounds good
for the founders and maybe "good for America" too to me.

~~~
AndrewBissell
That depends on who's ultimately left holding the bag on the inflated
valuation, and how much it attracts additional capital to potentially be
wasted in a marginal business.

------
jarym
Everybody’s known this regime is dirty for decades now.

Worst case is they replace MBS because he’s so tainted and draw a line under
this incident.

They can go back to dropping American and European munitions on school kids in
Yemen and the world will go back to turning a blind eye.

~~~
NeedMoreTea
Difference is the world, and particularly the USA, doesn't need Saudi oil to
quite the same extent as previously.

Perhaps now they don't need to be the West's principle ally in the region, or
given a free pass on every human rights abuse.

~~~
sschueller
It's not about the oil itself (US has plenty and can import from Canada) but
the control of the price and that oil is traded in USD.

The US has started multiple wars to prevent the oil price from being traded in
another currency.

~~~
pjc50
I'm not sure this makes any sense - there's no benefit to using USD for the
pricing if the contract is settled outside the US, and there are RMB-
denominated oil futures available. Ironically as a result of sanctions on
Iran, which _isn 't allowed_ to trade oil through any institution connected to
the US. [https://www.cnbc.com/2018/05/16/iran-oil-trumps-sanctions-
cr...](https://www.cnbc.com/2018/05/16/iran-oil-trumps-sanctions-create-crude-
trading-boom-in-china.html)

~~~
sonnyblarney
There is a seignorage advantage, in that people need access to USD. It's
definitely a big advantage, and it provides a nice base of support for USD.

But the US is definitely not starting wars over it.

------
sschueller
Other than what we read in the news, is the information of who invested in
what startup public information that can be found somewhere or can these
investors be kept private?

I think it would be neat to have a list and map of for example the top 50 SV
startups and where their money is coming from.

~~~
rcMgD2BwE72F
It would be great to use Wikidata for that. It's already possible to add a
list of investors
([https://www.wikidata.org/wiki/Property:P1951](https://www.wikidata.org/wiki/Property:P1951))
to companies (like Uber:
[https://www.wikidata.org/wiki/Q780442](https://www.wikidata.org/wiki/Q780442)).
And then map all these startups using
[https://query.wikidata.org](https://query.wikidata.org) (it would be pretty
easy to highlight the % of shares by countries / regimes, etc and point out
the financial vehicles / intermediaries used for that).

------
bgribble
There are "bad people" throughout the startup investment ecosystem, including
but not limited to:

* just plain jerks

* serial harassers, misogynists and the like

* supporters of various evil/hateful politics

* white-collar criminal/fraudster types

* straight-up mob, american, russian, or other

* nation-state actors with very dirty hands like KSA

Making ethical decisions about who you are willing to work for is a routine
part of working in startup world... and you're never done, because surprise!
You may have an even harder decision to make after that Series B closes with
new investors!

------
pxtail
LOL, this is so naive point of view. When that much money is involved nothing
will change. There might be some ephemeral change, some PR campaign, sad nods,
sad words, some companies might be rebranded etc. But unfortunately at the
core nothing will change, this is sad, harsh and grim reality but when that
much is at stake life of one man is not enough to tip the scales.

------
ohiovr
What makes this journalists blood worth more than all those murdered in Yemen
or the victims of SA's overt or covert terrorism?

~~~
Illniyar
Location and audacity. It was done in another sovereign country, one with
string US and European ties, and which isn't currently in civil unrest.

Also, they practically took him into their embassy, killed him and then lied
about it in the most haphazard way.

That represents a massive break from international status quo. Unfortunately
getting involved in third-world civil wars and financing terrorist attacks is
quite within the status quo.

~~~
madza
Lest we forget.

[https://en.m.wikipedia.org/wiki/Extraordinary_rendition](https://en.m.wikipedia.org/wiki/Extraordinary_rendition)

This is not a massive break from the international status quo by a any means.
The USA and all other nations have operated in a similar manner for a long
time with equally gruesome outcomes.

If I recall the head of Interpol “disappeared” not long ago, and that little
kerfuffle died away right quick.

Perhaps the reasons are more mundane.

1\. The Saudis got caught out by the Turks with the evidence. Which has been
used effectively. The Turks have a lot to gain by seeing the alliance between
SA and the US weakened. 2\. The senior leadership of SA can be more directly
tied to this incident, as opposed to more common case where plausible
deniability exists. Rookie mistake. 3\. There exists internal opposition to
the leadership in the US and SA that find it convenient to escalate the
profile of this issue for their own purposes.

This will blow over and business as usual will resume shortly.

~~~
JabavuAdams
The whole point of extraordinary rendition is to remove the target to another
country to give some legal cover and plausible (hah) deniability to the
subsequent interrogation / torture / what have you.

Murdering someone in your embassy (although technically your own sovereign
territory) is a new low.

------
writepub
This article is admission from there VC community that valuations are
basically price gouged as a function of available capital - with little, if
any, scientific basis the them.

This was always evident from how badly unicorns have fared in the open market
post IPO - but this is a direct admission of price gouging

------
philipodonnell
This can only be good, right? Less money means earlier IPOs and less dilution
of founders and early employees?

I don't read many "More money needed to fund startups in Silicon Valley"
headlines recently...

------
anonymous5133
First big victim appears to be virgin hyperloop one. SA pulled out of a
planned $1 billion investment in the company.

There was also a planned $200 billion solar project that has also been
scrapped.

~~~
negamax
Richard Branson said no to Saudi money after murder incident.

~~~
swebs
He should have been saying this since 9/11, but better late than never, I
guess.

~~~
true_religion
Give the guy a break, the US government itself cleared Saudi Arabia of
culpability in 9/11 and reafirmed they were a regional ally.

------
qaq
With Softbank playing such a big role I wonder if there is some component of
incumbents playing this up to try to curb the influence of Softbank ?
(Iremember Sequoia raising 8 bil. fund specifically because they needed a more
equal footing with Softbank).

~~~
compcoffee
> _With Softbank playing such a big role I wonder if there is some component
> of incumbents playing this up to try to curb the influence of Softbank ?_

Playing what up? The fact that Silicon Valley and their new "hey, just stay
private!" mentality was heavily funded by blood/oil money?

Is this actually news to people that Saudi Arabia has done terrible things? Or
does it only matter now that there's been a scandal?

Well, thank God for the scandal, then.

~~~
qaq
The cynical part of me says it matters now because there are special interests
that for one reason or another have an interest in reducing SA influence or
want some concession from SA and in reality it has 0 to do with SA being a
brutal absolute monarchy which it has being for a long time.

~~~
lmm
Be that as it may, it's good if being a brutal absolute monarchy is a
liability you can be attacked for, even if those attacks only happen when
there's someone on the other side.

------
JustSomeNobody
It's going to be interesting to see where this goes. Techies have been up in
arms about Google and China, Microsoft and the military. What about the Saudis
and murder?

------
oytis
I'm glad dear industry has noticed that Saudi Arabia is an authoritarian
country with no respect to rule of law and human rights. I just fear that this
awareness might not last for long: big money tend to cause dementia in tech.

By the way, once we're all here: China is an authoritarian country with no
respect to human right as well, keep that in mind next time you read (or God
forbid write) another fascinated article about Greater Bay etc.

~~~
mtw
Don't be quick on generalization.

China is not a democracy but they don't kidnap and murder people in foreign
soil, and they don't bomb other countries. They don't also fund and promote
extreme religion exportation, like Saudi Arabia does. Saudi is a net exporter
of terrorism. If China really did all this, you would hear about thousands of
Falun Gong followers kidnapped or murdered in USA or Canada. Or you would
already have Taiwan and other countries like Vietnam invaded. Taiwan is a
bigger pain point to China than Yemen is to Saudi Arabia.

~~~
nindalf
> China is not a democracy but they don't kidnap

They do kidnap people. They've kidnapped people from Hong Kong, Vietnam,
Myanmar, Australia and Canada. Some of these people confess to a series of
crimes and in exchange pay fines or are sentenced to long prison sentences, or
they are simply never heard from again.

They kidnapped a Swedish citizen from Thailand for having the audacity to
publish a book critical of Xi Jinping.

Source - [https://foreignpolicy.com/2018/03/29/the-disappeared-
china-r...](https://foreignpolicy.com/2018/03/29/the-disappeared-china-
renditions-kidnapping/)

------
killjoywashere
Where's the pushback against Russian funding?

~~~
adventured
Russia is no longer the large funding source they were during the days in
which a young Facebook was hoovering up their money. There's an actor ~50
times larger than Russia - and even worse on human rights - when it comes to
venture capital.

Where's the push-back against Chinese funding? That money is sloshing all over
the valley right now, nobody cares in the least. There are no protests, no
outrage, no fake performances by politicians and business persons. They've
routinely disappeared journalists, human rights workers, etc. over the last
decade.

Most of the world is absolutely terrified to push back against China on
anything at any time. There isn't a single major player in Silicon Valley with
the nerve to stand up to China these days.

Saudi Arabia is a convenient target (and not in any manner undeserving of the
negative response they're getting), that's all that is going on. The
aggressively selective outrage, magically showing up now, is how you know it's
shooting at something larger.

~~~
Cthulhu_
Morals are flexible when they're offering you $100 million or more. Mine would
be. And it's not directly doing something immoral, just turning a blind eye to
an investor's government's actions - like one would when working with a US
based investor.

~~~
jjeaff
I don't think it's quite equivalent to compare a US investor to a Chinese
investor. The Chinese government has proven to be quite involved in the
actions of its citizens and has been making moves to nationalize their tech
sector (They also have a long history of nationalizing other sectors).

While the US has meddled from time to time in private business, the rights of
citizens to avoid such action are pretty well laid out. Can you imagine a
Chinese company taking their government to court to refuse revealing customer
data to the government like apple and other us companies have?

So I think you can easily ignore the actions of the US government while taking
investor money. But taking Chinese money is essentially like taking money
directly from the Chinese government.

------
CaptainZapp
Allow me a nitpick:

SA generally refers to South Africa. It's either KSA, or Saudi Arabia.

~~~
thrillgore
ZA is the ISO Code for South Africa. SA is the ISO code for Saudi Arabia.

~~~
CaptainZapp
Thanks.

My mistake. I leave it there, thoguh, to not break the flow.

------
sergefaguet
this does not change in any way my willingness to take money from softbank.
they are an investor in my current company and i will be delighted to take
them in the next.

i am really not sure why anyone would consider the interests of their
company's fundraising strategy to be less important than that a certain
investor has a large LP that is a country that had someone killed.

this will blow over.

~~~
dd36
Some companies can choose their investors.

~~~
sergefaguet
and they will still choose them. on material things like terms and governance,
as smart companies do. not on irrelevant things like this Khashoggi story.

------
hiram112
I'd feel bad if this were any other crew about to be gutted.

But with the Silicon Valley crowd - well now I know the true definition of
scha·den·freu·de!

~~~
compcoffee
> _But with the Silicon Valley crowd_

Yep, the SV crowd thinks they're the enlightened ones, saving the planet.
Between billion dollar valuations based on blood-money, the massive financial
inequality and the state surveillance apparatus they built to put us in, I
doubt the proletariat think too fondly of the place.

------
gsibble
So in other words, tens of thousands of Silicon Valley tech employees at
companies that took investment or could be bought out by a company that took
investment from a fund that took investment from anything related to Saudi
money stand to lose a trenemdous amount because the Saudis murdered someone?
Yeah, sounds like those employees should definitely pay the price for
something they had nothing to do with.

~~~
AndrewBissell
Can it really be called "paying the price" or "taking a loss" if tech
employees are losing ephemeral wealth which was dependent for its existence on
the continued good behavior of a feudal autocrat halfway around the world?
Just because a company reaches a certain valuation thanks to an infusion of
dumb Saudi money doesn't entitle it or its employees to that valuation in
perpetuity. Perhaps _that_ valuation is the mistake, now in the process of
being corrected.

~~~
1000units
I work in tech, and threads like these make me eager for a crash.

~~~
gsibble
So you’re self destructive?

~~~
1000units
You're a benefit-at-all-costs kind of guy?

~~~
metildaa
I think this is just an early stage of the "fuck you, got mine" mindset, where
OP can't quite plug his ears yet...

