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Who Are My Investors? (avc.com)
500 points by wslh on Oct 21, 2018 | hide | past | favorite | 253 comments

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.

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.

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.

Well said. I’ve just started really thinking about this. Although I would venture that people naturally develop value systems as they get older, whatever field they are in. It’s just that many of our existing institutions set you up to create values based on self interest and wealth. I think it’s unfortunate. But then again, can I really say my values are superior?

Good point, we definitely develop value systems as we get older as we move away from self-oriented to other-oriented thinking.

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.

Thank you for your insightful comment!

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 :)

Definitely there's a massive misalignment of what has value in markets and what has value in society, because only some roles and industries are positioned to capture the value they create. Many roles, especially those very human roles of caregivers, teachers, etc, tend to be undervalued because their particular effects are either long term or simply unquantifiable.

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.

Thanks for your comment! I didn’t notice the answer so my reply is unfortunately pretty late.

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)

The problem I see is that there are literally zero incentives for a company to do that. A company is a "being" that only has one purpose: profits.

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.

It's only a recent notion that profit maximization is a company's sole purpose, and what that means differs a great deal based on whether you're trying to maximize short-term profits vs long-term. The longer term you get, the more you have to consider things that are beyond the scope of immediate profit maximization.

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.

I agree with pretty much all your points, however you are talking about exceptions.

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.

First of all, the idea that companies exist only to create profits does not mean that companies need to seek profits above all else. PEOPLE run and form companies and get to make decisions about how they run and form companies based on their own decision criteria. There's nothing about starting a company that excludes you from society and moral thinking.

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).

While I agree with you, it's not what I see day to day. It all goes out of the door as soon as profits are affected.

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.

> 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.

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.

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.

Excellent point.

There is no excuse for any of us to behave like the moral equivalent of a paperclip maximizer.

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

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"


There are no perfect value systems, yes. They are still great tools to prevent tragedy of the commons / prisoner dilemmas. And that's something we as a society must archive to thrive. An alternative is regulation, created by again some kind of value system like your utilitarians. I'd prefer not ending with a shitload of highly detailed regulation just because otherwise we'd fuck up the fabric society for personal gain. If there are effective alternatives in the first place...

There are consistent moral systems out there. Read Peter Maurin's http://www.easyessays.org/creating-problems/

Demanding a bright line definition and rejecting any argument where one isn't provided is useless and unhelpful.

Why do you have to draw a line anywhere? For public companies, anyone can invest in them. I’m sure there is some Saudi money, and some money from all sorts of criminals, invested in every publicly traded company. As a society we seem happy with that, so what’s the difference between privately and publicly traded companies here?

I can understand why people would take blood money or seedy money (so long as it's legal from their end). I just don't understand why they can't admit to themselves that it's a little evil and go about their business like they'd do anyways. Nothing changes except you feel a little bad about yourself, probably, and the rest of us don't have to hear as many excuses.

I agree. I try to see the best in people so when I hear someone making excuses for doing something wrong [“piracy is not stealing’] I can take some comfort in knowing that they still have that little voice in their heads that tells them rught from wrong - even if they don’t listen to it.

I just want to mention that Gaddafi brought a lot of development to Libya and his death did nothing for his people. It's easy to say "oh he was a dictator and dictators are bad" but it's not so simple.

I've found that the west has a democracy bias. It assumes that democracy is intrinsic to people and it's only a matter of "liberating" them from tyranny.

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.

> 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.

Those do not mesh. Democracy _is_ allowing people to manage their own affairs.

Not when that democracy is imposed by an external force. There is nothing organic about, say, a US-sponsored democracy in Afghanistan or Iraq

Democracy is indeed.

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.

Well-meaning Westerners like to imagine that all one has to do is put on a fair election, get the "good people" in power, and all will be well thereafter. This can be effected by Western occupiers when they want to wash their hands as they exit some troubled spot.

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.

Doesn't help that in any democratic setup, the people with the means to fight elections are usually the people who are already close to, or embedded in the previous dictatorial setup.

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

Usually the country is "better off" as a whole on the backs of the few who will suffer tremendously in order to achieve that.

the same could be said about a lot of dictators. these guys make it so that there is no other option (by killing opponents) for the country.

>by killing opponents

Gaddafi's rise to power was a bloodless Coup [1], 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?' [2], 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...

[1] https://en.wikipedia.org/wiki/1969_Libyan_coup_d%27%C3%A9tat

[2] https://www.theguardian.com/world/2011/oct/23/gaddafi-last-w...

"Evidence gathered by Reuters in the provincial town of Khoms shows an organised system of repression with methods including delivering electric shocks to suspects' genitals, keeping them for weeks in baking heat with only a few sips of water a day, and whipping them with an electrical cable while their hands were bound with plastic ties."


Although he was never tried, the sheer number of witnesses detailing his systematic rape of young girls, murder of opponents and starvation of civilians for example, lends a lot of credibility to him being very much tyrannical.

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."


Haaretz, France24 and the Guardian are hardly unbiased sources. Frankly, these tales seem fantastic and made up to me, much like the stories about Kuwaiti babies being ripped from incubators and left to die on hospital floors. Remember those ?

Obviously a functional democratic society will stomp a dictatorial one on pretty much any axis you care to think of.

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.

“stomp” is a bit exaggerated... Democracies are usually more economically efficient, whinch in the long run means more productive power for tech progress or weapons/munitions manufacture. But the catch is “the long run” there is some history of tribal/ dictatorial states distabalizing democracies and “winning” if they do it quickly and ferociously enough. Or even just ferociously.

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

That depends on how you reckon things. It sounds like an extremely unwarranted axiom routinely disproven by normal world events.

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.

This is so contrary to facts that I'm confused about where to even start rebutting.

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.

> Obviously a functional democratic society will stomp a dictatorial one on pretty much any axis you care to think of.

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.

A lot of Singaporeans would disagree with you, but they know better than to speak out.

> a functional democratic society will stomp a dictatorial one on pretty much any axis you care to think of

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.

> We can say "democracy is better", but there are instances where democracy doesn't work.

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."

Sounds like your someone finding reasons and excuses? You definitely can draw the line somewhere, many people do. It's not a binary choice and it sounds like you helped and encouraged some bad people. At least you have tons of money now, presumably, which...makes you more happy?

It's weird to me you would treat this state of affairs as a static and universally-holding position. I think it's obvious (with several current examples coming to mind) that investors and business partners can be branded as "toxic" in a way that overwhelmingly devalues any money they could actually offer. In the same way the police will take a stolen watch from you after you buy it -- without much recourse on your part! -- you and your company can definitely be torpedoed by taking bad money if public opinion shifts that sharply.

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.

> It's weird to me you would treat this state of affairs as a static and universally-holding position.

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.

The way I’ve come to define this issue is that Homo sapiens lives in a world built for homo economicus. And homo economicus is busy hacking Homo sapiens to see exactly how much it can be hacked.

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.

> 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.

NO, but you should have told him what you knew and let him make the decision.

If you don't draw the line at dictatorships that grind up American journalists - where do you draw the line?

The road to hell is paved with good returns, it seems.

Very good line

If history has anything to say about this, the line is drawn - if it is drawn - considerably further into nasty business.

> I get the feeling you only write articles like that if you have more people wanting to invest than you have capacity for.

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.

It's virtue signalling that puts a pinch on your competitors who can't turn down money from bad actors.

It seems to me that this post is distilled evil.

The only thing necessary for the triumph of evil is that good men do nothing

Your entire post is prevarication in an attempt to justify taking the money of a murderer.

Which example would you say that is?

>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.

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.

The commentator is specifically asking where you draw the line and is making that the point that this case seems very different but has some of the same characteristics of the ostensibly more clear-cut cases. OP is specifically saying this is not the same brush.

I’m sorry but this is a pathetic cop out.

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?

He specifically mentioned that he was adhering to AML rules. Maybe you think that the AML rules of his country should be different?

No. I think ethics =/= laws.

In your rush to condemnation, you've missed that I specifically mentioned that we followed anti money-laundering laws. Also none of the people we worked with had been convicted for drug dealing.

You are clearly uncomfortable with your own choices in the original post. It's laundering. Legal or not the choices you made were unethical.

“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.” -Charlie Munger

Your choices, your life, don't expect me to celebrate or make excuses for it.

Have you read "Market Forces" by Richard Morgan?

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.

The same goes for taking Department of Defense (or your own country's equivalent) money. There is so much research and innovation that just wouldn't have been funded if their principals didn't take money from the military.

Sure, it's easy to rationalize decisions like these, and even find great arguments in favor of them. But, you still have to sleep with yourself a night.

I guess in the end it just boils down to how well you can cope with yourself.

Since you been involved in the financial world and run a hedge fund, you'll agree with me that if you go high enough, all money is morally tainted. No one ever made a billion dollars by being a boy scout.

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.

> 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.

Investment opportunities (which VC firms get the money, what deal flow they have, what investment opportunities the VC has) are most certainly not fungible. So I think it's helpful to think of the deal flow in reverse - even though "someone else can take the Saudi money", that "someone else" most likely does not represent exactly the same investment opportunity to the LPs.

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)

The distinction you're making matters at the level of individuals. If you're a person choosing a startup to dedicate years of your life to, the choice you make has major consequences for you.

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.)

Fungibility can hardly be true for the venture capital ecosystem. Many people who wanted to invest in Facebook, Snap, Uber, etc. could not do so.

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.

> Fungibility can hardly be true for the venture capital ecosystem. Many people who wanted to invest in Facebook, Snap, Uber, etc. could not do so.

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.

I'm a bit confused by the wording, but I think you're trying to say that to a sovereign wealth fund, investment opportunities are essentially fungible because they're allocating their money over a large portfolio. So if one of the big VCs or tech companies won't take their money, another will and in a diversified portfolio that's good enough.

> So if one of the big VCs or tech companies won't take their money, another will and in a diversified portfolio that's good enough.

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?

I'd guess that you could be required to sign a contract when you buy a stake that says that if you want to sell it or get bought out or merge, they also have to sign the contract. It's not realistic, but I don't see any reason why it couldn't happen.

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.

Thanks for articulating this better than me in my reply. I also agree the oil / fungibility example was quite bad. Iran vs Saudi Arabia & petrodollar is really straightforward evidence against such argument.

> 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.

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.

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.

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.

> 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.

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).

> 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).

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.

> 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.

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.

> 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.

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?

There isn't a clear line, and there probably cannot be one.

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.

Many journalists (and news outlets) are currently fired and not working in the sense you mean, because Facebook made a compelling (and fraudulent) case that millenials only watched videos. Across the industry, news outlets got rid of journalists to repurpose investment in video production.

Fungibility matters if your only goal is to make it impossible for bad dudes to sell their product / invest. But keeping your own hands clean is an admirable goal in and of itself, and certainly concluding "this doesn't make a difference in the grand scheme so why should I care" seems to be the exact kind of cynicism the parent comment was critiquing

The point is that some things make a proportional difference, which at the level of an individual is minimal but make a real impact if 30-70% of people do it, whereas other things only work with a critical mass, which are then still useless even if 30-70% of people do them because you need 70-100% of people to do it for it to be effective at all.

If you as an individual are going to do something, do the first kind of thing.

> nothing meaningful has changed

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...

Thank you for this. It needed to be said.

I tend to agree. I don’t get why people don’t value someone who starts to raise the bar. Even if that’s not high enough, why not see it as something that needs to develop over time?

> I don’t claim to have entirely clean hands in this regard. When we sold our Twitter stock before the IPO many years ago, it turned out the buyer was fronting for gulf interests. I found that out after the fact but that doesn’t absolve me of anything. I could have asked the questions before executing the sale.

^^ 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.

People do change. Calling it posturing is premature judgement.

Yes, people change. My concern about people suddenly changing their stance on Saudi Arabia is why now and why only Saudi Arabia. Two major points:

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?

Saudi Arabia killing its own citizens is bad. Saudi Arabia killing an American resident, and father of two American citizens, for writing opinions in an American newspaper is closer to an attack. The former is not clearly an American issue. The latter is.

People do change by supporting some of the most violent, racist, and brutal people in the US? Doesn't sound like much of a change to me.


That doesn't sound like change. But bringing that up makes the judgement less premature. My point wasn't that he was good. My point was that people can change,and that past misdeeds don't necessarily define a person's future actions.

Until he comes out and says "we made $X from doing business with questionable entities, and here's how we gave back $X without lining our pockets", it's posturing.

You don't have to address every wrong you did in order to start doing right.

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.

> It is time for all of us in the startup and VC sector to do a deep dive on our investor base and ask the question that the CEO asked me. Who are our investors and can we be proud of them? And do we want to work for them?

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.”


Except there’s a very large gap between:

* 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)

The market value is skewed by the fact that the money is tainted. To put it differently: if real estate wasn't as effective a vehicle for money laundering, prices in places like Vancouver wouldn't have skyrocketed. So while technically people paid "market value", the number is meaningless

You don't have to address every wrong you did in order to start doing right.

By the same token, talk is cheap. AKA "ideas are worthless by themselves."

I think a better ask is to create self-sustaining processes that ratchet to improve the system over time. In a word: regulation. You can't be sure you're consuming ethical meat through consumer pressure alone. You need more eyes in the system, with enough force to be able to see through the veils that the profit motive will put up.

Not everyone in the world can afford "ethical meat" but they still need to eat nonetheless. This is one of the things I have never understood - people that are into concepts like "ethical meat" tend to be left leaning, and people on that side claim to be compassionate toward the poor. Yet it appears from your comment that if you had your way, you would use regulation to force the costs of eating up, which would dramatically affect the ability of poor people to eat.

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.

The problem with the global system cracking is that it's pushing this work onto low-information people with mismatched incentives.

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.

Just because they have other options doesn't mean the fight is lost before it's begun. We can make this more and more work for them, and keep sending the message. And yes, we can also work to place sanctions on investment from nations that ignore human rights.

If we make better and best into enemies, there's no end to what we can't accomplish.

I usually agree with this line of thinking, and even personally I wouldn't take money from some people like Peter Thiel because of his political actions, but I don't try to get others to do the same. I advocate for systemic or political changes or—if those are hard because of mismatched incentives or low information voters—propaganda, think tank funding, and lobbying to try to fix things.

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.

>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.

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.


That isn't the same issue as microbeads though, because those hit our tributary rivers and lakes where ecosystems are less resilient. But even if you are right (and I'm more than willing to change my mind here) it only speaks to my larger point: Let's focus on the real problems at their source instead of putsing around with micro feel-good-measures.

>Let's focus on the real problems at their source instead of putsing around with micro feel-good-measures.

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.

Agreed. There's no effort against bad actors that bad actors haven't tried to work around. Waiting for perfection means waiting forever. The right thing to do is to take the first obvious action, see if things get better, and then iterate.

Exactly! It's not about "tainted" vs. "untainted", it's about setting some limits and trying to be a part of the solution. Doing so puts in progress something that WILL start to shift things. You don't have to be money trail inspector, you just need to be your own ethical link in an otherwise ethically unknown chain.

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.

Totally agree. I just hope people will take this sentiment and make it more formalized. But people will have to be up to that task. An explicit movement to refuse money from US allies who violate human rights would have to include Israel -- so, a big ask. A centralized outlet that reports who funds who, like we have for political campaigns, requires sweat and tears. Hopefully we'll see more grass-roots organizations made up of tech workers like Tech Solidarity to take this work on.

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.

We will never be perfect. There will be mistakes made, both intentionally and unintentionally.

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.

be transparent about who their LPs are

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.

Company leaders don't even necessarily have to decide for themselves. They can just discover the facts and communicate them clearly.

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.

We're at a point now where VCs are going to have to start refusing money from nearly everybody foreign thanks to the new CFIUS rules. They're so overly broad in identifying high-tech industries that I think there's going to be a lot of issues over the next couple years of implementation.

> VCs are going to have to start refusing money from nearly everybody foreign thanks to the new CFIUS rules

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.

The point of CFIUS used to be selective enforcement. But the new rules require mandatory disclosures of any foreign investment into a high-tech company.

Saying "giving a shit involves compromise" is exactly the kind of thing that venerates the idea that conscious capitalism is impossible. The irony of this post is that he lists the pension fund of the police, who are responsible for some of the most brutal human rights violations in the US, as a wholesome LP, when for some of us it's just the opposite.

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.

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.

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

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...

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.

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?

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.

> 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.

> 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.

> 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?"

I think most "us" are aware of the fact that we are essentially exporting human rights violations and environmental impact in return for low-cost items. So, one can only conclude we don't really care. Caring would have implied an immediate, drastic change in lifestyle.

This doesn't sound so convincingly acceptable if we consider that their investments make profits, which end up funding whatever unethical thing they do.

In fact for the corrupt, it could even be viewed as a net positive to know you have bad actor money "on your team" - whom may directly or indirectly help your cause to get things in your favour.

That's true for any "side", corrupt or non-corrupt -- you want more money because you trust your moral vision more.

Then that "non-corrupt side" is corrupt, therefore it's only the corrupt who do this; is ignorance bliss and an acceptable excuse and make you less responsible, how far along the chain of trust is enough?

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.

>>You're going to have to compromise somewhere. The question is, how and where do you draw the line?

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 would be the time frame you care about I would not be so sure that even most western governments did not cross a similar line in one form or the other. It certainly the case that US have being propping up or even installing regimes that were involved in mass atrocities. So as much as we like to feel like we are above this type of thing the reality is that we are directly or indirectly responsible for much worst atrocities. We have being propping up Saudi Royal family for how many decades now?

No way to completely avoid? Perhaps. But there are many ways to reduce.

" there is virtually no way to avoid tainted money or unethical markets."

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.

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.

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...

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

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.)

I don' t think "everyone had that information". I assumed that Saudis would kill political enemies who at least committed certain acts with consequences beforehand, not that they would kill and wrap the body of a prominent person into pieces within hours. I thought the russians had monopoly on remotely killing political enemies like that. What was plausible as a hypothesis, but unproven, is now very real, and it has now placed saudi in the same bucket as putin's russia in the mind of "public opinion".

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

Nitpicking here, but "common knowledge" with such definition goes back to late 60s at least [1]

[1] https://en.wikipedia.org/wiki/Common_knowledge_(logic)

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.

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.

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.

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.

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.

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.

So what are you suggesting or are you just complaining to no end?

Does it really matter, though? Sure, some people might earn some undeserved virtue points -- but why focus on that, when the alternative is for everyone to continue not giving a shit, and nothing to change.

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.

The image of a dead child on the turkish shores 3 years ago instantly changed the attitude of millions of people towards refugees . It seems certain events trigger gut reactions to people , and that may not be virtue signaling. I think it's fair to say there's a lot more than that here.

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

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).

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...

So you are suggesting people just keep doing business with them... or are you suggesting people don't try to make other people do that? Because you can call it "virtual signaling" or however you want but both are still pretty bad options.

"“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?

So people can't correct their views at any important news? They should have known better before and can't no longer correct their views, its that what you are saying?

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.

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.

>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.

> 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?

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?

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.

>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).

Not sure one can know. From all angles it looks like a very stupid and badly executed assasination plot. There are a lot more discrete ways to kill someone than flying 15 people/agents over on a private plane. Time will tell hopefully.

Unless you want to send a message, not just kill someone. Similar to Skripal.

Quite an expensive message to send, this will likely burn a lot of business/investment bridges.

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

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

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.

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.

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.

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


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.

When you're making a decision to take investment, the assumption is that they may get 10-100x that amount of money back if the company succeeds. So taking investment from a bad regime might give them another billion to work with 10 years from now. That's a different scale from consumer purchasing decisions, where your decisions might move a thousand dollars from the worst regimes if you're careful about investigating the supply chain of everything you buy.

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.

> 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.

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...

There's a difference between accepting money and goods from Chinese or Russian investors and accepting money from specific bad actors. For example, taking investor money (and thus giving voting rights) from groups like SoftBank (which has a ton of Saudi Royal family money), is a totally different ballgame from say, buying MacBooks that are made in China.

It's more than just MacBooks manufactured by internal migrants in China[1]. You also have many Chinese tech giants with SV offices: what, refuse to rent them RE, or refuse them building permits? How far does this go?


Not that far. Again, to reiterate my argument, paying money to Chinese companies is not the same thing as giving them a board seat. For me, the line would be drawn at that. If I rent my offices from then, they don't get any control over my company. If I take a billion dollars from them, then I am beholden to them in a large way. Fubdibg another office space or a different pc maker is not a problem.

SA (and Russia, to an extent) is a different best than the rest, though, is it not? When people say SA, they mean money owned or controlled by the royal family, who are directly analogous to an organized crime syndicate.

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.

I'd say it depends how much you can separate the cash from the malicious governments. There are plenty of chinese investors only connected to the Party by one or two links. Not so in Russia or SA.

You can't if at the end your company is public or acquired by a public company.

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.

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

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.

I guess China wasn't an option?

It’s not a zero sum game — just because a company makes an unethical decision to gain a competitive advantage doesn’t mean you have to. And it doesn’t mean you can prosper by acting ethical either.

That's fine. Your conscience will be clear, and if you have a winner, you should attract other money. The biggest drawback is if your project is easy to replicate, in which case you have to ask if it should attract smart money in the first place.

That's a cop-out.

It has to start with someone saying no.

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]


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.

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

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... /s

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.

> 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.

> 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

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.

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?

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.

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.

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

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

Because their LPs usually insist on confidentially as a condition of investment. Some institutional investors do disclose which VC funds they participate in, though.

I would imagine an element of it is concern about a founder contacting them after a particularly difficult board meeting etc.

Many do, look at Notion or Ice Breaker for example. Many LPs don't want to be named though

My guess: that information could stifle entrepreneurship

just wondering, it would disclose a large part of their portfolio and so their investment strategy

Case in point.

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.


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.

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.

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.

He did not say "Let's reject all this because it is a slippery slope." He is merely alerting people that the slope is slippery.

>> 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.

> 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.

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.

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.

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.

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

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.

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

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.

“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.

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.

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


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

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.

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.

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

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.

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.

It’s racist to assume all Suadi money is corrupt

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

Could you clarify this comment? It doesn't immediately make sense on the surface. Who's being racist and why?

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?

> 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.

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.

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]

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

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

Relax. It's clearly a euphemism for Saudi Arabia.

They should say that then. The gulf countries are not the same.

To say such a thing in public is considered bad for your health.

Syria is the Levant, Gulf countries are countries in the GCC (Gulf Cooperation Council) and in the Persian Gulf.

Syria isn’t the gulf.

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