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
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.
"“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?
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.
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.
>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).
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?
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.
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.
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.
> 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.
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.
>>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?
This doesn't sound so convincingly acceptable if we consider that their investments make profits, which end up funding whatever unethical thing they do.
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.
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 compromise by silicon valley is going to come home to roost in the near future.
Dictators are wealthy by virtue of stealing money from their subjects. No free person should voluntarily work for a dictator by accepting resources stolen from the enslaved.
People in free countries should reject all investment from dictators. And they should reject jobs at companies that take their investment.
As technology increases transparency across the world it inexorably raises the moral standard for all free people.
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.
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.
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.
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.
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'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 princi...
> 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.
> 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.
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.
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.
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.
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".
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.
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.
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.
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.
> 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.”
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
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.
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.
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.
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'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.
> 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.
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.
> 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.
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.
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.
> 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.
> 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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[ 3.4 ms ] story [ 69.8 ms ] thread[Corrected syria to saudi Arabia]
> 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.
MBS was selling himself as a reformer and everybody deserves a benefit of a doubt. Maybe it was of one the generals that decided to kill the journalist. Why would MBS risk all the deals he has made and about to made? Oil doesn't give him that much leverage right now and sanctions could topple the government.
I'm not trying to make a case for or against him. It's impossible for an average person to know what is going on exactly.
Depends on how bad you're talking about.
Saudis are not known as people who kill in other countries. They actually have a robust reputation of kidnapping them and bringing them to KSA (and even of the known kidnapped ones, I think all are still alive). Even within the country, they're known more for making people disappear - temporarily. As in family has no idea where the person is - but usually find out about a year later - and the person is usually in prison - not dead.
Saudi Arabia is known for executing dissenters - but not in a shadowy manner. They arrest, they bring serious charges, and then execute publicly. When they do this often enough, there is not much rationale for them to assassinate people in their own country in a hidden way.
I feel that just because we know of many brutish things the Saudis have done in the past, we are extrapolating to things they likely do not do often. The opposite of the halo effect, if you will. I've seen this often, where people conflate the different Middle Eastern countries and attribute the problems in one country to those in the other - without evidence (e.g. believing honor killings are common in Saudi Arabia).
I don't believe this scenario is at all the norm amongst the Saudi government. I could be wrong, and would be happy to be shown otherwise.
What about Yemen? What about so many extremist Islamist organisations having roots in Saudi Arabia? The 9/11 highjackers, Muslim Brotherhood, funding and military support Saudis give to "rebels" in Syria and Libya?
It again is a case of the opposite Halo effect. Because an entity is evil in many ways, are we just going to assume they're evil in any way we like?
It was said within the context of current events. Let me revise my statement:
The Saudis are not know for killing their own citizens abroad in non-conflict zones.
The point was that if I take all the examples you listed, I could make an almost identical list about the US - funding and supporting questionable militants, direct and proxy wars, direct and proxy torture, funding extremists (Islamic and otherwise). But it would be a fairly big leap to go from there to something like "It should surprise no one that the US killed one of its own citizens in their own embassy."
(Personally, all the things you/I listed about Saudi Arabia/USA are a lot worse, in my opinion, then what happened in Turkey - but that's a separate discussion).
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.
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.
So, vet your LPs case by case, discuss with your partners and use your moral judgement.
If a North Korean or Syrian national wants to invest, you are legally required to refuse, in the US.
Saudis? Legally allowed, but you have a moral imperative to refuse.
A Chinese firm, or maybe Jared Kushner's fund? That depends on your outlook and situation.
Just be transparent about who your investors are.
--
This idea that it's "virtually no way to avoid tainted money" is pretty cynical and self serving, IMO.
Perhaps the real intention behind that idea is more like: "you can avoid tainted money but that money may go straight to your less scrupulous competitors". If you don't take the money, someone else will, and they may use it to beat you. To people whose primary focus is the growth of their own business, that could be a big cost for upholding their own sense of moral justice.
Not generally a fan of biblical quotes, but: "For what shall it profit a man, if he shall gain the whole world, and lose his own soul?"
https://twitter.com/aplusk/status/1021409519098769408
I think in this particular instance, the line is quite clear. I mean, “does not cut people to pieces alive with a hand saw in their own embassy” is a rather easy one to not compromise on.
What is an 'unethical market'?
Oil?
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.
That seems disingenuous "we stumbled upon some mountains of money"
I think regulation would have to come into play to enforce transparency, do firms disclose their largest investors when filing an S-1? Even if they do, is it possible to get down to the root of each dollar? Shell companies exist for a reason.
I believe we are fully capable of making a better sausage, and doing it in better way. There may be many difficulties along the way, but that's the case with everything that is worthwhile.
Dictators are wealthy by virtue of stealing money from their subjects. No free person should voluntarily work for a dictator by accepting resources stolen from the enslaved.
People in free countries should reject all investment from dictators. And they should reject jobs at companies that take their investment.
As technology increases transparency across the world it inexorably raises the moral standard for all free people.
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.
[1]https://www.ft.com/content/463b162a-8a3d-11e8-b18d-0181731a0...
From the article:
> The CEO asked his VCs because questions were coming up internally and he wanted to answer honestly and accurately.
The question was imposed on the CEO by "naive" employees who will quit if the company took money from the Saudis.
The employees were financially screwed over in the deal.
Several employees - who were muslim - quit on the spot, as they refused to work for a company owned by Lockheed...
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.
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.
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 princi...
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.
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.
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.
"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/
Erdogan has been playing this one very well. The chap is relatable - an American resident, writing for a US newspaper, critiquing a government, just the kind of thing westerners like to venerate in their cultural products. Erdogan has drip-fed the media with information. Since it's so lurid, each extra dose gets more headlines - it's concentrated, potent stuff. And he's kept Saudi guessing - threatening that if they don't come out with the truth, he'll release the details.
He'd lose all leverage if he actually did release everything, but the strategy works very well. Everybody knows MBS almost certainly ordered this clumsy attack in a very naive way. But Erdogan has used the unknowns of the information, and gradual disclosure, as a lever to make Saudi replace their lies repeatedly over time, eating away at their credibility. By keeping western media on the boil, he encourages western politicians to say that Saudi isn't explaining enough.
It's been very interesting to watch, a master class.
(It's not the common knowledge, or the crystalized idea that everybody knows that everybody knows. That's not right at all. It's political pressure being maintained by someone with leverage, a steady hand on that leverage, and a strategy to move things. The lever is joined up: leaks -> western media -> western politicians -> Saudi. Without the continuous pressure, this would all blow over because democratic citizens have pretty short memories most of the time.)
Nitpicking here, but "common knowledge" with such definition goes back to late 60s at least [1]
[1] https://en.wikipedia.org/wiki/Common_knowledge_(logic)
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.
You can’t simultaneously claim to have compassion for poor people and advocate for regulations that will make their lives more difficult and expensive than is absolutely necessary.
If the Sauds have routine trouble getting money into funds they'll resort to tricks that will get them exposure in one way or another. They can acquire a company, they can create their own VP that doesn't list investors but co-invests. It's a never ending battle and one that we're not capable of fairly judging. This should be a Nato / EU / US or UN thing where we have real tools to enforce sanctions.
If we make better and best into enemies, there's no end to what we can't accomplish.
Take plastics use, for example, it's better to focus energy on banning them completely than to check each and every shampoo personally for microbeads.
Better and best are only enemies in situations where better is multiple orders of magnitude less effective than "best" which I wouldn't even classify as "best" I would call it "a real solution that might not be optimal but fundamentally sees to address the problem in a meaningful and efficient way" because I don't think of things in terms of better and best.
I think the reason I don't is that I studied both software and structural engineering separately. In structural engineering the design goals for non-emergency buildings are 1/10k failure rate over 100 years, with visible signs of failure before collapse.
We need steel girders to deal with illiberal states, not popsicle sticks.
The vast majority (>90%) of the plastic waste in the world's oceans comes from a few rivers in asia that run through countries that have minimal to no garbage collection/sanitation services for the cities that border the rivers. Investing in appropriate waste management infrastructure in the countries that need it is the solution to work towards. Plastic bans don't address the fundamental problem.
https://cen.acs.org/materials/polymers/Fighting-ocean-plasti...
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.
^^ 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.
It's never black and white with people.. and you're not actually looking at the real problem if you're unable to see the nuances.
I would extend that question even further: Can we be proud of the gains we've made by working with the investors we've dealt with in the past? If not, how are we addressing the problem?
You can't be forward looking without addressing the past. This is why the moral pleas never really gain traction. If Fred was honest he'd address the elephant in the room by accounting for and giving back the gains. Until that happens, this is empty posturing.
Politicians will do this, this isn't some crazy ask. For example, Cuomo put his money where his mouth is and "returned" the $110K donated by Weinstein through the years:
> “My message to everyone who has current accounts with money from Harvey Weinstein is, ‘Give that money back,’” the mayor added. “Give it to charity. Get the hell away from it.”
https://www.nytimes.com/2017/10/12/nyregion/andrew-cuomo-har...
* corrupt entity A gave me $X
And:
* corrupt entity B bought Y from me at price $Z at essentially market value.
The amount to return in the first case is obvious. The second is much less clear (since the cash was essentially fungible)
By the same token, talk is cheap. AKA "ideas are worthless by themselves."
https://mappingpoliceviolence.org/
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?
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 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.
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.
It seems like a deeper problem than that, which is that money is fungible. It's the same thing as saying we shouldn't buy Saudi oil. If the only result is that you buy some other oil and the people who would have bought that oil buy the Saudi oil, nothing meaningful has changed.
To get a meaningful result you need one of two things. One is solidarity (i.e. market power), but you never have that in a diffuse competitive market. The other is to do something that isn't fungible. For example, if you actually use less oil (buy an electric car and solar panels, or support nuclear etc.), it makes a proportional difference even at the individual level, because then it isn't a matter of everyone having to act together to accomplish anything, it's a matter of each person doing their share adding up. Then the cost to them is in proportion to how many people act rather than the cost being effectively zero unless you reach a critical mass you can't achieve.
But there isn't any obvious equivalent to that for venture capital. For oil, basically all of the foreign exporters are antagonistic, and burning oil itself is harmful regardless of the source, so everything lines up for that working as a mechanism of retaliation. But if solar/wind/hydro/nuclear/etc. are the alternatives to oil, what is the alternative to money supposed to be?
To get anywhere on that front you need market power, which essentially means something like government sanctions. But we don't do that because we still need their oil. So it seems like we're right back to stop burning oil.
FWIW - I do think your assessment of oil is correct (since oil and money are both fungible). But for venture capital, one side of the investment (startup talent, VC skill and network, etc.) are not fungible.
(elaborated a bit more in a twitter rant: https://twitter.com/ericjang11/status/1054115724996694016)
At the level of a huge wealth fund, those details are noise that gets canceled out because the more promise a startup has the more capital dollars are chasing it, so the buy in price is proportional to the value. Arguing that investments aren't fungible is essentially arguing that the efficient market hypothesis is wrong. (Which it can be, but not in a way that seems particularly relevant here.)
Founders of highly successful startups (or at least those on a promising growth trajectory) are in practice sensitive to which VCs participate in each round (and I suspect in the next few years they will start to pay attention to LPs as well). The "buy-in" price that you mention is not efficient because some people cannot participate no matter how much they are willing to pay.
Similarly, imagine if Uber wanted to hire a top Computer Vision researcher, and they could not. This hiring situation might not even get noticed by a LP, but an LP would surely notice if a VC was not able to invest their money in the next Uber / Facebook.
Many people who want to invest in Amazon right now cannot do so, because the shares are very expensive. That doesn't mean they're not fungible, it only means the existing owners won't sell for what you're willing to pay.
> The "buy-in" price that you mention is not efficient because some people cannot participate no matter how much they are willing to pay.
If you went to Zuckerberg in 2004 and offered to buy in for the equivalent of Facebook's 2018 valuation, would he really have turned you away?
Early stage startups are sensitive to who invests because early investors typically get seats on the board. The problem with the Saudis was not that they would use their board seats to ruin your company.
> Similarly, imagine if Uber wanted to hire a top Computer Vision researcher, and they could not. This hiring situation might not even get noticed by a LP, but an LP would surely notice if a VC was not able to invest their money in the next Uber / Facebook.
The thing about "the next Uber / Facebook" is that nobody knows who they are yet. And the number of startups who could be them is huge, even though most of them won't. Not being able to invest in a random startup that might become the next Facebook is hardly an issue when there are a hundred more that you can.
Right, except that we're talking about smaller companies rather than larger ones, so it's even worse because there are more of them.
Restricting who can own a large publicly traded company which is a part of the major index funds would be... impractical.
Which actually brings up another point. Even if you're selective in who you sell a stake to, what happens when they sell their stake to someone else? Or they themselves get bought out or merge with someone?
Currency may be fungible but the quality of investments an LP has access to are not. The hope is that closing off the best avenues for return in an oversaturated capital market will cause rich people with influence to put pressure on the governments.
It has little to do with oil and much to do with Trump making the Iran deal a campaign issue and therefore doing everything he can to pressure them into renegotiating. The outlier is Iran rather than Saudi Arabia. Russia and Venezuela aren't having any trouble selling their oil either. Moreover, as Iran's production is down, oil prices are up. This, ironically, actually hurts the Saudis too, because it makes oil less competitive against alternatives in the short term, encouraging faster adoption of alternatives that suppress oil prices in the long term.
And Iran's production is only down because of US-led international sanctions, which clearly falls into the category of market power. But they're also the reason the US can't go after the Saudis at the same time, because until we transition away from oil (which takes time), the US economy is still highly sensitive to oil prices, which are already higher due to Iran. The Saudis are actually doing Trump (not to say themselves) a favor by increasing production during the sanctions on Iran.
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...
If you as an individual are going to do something, do the first kind of thing.
I think this touches on another thing I've struggled for clarity on lately. How many degrees of separation do you need before you're willing to take investment from someone linked to something you find morally repugnant? 1 degree is relatively clear cut (though can still get muddy depending on how desperate your situation is). Is 2 degrees enough to decide it's ok? 3 degrees?
At a certain stage, it's arguable that benefiting one end of the chain won't result in observable benefit for the other. Where though? And at what stage does the benefit to society of your project outweigh the negatives of where the money that funds it came from?
First of all, more than just 'degree of separation' matters. You also need to know what fraction comes from bad sources. If it is 3 fronts stacked, you are still essentially dealing with the bad source.
I see 2 options:
1) Flip it. At what standard do I eliminate e.g. 20% of all funding. Or more generally, plot repugnancy against the percentage of funding sources lost, and pick an optimum
2) Make news matter. It might not feel objective to drop a deal for 3 degrees of separation when you read a story. After all, there is probably other stuff that has 3 degrees of separation. However, by reacting to that news you:
* Outsource information gathering to Journalists, who are specialized and do it for many more people than you * Increasing the impact of journalism. By making investors care about what is written about them.
The second point matters, because fear of bad PR is essentially the only capitalist force that pushes companies towards moral behavior.
I'm not sure this is true for oil. For example, long standing sanctions against Iran prevented them from selling a lot of their oil and crippled their economy quite a lot (decreasing their income).
The same could be done with Saudi Arabia if there were will to do it (there isn't, western politicians are too intertwined with Saudi money, especially so in US & UK, to a lesser extent in other western countries but without US/UK approval, no action against Saudis will happen).
Oil would come from other countries, they could increase their output while Saudis are under sanctions. I think it's not as fungible as money (and even with money I don't it's 100% fungible as bank accounts can be frozen, again see Iran).
You're referring to international sanctions (i.e. acting with market power), not something anyone can do at the individual level. Not even the US could do it on their own -- if the US put sanctions on Iran by itself, Iran would just sell to Europe or Asia and not care. The only way it works is if nearly everyone agrees not to buy from them.
But the reason countries don't like sanctions on oil exporting countries isn't that they're ineffective, it's that they raise oil prices.
> Oil would come from other countries, they could increase their output while Saudis are under sanctions.
Yes it would, that's normal for a commodity market. When you remove a supplier, the price increases, which attracts new suppliers who may have higher production costs.
But the relevant part of that dynamic is that the price increases. The problem isn't that oil becomes unavailable, it's that your consumers have to pay more for it and the money goes to other countries you don't really want to enrich.
And if you have an international coalition willing to suffer higher oil prices then the much better alternative is a carbon tax, because then you get the money from the higher prices instead of Russia and OPEC, and can use it for things like subsidizing renewable energy or electric cars to mitigate the cost to your consumers and reduce the length of time you have to pay it.
Perhaps. But I remember there being very high oil prices (way over $100 per barrel) not that long ago. And there were actually less sanctions on oil countries during the time of such high oil prices.
So I'd question whether the market price discovery works for oil prices very well. It could as well be manipulated by OPEC cartel. I have read articles about Saudis lowering oil price by increasing output because they wanted to put pressure on US shale oil companies to put them out of business.
Oil price has been slowly creeping up again so perhaps the cartel has decided to increase the price.
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.
That would be a deal breaker for many potential LPs, and not because all of them are criminals or despots. Some people just don't like others to know what they are doing with their money.
The bottom line is, if enough VCs take this stance, any bad actor that wants to invest will simply put their money into clean shell companies and invest that way, or partner with other, clean LPs. That isn't cynicism, that is reality. If people want to throw money at VCs, they'll do it - one way or another.
If it really doesn't matter where money comes from, they won't object to doing so.
If it really doesn't matter where money comes from, it won't affect their recruiting or marketing.
On the other hand, if company leaders resist the idea of being so transparent, well, maybe that it is a hint.
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.
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.
If you only look at one degree, ie are your direct investors’ money clean, you could also be targeted for laziness in the “supply chain” of your investors’ money. This is similar to problems with blood diamonds, organic foods, unethical coffee etc.
What's needed is a framework and policy in the community for what's acceptable due diligence.
If you reason about everything in extremes, how can any solution ever be acceptable? The worst case for all real-world solutions are always bad.
It has to start with someone saying no.
If we ever wanted to see that money again, we were going to be doing business with them in the future.
It's not as if we were ignorant of their dismal records on human rights and lack of democracy.
We've been throwing money at oil-rich nations for a very long time, and now they have leverage in terms of buying power. What do we have to offer in return? They can buy our startups, our land, and our weapons.