- 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.
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.
As far as which value system is better, I think the nature of developing a sophisticated value system is to be able to make judgments about values and come to these conclusions based on research, careful consideration, and testing against issues. So if you're spending time considering your values, you're inherently going to be judging those of others in the process, and altering your values until you get to the point where you feel yours are better. But of course, its also incumbent on you to remain open-minded to the idea you are wrong and to be honest in the face of new information.
I agree with you on most points but would like to add another aspect to it. While I agree that we have somewhat of a personal responsibility to be moral and do the right thing, the pressures in a market do make it very hard to follow through on our values. If you are refusing someone else is taking the job. Thus, it is also a collective problem and not only an individual. In a perfect world, we would have an effecatious rule system which could help us enforce generally shared values more effectively than what we have right now.
I think you allude to this point when you write about “software engineering and finance” as important fields. Ideally, we would be able to create incentives in these whole professions/markets that are aligned with societies interests, however, I think that requires a shift in perspective. Away from anonymous (unregulated) markets towards treating these fields more like coherent self-governed entities with desired values and goals which are incentivized by the rules that are set in place. For that to work we would need a very flexible and efficient regulatory system though that is more akin to science than the politics we have right now. People who come up with new ideas would need to be able to propose and self-regulate new fields that may be able to improve societies well-being. Let people set targets for themselves and demonstrate their value to society as part of doing business. That’s how science has worked so well for the last couple of centuries.
Hope those rough thoughts make sense to someone :)
I'm not sure what system or frameworks we need in politics to better align these, perhaps your ideas are a rough sketch for them.
I'd like to push back on one point you mentioned: that if an individual refuses to take a job, someone will take their place.
We know in startups and in any organization in general that talent is a key ingredient in success, we talk about it all the time and in many high leverage positions we're looking to get the best of the best, because we know how much of a multiplier effect they have on product, culture, etc. Yet this idea persists that to not participate with your talent means someone else - presumably with equal talent - will take the role instead. This contradicts what we know about hiring for positions that are very talent-driven.
An alternative take is that if talented people refuse to take a position, the available people remaining will be less talented and less able to execute the (negative to society) plan. If the firm hiring them has high standards, then the position may remain unfilled for a long time (another net positive for society). Market forces may increase the salary of that job, but that doesn't mean it will be filled by really talented folks, because if you know talented folks, they typically have their pick of what type of work they want to do and do not pursue solely the highest paying jobs.
I agree with your last point, there is definetly a marginal value that is “lost” if highly talented people refuse a job. However, a general question is how large this effect is going to be. If we are talking about an “evil” company it might be pretty high because not too many people are interested in working there. If we talk about a company like Apple it’s probably pretty low... So, I agree that there is an individual lever that people can use. People leaving/deinstalling fb in masses is a great example of that.
Still, I think the collective component shouldn’t be neglected as this is the only thing which can solve this problem for good (i.e., everything else will be too slow and inefficient)
Even if your company does try to stick with a moral compass, because of how capitalism works, every other company will swallow you.
I'm not a finance expert, so I always had this question in my mind. Is there any way to avoid that?
I can't think of a way to do that without changing the fundamental purpose of a company.
Historically there are many examples of companies that have considered their shareholders, employees, and communities as part of their duties. A famous example being Ford, but many companies consider a broader purpose beyond profits, and say so in their annual filings as to what types of investors they want and what to expect.
And to get technical, companies have a duty to their shareholders, not profits, because shareholders have the ability to fire the leadership of the company. It so happens that most shareholders primarily want profits, but this isn't universal.
You can also see examples of having legal responsibility be beyond just shareholders, such as in the bylaws added by B-corps which allow carve-outs for different bottom lines. There's a lot going on in the space.
I also wouldn't assume that if you fail to solely pursue profits, that you will therefore be signing your death sentence. That's both an assumption of efficient markets (they aren't), and that a given industry is always going to reward a business that seeks the most profit. Profit does help companies acquire or beat others, but the pursuit of profit is something that customers and shareholders may not always reward in a given industry.
The rule is still profits first.
I really wish our entire society would change to care about humans and not money but I can't see it ever happening.
People still prefer buying cheap things from China labour because it's convenient. The individuals don't care (or don't care enough) and the companies are a reflection of that. As you said, shareholders are the ones in control of the company but the consumers will determine their decisions.
It doesn't matter that children are sewing your shoe, as long as you buy them for a cheap price. What would happen if a company in that area were to double their price because they're changing suppliers to more humane companies? What would happen to a CEO that presents a graph showing the costs going up and profits going down?
The shareholders will surely fire the CEO and the consumers will be outraged with the price increase and will most likely be switching to a competitor.
My point is that it doesn't matter if a few exceptions do the right thing. The rule is still the same and it will never change. That's capitalism's entire foundation.
Second of all, even thinking of the profit motive, people want to do work they feel good about. If you must make a profit argument, it's important for companies to draw lines about what they will and won't do and stick to them, to earn and keep the trust of their stakeholders (especially employees).
Even more so for publicly traded companies. They will do whatever it takes to make profits. Just look at Google, Microsoft and Apple. They all started out with good intentions, but at some point they all turned into what they are today.
I really want someone smarter than me to say: yeah we just have to do X. But I'm afraid the end-game of capitalism was not really something anyone predicted (or cared?).
Every single industry out there exploits human beings for profits first, and if it makes good PR, sometimes they help people for a change.
The food industry creating a culture of unhealthy people, now even cashing in the "healthy" fad. The tech industry viciously exploiting privacy for advertising. The media also moved by the number of clicks on headlines. The health industry profiting off the sick. The list goes on.
While people run all of this, I can bet that the majority of them will make the choice that benefits "the company" over the one that benefits human beings even if only to get that promotion. Very few will sacrifice their careers to refuse doing something shady. Even at the micro scale, if you don't do it, the next guy will.
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.
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.
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.
There is no excuse for any of us to behave like the moral equivalent of a paperclip maximizer.
Absolutes are generally horrific but without them it's impossible to codify any value system. With them you'll be driven to the edge of the line and asked how sure you are about it.
"Abortion is always wrong"
"what if doctors say the foetus has a 0% chance of being born alive and the mother has a 100% chance of dying without"
"Well, ok, maybe in that case"
"Ok, so the foetus is now 1% to survive and live for at most a year, and the mother 99% probability of death"
"Murder, abortion always wrong"
But as history is proof, there is nothing intrinsic about democracy. Democratic revolutions were hardly organic in much of the world. Most countries have known nothing but monarchy and/or dictatorships. To impose democracy on them would perhaps be as cruel as letting them be ruled by dictators.
I know this isn't a popular opinion, but I'd say that people should be allowed to manage their own affairs. If a country is better off with a dictator, then so be it.
> If a country is better off with a dictator, then so be it.
Those do not mesh. Democracy _is_ allowing people to manage their own affairs.
But when external forces try to impose democracy on a society not ready for it, typically all you get is a civil war netween local mini-dictators. E.g. Lybia, Egypt, Afghanistan, Iraq, countless African nations, etc.
The occupiers don't want to hear that democracy is sustained by values and habits taught by parents to children who are still young enough to listen. Once the boys are old enough to hold a gun, that kind of learning is pretty much over.
This is the post-colonial story across the world. The people who came into power after the colonizers left were direct beneficiaries of the colonial rule
Gaddafi's rise to power was a bloodless Coup , from the little understanding that I have, he was beloved by many Libyans, you should question where these "militias" that took him down came from, his dying words were 'What did I do to you?' , and you should question for what reasons should he be considered "tyrannical". Should you look at Libya today, it is ran by territorial gangs, which is antithetical to the idea that they rid themselves of a great evil. Finally I haven't fully educated myself on this, but it's very interesting, just reading the "Background" part of the Libyan Civil War wiki article makes you wonder: https://en.wikipedia.org/wiki/Libyan_Civil_War_(2011)#Backgr...
A few summaries:
"Victims and witnesses state in the documentary that Gadhafi would choose his targets on visits to schools or colleges, patting on the head those who caught his eye.
His security officials would then take the victim to one of several specially designed suites of rooms, where they would be abused and raped by the dictator. In one such suite at Tripoli University, there is a fully-equipped gynecological examination room, where victims were tested for sexually transmitted diseases before being sexually abused.
"Some were only 14," recalled one teacher at a Tripoli school. "They would simply take the girl they wanted. They had no conscience, no morals, not an iota of mercy, even though she was a mere child."
Some of the girls were held for years, while others were dumped with appalling injuries."
"The women would first be raped by the dictator then passed on, like used objects, to one of his sons and eventually to high-ranking officials for more abuse," said Benghazi-based psychologist Seham Sergewa, who interviewed victims for the International Criminal Court.
"Gaddafi had a harem of women kept in the basement of his residence, in little rooms or apartments. These women, obligated to appear before him in their underwear, could be called at any time of day or night. They were raped, beaten, subjected to the worst kinds of sexual humiliation. For Gaddafi, rape was a weapon … a way of dominating others -- women, obviously, because it was easy, but also men, by possessing their wives and daughters."
"One document shows the commanding general of government forces instructing his units to starve Misrata's population during the four-month siege."
Having acknowledged that central point, we can't just say "dictators are bad". We can say "democracy is better", but there are instances where democracy doesn't work.
For a realpolitic example, great powers have a long history of quietly corrupting and overthrowing democracies where their interests conflict with our interests. It might be that a country has their democratically elected government toppled by the CIA/Russian version of the CIA/Chinese version of the CIA and then ends up as a dictatorship.
It is far too simplistic to then say "well, the dictator is at fault". Maybe the dictator isn't very nice, but there are political realities to attend to.
A very good source of info about a lot of the powers and incentives in something like this is the “rules for rules” youtube video from cgp grey https://youtu.be/rStL7niR7gs
I don't see the semi-functional United States outcompeting dictatorial slave labor economies. If your metric is how much value you can offer to huge multinational companies, it's plain that democratic societies are completely rejected and not even in the running.
'your investors' may very well demand completely inhuman behavior, because there's a cost to humanity, ethics and decency. If you insist on being decent and the flow of capital is completely frictionless it will all bypass you without a second thought. You will be actively choosing to not be the lowest-cost, highest-return option.
I guess I would just encourage people to look at where multinational companies tend to be created, tend to be headquartered, and tend to get most of their revenue.
A lot of Singaporeans might disagree there. Enlightened dictatorship can be really good however the probability of a having a great dictator is extremely low.
That's correlation, not causation. A lot of the "best" democracies were functioning well before democracy arrived. The main issues that make countries "bad" (bad blood between groups, mistrust of authority, warlords, force majeurs, etc) are not directly related to the form of government.
Just a book recommendation, but for people interested in learning more about these kinds of situations, I'd really recommend Amy Chua's "World on Fire."
These are the risks of working at the national and global scale; they have to be there, otherwise the rewards couldn't (sustainably) be so great. Even ignoring the moral arguments, the fact that anybody is making them changes the game theory perspective as well. The only way to truly stay on top is to make sure most people want you there.
People are going to tend to do what everyone else does. If we were to start hearing that everyone in the fund community had decided not to take money from XYZ kind of investor, we'd probably have done the same. And the arguments would be no different. You'd decide what to do, and then all the reasons that weren't enough before would suddenly be damning and certainly enough.
As for moral arguments, I'm surprised (well not really) that people think it's so simple. Anyone who's read a bit of philosophy has come across moral dilemmas that are not clear. I mean fgs there's a guy up the thread who thinks Gaddafi is defensible, and then there are people who think a guy who hires heavies is untouchable.
There’s no “financially or economically” sound choice here.
If the marginal utility of taking money from a murderer is higher than not taking it, then you take it.
Morals are assumed to be held by people and there’s no adjustment for how weak they are as a slow amorphous force.
Our systems are actually designed to be objective and away from soft things like feelings.
NO, but you should have told him what you knew and let him make the decision.
I get the opposite feeling. I suspect such virtue signalling is an attempt to attract investors who care about ethics, and perhaps more importantly accept your investment offers.
Your entire post is prevarication in an attempt to justify taking the money of a murderer.
I assume you’re talking about Singapore. Its not inaccurate but I think its not really fair to paint them with the same brush as the others.
Just because the financial system is global, it does not mean you have to launder money for drug dealers or other people with shady morals.
“The business needed the investment” is just code for you desiring an X-figure paycheck.
The other corollary of this - should we really be surprised that an anti-globalist like Trump is in power with lax attitudes such as the above?
“We believe there should be a huge area between everything you should do and everything you can do without getting into legal trouble. I don’t think you should come anywhere near that line.”
Your choices, your life, don't expect me to celebrate or make excuses for it.
Seems like you'd fit right in. Money, business, and taking care to skate just within the line of the law doesn't absolve you from being evil and effectively using your position to help make the world a much worse place.
I guess in the end it just boils down to how well you can cope with yourself.
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.
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.
FWIW - I do think your assessment of oil is correct (since oil and money are both fungible). But for venture capital, one side of the investment (startup talent, VC skill and network, etc.) are not fungible.
(elaborated a bit more in a twitter rant: https://twitter.com/ericjang11/status/1054115724996694016)
At the level of a huge wealth fund, those details are noise that gets canceled out because the more promise a startup has the more capital dollars are chasing it, so the buy in price is proportional to the value. Arguing that investments aren't fungible is essentially arguing that the efficient market hypothesis is wrong. (Which it can be, but not in a way that seems particularly relevant here.)
Founders of highly successful startups (or at least those on a promising growth trajectory) are in practice sensitive to which VCs participate in each round (and I suspect in the next few years they will start to pay attention to LPs as well). The "buy-in" price that you mention is not efficient because some people cannot participate no matter how much they are willing to pay.
Similarly, imagine if Uber wanted to hire a top Computer Vision researcher, and they could not. This hiring situation might not even get noticed by a LP, but an LP would surely notice if a VC was not able to invest their money in the next Uber / Facebook.
Many people who want to invest in Amazon right now cannot do so, because the shares are very expensive. That doesn't mean they're not fungible, it only means the existing owners won't sell for what you're willing to pay.
> The "buy-in" price that you mention is not efficient because some people cannot participate no matter how much they are willing to pay.
If you went to Zuckerberg in 2004 and offered to buy in for the equivalent of Facebook's 2018 valuation, would he really have turned you away?
Early stage startups are sensitive to who invests because early investors typically get seats on the board. The problem with the Saudis was not that they would use their board seats to ruin your company.
> Similarly, imagine if Uber wanted to hire a top Computer Vision researcher, and they could not. This hiring situation might not even get noticed by a LP, but an LP would surely notice if a VC was not able to invest their money in the next Uber / Facebook.
The thing about "the next Uber / Facebook" is that nobody knows who they are yet. And the number of startups who could be them is huge, even though most of them won't. Not being able to invest in a random startup that might become the next Facebook is hardly an issue when there are a hundred more that you can.
Right, except that we're talking about smaller companies rather than larger ones, so it's even worse because there are more of them.
Restricting who can own a large publicly traded company which is a part of the major index funds would be... impractical.
Which actually brings up another point. Even if you're selective in who you sell a stake to, what happens when they sell their stake to someone else? Or they themselves get bought out or merge with someone?
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.
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.
I'm not sure this is true for oil. For example, long standing sanctions against Iran prevented them from selling a lot of their oil and crippled their economy quite a lot (decreasing their income).
The same could be done with Saudi Arabia if there were will to do it (there isn't, western politicians are too intertwined with Saudi money, especially so in US & UK, to a lesser extent in other western countries but without US/UK approval, no action against Saudis will happen).
Oil would come from other countries, they could increase their output while Saudis are under sanctions. I think it's not as fungible as money (and even with money I don't it's 100% fungible as bank accounts can be frozen, again see Iran).
You're referring to international sanctions (i.e. acting with market power), not something anyone can do at the individual level. Not even the US could do it on their own -- if the US put sanctions on Iran by itself, Iran would just sell to Europe or Asia and not care. The only way it works is if nearly everyone agrees not to buy from them.
But the reason countries don't like sanctions on oil exporting countries isn't that they're ineffective, it's that they raise oil prices.
> Oil would come from other countries, they could increase their output while Saudis are under sanctions.
Yes it would, that's normal for a commodity market. When you remove a supplier, the price increases, which attracts new suppliers who may have higher production costs.
But the relevant part of that dynamic is that the price increases. The problem isn't that oil becomes unavailable, it's that your consumers have to pay more for it and the money goes to other countries you don't really want to enrich.
And if you have an international coalition willing to suffer higher oil prices then the much better alternative is a carbon tax, because then you get the money from the higher prices instead of Russia and OPEC, and can use it for things like subsidizing renewable energy or electric cars to mitigate the cost to your consumers and reduce the length of time you have to pay it.
Perhaps. But I remember there being very high oil prices (way over $100 per barrel) not that long ago. And there were actually less sanctions on oil countries during the time of such high oil prices.
So I'd question whether the market price discovery works for oil prices very well. It could as well be manipulated by OPEC cartel. I have read articles about Saudis lowering oil price by increasing output because they wanted to put pressure on US shale oil companies to put them out of business.
Oil price has been slowly creeping up again so perhaps the cartel has decided to increase the price.
I think this touches on another thing I've struggled for clarity on lately. How many degrees of separation do you need before you're willing to take investment from someone linked to something you find morally repugnant? 1 degree is relatively clear cut (though can still get muddy depending on how desperate your situation is). Is 2 degrees enough to decide it's ok? 3 degrees?
At a certain stage, it's arguable that benefiting one end of the chain won't result in observable benefit for the other. Where though? And at what stage does the benefit to society of your project outweigh the negatives of where the money that funds it came from?
First of all, more than just 'degree of separation' matters. You also need to know what fraction comes from bad sources. If it is 3 fronts stacked, you are still essentially dealing with the bad source.
I see 2 options:
1) Flip it. At what standard do I eliminate e.g. 20% of all funding. Or more generally, plot repugnancy against the percentage of funding sources lost, and pick an optimum
2) Make news matter. It might not feel objective to drop a deal for 3 degrees of separation when you read a story. After all, there is probably other stuff that has 3 degrees of separation. However, by reacting to that news you:
* Outsource information gathering to Journalists, who are specialized and do it for many more people than you
* Increasing the impact of journalism. By making investors care about what is written about them.
The second point matters, because fear of bad PR is essentially the only capitalist force that pushes companies towards moral behavior.
If you as an individual are going to do something, do the first kind of thing.
Except that you don't now have blood on your hands...
If "being able to sleep at night" gets counted as "meaningful", I'd say something has changed.
If the only question you count as "meaningful" is "did we leave any money on the table". Perhaps you should think more deeply about the world...
^^ That's why. He's "raising the bar" after making money through means that he would find despicable now. "Ends justify the means" is what got us into this mess, and unless he is willing to give away the gains from the arguably tainted money he's just posturing.
Saudi Arabia is a brutal regime. That didn't start Khashoggi. If we had any doubt, the 50,000 civilian deaths in Yemen should have cemented the brutality of Saudi Arabia. I'm more concerned about people who suddenly decided to consider their moral position after a single US permanent resident (Khashoggi) died, and conveniently ignored the years of brutality leveled upon Saudi Arabia's neighboring civilians.
I'd also challenge whether tsese individuals are also distancing themselves from Lockheed Martin -- the weapons manufacturer selling weapons of Saudi Arabia. Recently a Lockheed Martin bomb was used to kill a bus-full of Yemeni school children...I suppose that is still OK?
It's never black and white with people.. and you're not actually looking at the real problem if you're unable to see the nuances.
I would extend that question even further: Can we be proud of the gains we've made by working with the investors we've dealt with in the past? If not, how are we addressing the problem?
You can't be forward looking without addressing the past. This is why the moral pleas never really gain traction. If Fred was honest he'd address the elephant in the room by accounting for and giving back the gains. Until that happens, this is empty posturing.
Politicians will do this, this isn't some crazy ask. For example, Cuomo put his money where his mouth is and "returned" the $110K donated by Weinstein through the years:
> “My message to everyone who has current accounts with money from Harvey Weinstein is, ‘Give that money back,’” the mayor added. “Give it to charity. Get the hell away from it.”
* corrupt entity A gave me $X
* corrupt entity B bought Y from me at price $Z at essentially market value.
The amount to return in the first case is obvious. The second is much less clear (since the cash was essentially fungible)
By the same token, talk is cheap. AKA "ideas are worthless by themselves."
You can’t simultaneously claim to have compassion for poor people and advocate for regulations that will make their lives more difficult and expensive than is absolutely necessary.
If the Sauds have routine trouble getting money into funds they'll resort to tricks that will get them exposure in one way or another. They can acquire a company, they can create their own VP that doesn't list investors but co-invests. It's a never ending battle and one that we're not capable of fairly judging. This should be a Nato / EU / US or UN thing where we have real tools to enforce sanctions.
If we make better and best into enemies, there's no end to what we can't accomplish.
Take plastics use, for example, it's better to focus energy on banning them completely than to check each and every shampoo personally for microbeads.
Better and best are only enemies in situations where better is multiple orders of magnitude less effective than "best" which I wouldn't even classify as "best" I would call it "a real solution that might not be optimal but fundamentally sees to address the problem in a meaningful and efficient way" because I don't think of things in terms of better and best.
I think the reason I don't is that I studied both software and structural engineering separately. In structural engineering the design goals for non-emergency buildings are 1/10k failure rate over 100 years, with visible signs of failure before collapse.
We need steel girders to deal with illiberal states, not popsicle sticks.
The vast majority (>90%) of the plastic waste in the world's oceans comes from a few rivers in asia that run through countries that have minimal to no garbage collection/sanitation services for the cities that border the rivers. Investing in appropriate waste management infrastructure in the countries that need it is the solution to work towards. Plastic bans don't address the fundamental problem.
On that, you and I are on 100% agreement! It is just that in my experience, the real problems are staggeringly prosaic, and thus hard to drum up real support for. Not many people (although I am willing to bet quite a few here on HN!) get excited about proper waste management/sanitation. But it is one of those comparatively cheap things that reaps vast societal and environmental benefit. And plastics provide a lot of benefits for very little cost- it's why they are used so heavily. Switching over to paper packaging would require vastly more energy and resource inputs, for example, and it is not immediately clear that this would, or would not, be a net benefit.
A truly biodegradable plastic that still had the required physical properties of what we currently use would be a big step forward, too.
As a slight aside, I am leery of banning as a first-choice tool for dealing with these kinds of problems. Look at what happened in California when anticoagulant rat and mouse poisons were banned from use. What was an excellent idea (reduce poison loads in the environment, stop additional kill of non-target wildlife) has instead become objectively worse, and the neurotoxin introduced as a replacement has no treatment, unlike the Vitamin K shots that could previously help stricken pets and animals, and is a far more agonizing way to die to boot.
You're responsible for making a reasonable effort where you think it's important not for the actions of everyone who has ever touched a dollar you're now touching.
I can't act as a leader for change like this in the tech startup sector, but I would be very interested and engaged with any leaders who step up.
However, cynicism which demands that we do nothing unless we have a perfect solution prevents us from making any progress and further makes it impossible to get any closer to the perfect state.
Simply asking about where the money you’re getting is coming from is in itself a huge first step that can be built on.
One small step at a time is pretty much the approach that developers and entrepreneurs advocate on HN for nearly every other problem. It should be the approach that we take towards resolving non technical challenges as well.
That would be a deal breaker for many potential LPs, and not because all of them are criminals or despots. Some people just don't like others to know what they are doing with their money.
The bottom line is, if enough VCs take this stance, any bad actor that wants to invest will simply put their money into clean shell companies and invest that way, or partner with other, clean LPs. That isn't cynicism, that is reality. If people want to throw money at VCs, they'll do it - one way or another.
If it really doesn't matter where money comes from, they won't object to doing so.
If it really doesn't matter where money comes from, it won't affect their recruiting or marketing.
On the other hand, if company leaders resist the idea of being so transparent, well, maybe that it is a hint.
That isn't going to happen at all. The point of CFIUS is selective enforcement, not broad, strict enforcement. It's the exact same reason anti-trust laws are vague, so they can selectively go after anyone at any time if they so choose. The point is to be able to further control the economy, whenever that is desirable, and to target a given nation for restrictions if it's viewed as politically advantageous. The point is absolutely not to clamp down on all foreign investment.
Fundamentally everyone in the business community is worried more about ass-covering as it pertains to their bottom-line, not to any real concern about the implications of who they enrich. That's not to say that there's nothing to be done, but anyways... I won't talk about that here since HN has a pretty nasty reflexive response when you talk about the S word.
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.
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  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?
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?
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.
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.
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.
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?"
Someone's moral compass is inherent to the equation - their path dictated by their ability to understand/be compassionate, and level of non-violent practice they hold themselves to; if they lead with bad acting and violence as "a means to the end" then I'd argue they're less intelligent - whether through emotional blocks from unhealed trauma early in life that put their ego mind up on guard and started layering coping mechanisms that blocked ability for compassion, and/or inherently on their genetics, brain structure, has prevented this.
This is all a holistic fight against violence and aggression, which through intelligence, the battle has become more and more and more subtle as a means of violence sustaining itself; we quickly put someone in confinement if they're physically aggressive and attack someone in our society, however manipulation and the such is perhaps the least aggressive - and so doesn't cause a reaction until it's perhaps too late, when the network of bad actors is large enough - and where they as a whole eventually realize they are or can get away with more and more.
I think in this particular instance, the line is quite clear. I mean, “does not cut people to pieces alive with a hand saw in their own embassy” is a rather easy one to not compromise on.
What is an 'unethical market'?
Investors who vote for Trump? Or Clinton?
Who support guns? Or who don't?
Are citizens of Saudi Arabia punished because of the actions of their government?
If missiles come raining down on Ridyahd, and Saudi's destroy the locale/group that did it, is this unethical?
It's such a pandora's box.
But I agree it'd be nice to have some transparency.
"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<  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.
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.)
Nitpicking here, but "common knowledge" with such definition goes back to late 60s at least 
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.
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.
Personally, I think there’s money in the Valley that’s as dirty as the Saudis.
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.
Humans are often inconsistent, irrational, hypocritical, disproportionately sensitive to emotional immediacy vs. scale, and so on. We already know that.
Every successful, large-scale ethical movement is going to have a moment when a bunch of people jump on board the bandwagon for imperfect reasons. That might be annoying, but it's part of the mechanism by which change actually happens.
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...
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.
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.
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?
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?
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).
That seems disingenuous "we stumbled upon some mountains of money"
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.
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.
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.
So rather than disingenuous, it seems extremely pragmatic to worry about the $billions more than the $thousands. You should worry about it literally a million times as much.
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.
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...
Whereas, there are plenty of Chinese people who are not directly responsible for human rights violations. Does Jack Ma have more blood on his hands than Bill Gates?
Failure to recognize shades of gray serves no good, either.
It has to start with someone saying no.
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.
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.
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.
 https://www.foxbusiness.com/business-leaders/goldman-quietly... /s
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?
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.
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.
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.
Perhaps it would be more accurate to say that these are their principles, specifically the principle that they themselves and their own futures are more important than anything else.
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.
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.
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.
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.
> 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.
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.
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.
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.
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.
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.
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.
[Corrected syria to saudi Arabia]