October 31, 2016 • 15 mins
When Antonio Garcia Martinez was trying to raise money for his fledgling tech company, he worried that an honest pitch wouldn't get him the funds he needed. So he lied. This week, Brad and Bloomberg Technology's Ellen Huet explore the murky world of early-stage startups -- not just with Antonio but also with one of his startup's investors, as well a business school professor. In the absence of the strict rules governing public companies, are Silicon Valley's entrepreneurs getting away with too much?
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Speaker 1 (00:00):
Back in the fall of two thousand ten, Antonio Garcia
Martinez was sitting in an apartment in the Mission in
San Francisco. Antonio was co founder and CEO of a
brand new startup called ad Rock. It was an exciting
time for him. Yeah, Antonio at the time had just
finished his time at y Combinator, which is kind of
an elite startup accelerator of Silicon Valley. And at the
(00:22):
end of your time at y Combinator, you do a
big presentation in front of a room of entrepreneurs and
investors and show off in two minutes what you've made.
And Antonio's presentation had gone really well, and a bunch
of investors were interested in giving him funding. And now
he's sitting in the apartment of his co founder and
they're all drinking a couple of beers and it's it's thrilling,
(00:43):
and they're right at the precipice of all this opportunity.
And then they get a call from a lawyer representing
their company at Rock, and the news is devastating. It
turns out that their former employer is suing the company
for stealing secrets and stealing intellectual property, and it's basically
a death knell for ad roc because who in the
right mind would invest in a company that is plagued
(01:05):
by lawsuits. So things are looking pretty bad. But because
this is Silicon Valley where crazy dreams sometimes make it through,
and Antonio is a scrappy guy, he's backed into a
corner and he turns to his final resort, which is
something that was definitely dishonest, and as we'll discover later
in the show, of questionable legality as well. And it's
something that happens here in the world of startups a
(01:26):
lot more often than you think. This has been public
companies when we're on Wall Street, we would all have
gone to jail. Right. The level of sort of just
generalized lying, backstabbing, total conflict of interest and spilling of
secrets is just rife in Selicon Valley, and it's just
kind of the way it is. Hi, this is brad
Stone and this is Ellen Hewitt, and this week Undecrypted,
(01:49):
we're bringing you confessions of one startup founder who lie
this away and they're raising money from investors and how
he got away with it. But there's a little bit
of a dirty secret to the way these young startup
founders work and get funded in the valley. No matter
how many charts and spreadsheets you see, a lot of
these numbers are kind of made up, and how could
they not be made up? And these are brand new
businesses creating things that have never existed before. You can't
(02:12):
count on the normal rules of commerce and decency and
transparency to apply here. If you're thinking about going into
angel investing, consider yourself warned. So let's go back to
this moment. In two thousand ten, Antonio was sitting in
front of his spreadsheet trying to get a handle on
what the next year or two was going to look like.
So he's looking at his Excel and on one side
(02:32):
he has the cash that expects to raise, as well
as the revenue that he expects there soon to launch
service to start to bring in and plout it. Against that,
he has all the company's costs and salaries to office rent,
to these very expensive fees that he was gonna have
to pay his lawyers to fight this lawsuit, and it
shows something pretty dire that the company is going to
run out of money in less than a year. Antonio
(02:54):
published a best selling book called Chaos Monkeys that came
out a few months ago, and in the book he
has a passage which describes what he did next, and
we actually had him read that to us. I didn't
show the projections to the boys, I my my co founders,
it would just depress them pointlessly. I also didn't share
it with investors. Ag Rock was dead on arrival if
this got out, so I lied. I diminished the cost
(03:17):
of the lawsuit too far below the Undertaker's projections. The
Undertaker is the sort of grim looking litigator that we
had managed to cajole into defending us. Meanwhile, moving our
projected launch date forward to next month to generate revenues
immediately and impossibility given all the changes the boys were
making to the product. Then I jacked up the growth
rate to an unconscionable amount. It was outright chicanery, cooking
the books in the worst form. But it's either that
(03:39):
or give up now, and surrender was unthinkable. I still
can't believe the investors believe my numbers, but they did.
I mean, we're raising money for the sake of basically
continuing the company, but also defending ourselves with other people's
money effectively, and I love that. It's called the death clock.
Which I think. I mean that you called the spreadsheet
the death clock because it puts into perspective like what's
at stake, which is this or nothing? I mean, you
(04:01):
have no no choice but to try to do what
you could make it happen. And that's the name of
the startup game. Is that learning the game faster than
you burn money? And that is that is the day
I'd say in the death clock, it was literally just
a spreadsheet and it had all our top line items,
which is basically servers, rent and humans. That was it
um against you know, a cash pile, and we plotted
on a graph and I have a metaphor in there
that it kind of looked like one of those infographics
(04:22):
you see with any plane crash, like the planes going
okay and then suddenly something happens and then boom you
have like a smoking crater in the ground. Can you
think back to that time and think about what how
did it feel to cook the books? I mean, what
what was going on in your head when you when
you change these numbers the things you knew were untrue
and not even remotely possible. I mean, I think this
is how moral rationalizing happens. And I think it's fairly
common um. And I applied the same, you know, rational
(04:44):
calculus later when I was considering deceiving my co founders
to go to Facebook instead of Twitter. It's for the
greater good, right, Like everything, the world will be just
be better if we perpetrate this sort of not so
minor lie and get the company funded and continue. And
it turns out I was right. The investors ended up
making money, right. They ended up doubling their money in
six months. So even though investors were fed these complete
(05:08):
fabrications about the future of ad Rock, they still ended
up making a profit, right. And most of that is
things only to Twitter, which decided to buy ad Rock
about six months after the seed rout we're talking about.
If anyone was going to be upset about being lied to,
it would be a guy named Russ Siegelman. Russ was
a longtime venture capitalist at Kleiner Perkins. He was an
(05:28):
angel investor. He was really the biggest backer of ad Rock,
And I called him after the book came out and
asked him how he felt about being lied to. And
here's what he said, Well, I certainly don't approve of
submitting projections to investors or anybody that you don't believe in.
I don't know. I mean, it's not only dishonest, but
(05:49):
it's it's it's just not it's it's not good business practice.
But to be honest with you, the reason I don't
react to strongly to it is because I don't believe
anybody can project with any level of faith, accuracy or correctness, uh,
your revenues when you're at the seed stage. So you know,
(06:10):
I frankly couldn't have even I probably would never have
even noticed that the growth rate was unconsfortably high quote unquote,
because I wouldn't have even looked at it. It's funny
because he asked me for that projection. Do you think
he just wanted to give the impression of reading it
(06:31):
or I think that the big hang up there was
that he no one wants to put money into a
sinking ship, right, And I thought of putting money into
a company that's fighting its way to have lawsuit. And
he felt he was subsidizing Fenwick because I would literally
take money from one rich guy and give it to
another rich guy called a lawyer, and we would just
be the middleman. He didn't want that to happen Fenwick,
by the way, is the law firm that Antonio hired
(06:53):
to defend him in the lawsuit. And so I could
only convince Rest to invest after Fenwick basically a great
loanus the money. And so you know it's possible that
it was you know, it was someone in my head
and he didn't even look at the projections. Maybe it's
interesting because he he is a savvy investor. In Krissock,
it was a savvy investor, and and so it wouldn't
surprise me if for very early companies, you know, projections
(07:13):
are projections, and they don't they don't look at it,
and they're they're evaluating a company more on the quality
of the team and the quality of the idea. Right now,
I think they are canny investors, right And I remember
one investor I won't name, we immediately excluded because you
asked me for a yeah business plan and a cash
flight projection has like the first question he asked and
I never got it to him, and it just it
felt like a very j V movement. And you're absolutely
right there. I think at that stage what you invest
(07:34):
is in the team, not some spreadsheet. So the question
I think that interests us is you know how how
widespread then is as as you describe it, outright chicanery?
Is it? Is it? Is it seed stage startups? Or
does it expand beyond that? Could we see a late
stage company, uh, you know that's not yet public, that
has that same sense of desperation the spotlight is on them,
(07:55):
you know, resort to fudging the numbers? I think a
little bit harder um um. Like a piece of advice
I think I got from Russ actually was at the beginning,
it's easy to sell the dream right before you've actually launched,
because you can tell the story and no one cares
about the numbers. But after the dream has sort of launched,
at some point you have to provide numbers, and maybe
even audited numbers. And so I think if you ask me,
is there is it common to have outright fraud at
(08:18):
large companies just to name names, Not that I know anything,
but like an ubern Airbnb, I think no, there isn't
sort of widespread fraud. Yeah they're being Yeah, there's no
way you'd get away with with that. What what I
did at that level just absolutely I can't imagine that's
that would happen. The reason why this is all funny
money and funny numbers is because not to get too wonky,
the evaluations we're talking about are the theoretical valuation of
(08:38):
the company if the company were to raise another round
and there were these these people are buying their lending
you money on the terms that hey, when you actually
raise money, this is how much I paid per share,
which is less than later investors, and that's that number is.
So it's an input to a theoretical calculation. It sounds
a little bit that it has a little whiff of
pyramid scheme to it. No, No, it absolutely is. Yeah, No,
it does, it does. Just to be sure, I called
(09:01):
up an expert on startups, Rob Siegel, not to be
confused with Russ Siegelman, who we just talked to. Rob
Siegel teaches at Stanford Business School, and he said that
it's true that startups give investors optimistic protections all the time.
When an entrepreneur at the seed level walks in, every
sophisticated investor knows that the forecast is wrong. What you're
(09:24):
looking for is the thought logic that goes into not
the tops down. The market is worth six trillion dollars
and we're going to capture five percent of it. But
how many units of whatever good or service are you
going to sell? And how much are people going to pay?
And how many people are out there that might buy it?
And what's the logic that's gone into that forecast? Are
(09:46):
any customers using it already and are they paying a
company any money? The forecast, by definition are going to
be wrong. It's impossible to know the future exactly, especially
at the seed stage. So institutional investors know that when
something comes in, it's probably aggressive, it's probably uh, slightly overstated.
(10:07):
You hope it's not over lying, but you know, if
somebody's being aggressive, is their logic behind the expected ramp
and forecast? That's completely common and normal. But Rob said
that even in a world where Rosie projections are the norm,
he thinks Antonio crossed the line. So to Russ his
point that he knows that the forecast don't make sense.
(10:29):
I think all vcs and all institutional investors and all
sophisticated angels know that the forecast is going to be wrong.
The question is that they're good logic behind it. The
point about whether or not this is legal that's more
worrisome in this particular example because if an entrepreneur is
knowingly lying, knowing the line that revenues will not commit
(10:51):
at a certain time, knowing the line that the growth
rate is impossible as opposed to aggressive, you know, um
is purposefully cutting down the costs of the expected lawsuit
because the entrepreneur knows it's going to be much higher,
but is knowingly you know, dividing by two. That's where
you get into, you know, potential legal complications because you
(11:15):
are actually misleading investors. You're knowingly misleading in investors. So, Ellen,
you reviewed Chaos Monkeys for Business Week. We talked to Antonio.
Did this episode make you more cynical about Silicon Valley?
You know, I think as a startup reporter covering Silicon Valley,
(11:38):
I get the impression that people lied to me all
the time, but I'm never sure. So reading someone talking
so baldly about it, uh, definitely made me a little
bit more cynical about it. It It made that part of
me that thinks people aren't really honest about the month
or a month growth. That part of me is smaller now.
I guess I'm more inclined to give them the benefit
of the doubt. I mean, I guess I feel like
(11:59):
no one here knows what's around the corner. Everyone's just
trying to do their best impression of being confident about
all these changes, and at least the savvy investors are
going to take any projections with a grain assault. And
I feel maybe Antonio was grandstanding a little bit and
describing what was really typical uncertainty as a sort of
outright falsehood. And another wrinkle is as Silicon valiant and
(12:21):
startups become more popular and people see these huge gains
coming out of it, I think we're gonna see a
lot more people outside of the traditional investors. We're talking celebrities,
other people of high net worth interested in investing in
early stage startups, kind of like Antonio's. And I just
wonder if it means that we should be hoping that
(12:41):
they get more fair information. They don't have the same
savvy that Rusta. They haven't been doing this for thirty
That's a good point, right, do do Britney Spears and
her agent know that that? And Antonio Garcia Martinez may
be making up as numbers should probably not, maybe after
you've written this book. This is a mooch question, But
if you were to make a new startup today and
(13:03):
you and you ended up in a position like this again,
death clock, would you lie? Oh yeah, yeah, I think yeah, yeah,
definitely it's for the great because because when you're in
the ship, you do everything to save the ship. It
just doesn't matter. That's the way it works, right, I
mean why Combinator was still relatively new back in two
thou ten. Do you think that there are more checks
(13:23):
and balances that exist in those programs and other other
incubators to ensure that there's a level of honesty in
the dialogue between investors and entrepreneurs. No, No, I don't
think so. I mean the real is that it's never
lying right like, it's never outright fraud like Obviously I'm
a little hyperbolic in the book, right I've I've I've
(13:43):
personally seen very few cases of like fraud like we
claimed we had a hundred million top line. In fact
it was nothing like. I've never seen that before. But
you could definitely there's all sort of ways you can
lie with statistics and with figures that would impress um,
that would impress and and yse startups. I think maybe
unfairly our character are in the sleeve are famous for
their up into the right graphs and which they rescuyle
the y exist always make look make it look amazing
(14:05):
on demo day, right, And so you know, stuff like
that I think is pretty common, and I think it's
still happened, and there us as point investors are probably
savvy to it and they know they know it. The
better questions why do we even go through the arade? Right?
But I don't know. Actually that's a good question. Well,
and so when when we saw us as answer, which
which came in um uh pretty you know, pretty soon
just before we talk to you, it made me think, um,
(14:26):
you know, Russ has been doing this for decades. He
knows what's up. If you continue to see I think
a trend of more people and we're talking like celebrities
or other rich people with with cash who want to
get in on startups and and seeing investing is very
um attractive to them. Do you think that changes the
moral calculus at all? Like is there more of a
responsibility to be up front? You'd like to think so,
(14:49):
but not really. It's like the battlefield and there's like
no women and children out there, right, and like if
you show up and you're you know, it's like the
old drug about like we're sitting at the poker table
and you you don't know who the sucker is. Then it's
you right then, like you know still can value still
that way? There it is, And that's it for this
week's episode of Decrypted. Thanks for listening. We're a brand
new show and we'd love your help in spreading the word.
(15:11):
If you have an iPhone, please subscribe to the show
on your native podcast app and leave us a rating
and a review there. You can also rate and review
us on iTunes, and we're on a bunch of other
platforms like SoundCloud, pocket Cast, and Stitcher. And tell us
what you thought of today's show. Write me on Twitter
at at Bradstone and I'm on Twitter at Ellen Hewitt.
This episode was produced by Magnus Hendrickson and Liz Smith
(15:34):
and aki Ito. Aaron Black assisted with recording Alec McCabe
as head of Bloomberg Podcast. We'll see you next week.
Back in the fall of two thousand ten, Antonio Garcia
Martinez was sitting in an apartment in the Mission in
San Francisco. Antonio was co founder and CEO of a
brand new startup called ad Rock. It was an exciting
time for him. Yeah, Antonio at the time had just
finished his time at y Combinator, which is kind of
an elite startup accelerator of Silicon Valley. And at the
(00:22):
end of your time at y Combinator, you do a
big presentation in front of a room of entrepreneurs and
investors and show off in two minutes what you've made.
And Antonio's presentation had gone really well, and a bunch
of investors were interested in giving him funding. And now
he's sitting in the apartment of his co founder and
they're all drinking a couple of beers and it's it's thrilling,
(00:43):
and they're right at the precipice of all this opportunity.
And then they get a call from a lawyer representing
their company at Rock, and the news is devastating. It
turns out that their former employer is suing the company
for stealing secrets and stealing intellectual property, and it's basically
a death knell for ad roc because who in the
right mind would invest in a company that is plagued
(01:05):
by lawsuits. So things are looking pretty bad. But because
this is Silicon Valley where crazy dreams sometimes make it through,
and Antonio is a scrappy guy, he's backed into a
corner and he turns to his final resort, which is
something that was definitely dishonest, and as we'll discover later
in the show, of questionable legality as well. And it's
something that happens here in the world of startups a
(01:26):
lot more often than you think. This has been public
companies when we're on Wall Street, we would all have
gone to jail. Right. The level of sort of just
generalized lying, backstabbing, total conflict of interest and spilling of
secrets is just rife in Selicon Valley, and it's just
kind of the way it is. Hi, this is brad
Stone and this is Ellen Hewitt, and this week Undecrypted,
(01:49):
we're bringing you confessions of one startup founder who lie
this away and they're raising money from investors and how
he got away with it. But there's a little bit
of a dirty secret to the way these young startup
founders work and get funded in the valley. No matter
how many charts and spreadsheets you see, a lot of
these numbers are kind of made up, and how could
they not be made up? And these are brand new
businesses creating things that have never existed before. You can't
(02:12):
count on the normal rules of commerce and decency and
transparency to apply here. If you're thinking about going into
angel investing, consider yourself warned. So let's go back to
this moment. In two thousand ten, Antonio was sitting in
front of his spreadsheet trying to get a handle on
what the next year or two was going to look like.
So he's looking at his Excel and on one side
(02:32):
he has the cash that expects to raise, as well
as the revenue that he expects there soon to launch
service to start to bring in and plout it. Against that,
he has all the company's costs and salaries to office rent,
to these very expensive fees that he was gonna have
to pay his lawyers to fight this lawsuit, and it
shows something pretty dire that the company is going to
run out of money in less than a year. Antonio
(02:54):
published a best selling book called Chaos Monkeys that came
out a few months ago, and in the book he
has a passage which describes what he did next, and
we actually had him read that to us. I didn't
show the projections to the boys, I my my co founders,
it would just depress them pointlessly. I also didn't share
it with investors. Ag Rock was dead on arrival if
this got out, so I lied. I diminished the cost
(03:17):
of the lawsuit too far below the Undertaker's projections. The
Undertaker is the sort of grim looking litigator that we
had managed to cajole into defending us. Meanwhile, moving our
projected launch date forward to next month to generate revenues
immediately and impossibility given all the changes the boys were
making to the product. Then I jacked up the growth
rate to an unconscionable amount. It was outright chicanery, cooking
the books in the worst form. But it's either that
(03:39):
or give up now, and surrender was unthinkable. I still
can't believe the investors believe my numbers, but they did.
I mean, we're raising money for the sake of basically
continuing the company, but also defending ourselves with other people's
money effectively, and I love that. It's called the death clock.
Which I think. I mean that you called the spreadsheet
the death clock because it puts into perspective like what's
at stake, which is this or nothing? I mean, you
(04:01):
have no no choice but to try to do what
you could make it happen. And that's the name of
the startup game. Is that learning the game faster than
you burn money? And that is that is the day
I'd say in the death clock, it was literally just
a spreadsheet and it had all our top line items,
which is basically servers, rent and humans. That was it
um against you know, a cash pile, and we plotted
on a graph and I have a metaphor in there
that it kind of looked like one of those infographics
(04:22):
you see with any plane crash, like the planes going
okay and then suddenly something happens and then boom you
have like a smoking crater in the ground. Can you
think back to that time and think about what how
did it feel to cook the books? I mean, what
what was going on in your head when you when
you change these numbers the things you knew were untrue
and not even remotely possible. I mean, I think this
is how moral rationalizing happens. And I think it's fairly
common um. And I applied the same, you know, rational
(04:44):
calculus later when I was considering deceiving my co founders
to go to Facebook instead of Twitter. It's for the
greater good, right, Like everything, the world will be just
be better if we perpetrate this sort of not so
minor lie and get the company funded and continue. And
it turns out I was right. The investors ended up
making money, right. They ended up doubling their money in
six months. So even though investors were fed these complete
(05:08):
fabrications about the future of ad Rock, they still ended
up making a profit, right. And most of that is
things only to Twitter, which decided to buy ad Rock
about six months after the seed rout we're talking about.
If anyone was going to be upset about being lied to,
it would be a guy named Russ Siegelman. Russ was
a longtime venture capitalist at Kleiner Perkins. He was an
(05:28):
angel investor. He was really the biggest backer of ad Rock,
And I called him after the book came out and
asked him how he felt about being lied to. And
here's what he said, Well, I certainly don't approve of
submitting projections to investors or anybody that you don't believe in.
I don't know. I mean, it's not only dishonest, but
(05:49):
it's it's it's just not it's it's not good business practice.
But to be honest with you, the reason I don't
react to strongly to it is because I don't believe
anybody can project with any level of faith, accuracy or correctness, uh,
your revenues when you're at the seed stage. So you know,
(06:10):
I frankly couldn't have even I probably would never have
even noticed that the growth rate was unconsfortably high quote unquote,
because I wouldn't have even looked at it. It's funny
because he asked me for that projection. Do you think
he just wanted to give the impression of reading it
(06:31):
or I think that the big hang up there was
that he no one wants to put money into a
sinking ship, right, And I thought of putting money into
a company that's fighting its way to have lawsuit. And
he felt he was subsidizing Fenwick because I would literally
take money from one rich guy and give it to
another rich guy called a lawyer, and we would just
be the middleman. He didn't want that to happen Fenwick,
by the way, is the law firm that Antonio hired
(06:53):
to defend him in the lawsuit. And so I could
only convince Rest to invest after Fenwick basically a great
loanus the money. And so you know it's possible that
it was you know, it was someone in my head
and he didn't even look at the projections. Maybe it's
interesting because he he is a savvy investor. In Krissock,
it was a savvy investor, and and so it wouldn't
surprise me if for very early companies, you know, projections
(07:13):
are projections, and they don't they don't look at it,
and they're they're evaluating a company more on the quality
of the team and the quality of the idea. Right now,
I think they are canny investors, right And I remember
one investor I won't name, we immediately excluded because you
asked me for a yeah business plan and a cash
flight projection has like the first question he asked and
I never got it to him, and it just it
felt like a very j V movement. And you're absolutely
right there. I think at that stage what you invest
(07:34):
is in the team, not some spreadsheet. So the question
I think that interests us is you know how how
widespread then is as as you describe it, outright chicanery?
Is it? Is it? Is it seed stage startups? Or
does it expand beyond that? Could we see a late
stage company, uh, you know that's not yet public, that
has that same sense of desperation the spotlight is on them,
(07:55):
you know, resort to fudging the numbers? I think a
little bit harder um um. Like a piece of advice
I think I got from Russ actually was at the beginning,
it's easy to sell the dream right before you've actually launched,
because you can tell the story and no one cares
about the numbers. But after the dream has sort of launched,
at some point you have to provide numbers, and maybe
even audited numbers. And so I think if you ask me,
is there is it common to have outright fraud at
(08:18):
large companies just to name names, Not that I know anything,
but like an ubern Airbnb, I think no, there isn't
sort of widespread fraud. Yeah they're being Yeah, there's no
way you'd get away with with that. What what I
did at that level just absolutely I can't imagine that's
that would happen. The reason why this is all funny
money and funny numbers is because not to get too wonky,
the evaluations we're talking about are the theoretical valuation of
(08:38):
the company if the company were to raise another round
and there were these these people are buying their lending
you money on the terms that hey, when you actually
raise money, this is how much I paid per share,
which is less than later investors, and that's that number is.
So it's an input to a theoretical calculation. It sounds
a little bit that it has a little whiff of
pyramid scheme to it. No, No, it absolutely is. Yeah, No,
it does, it does. Just to be sure, I called
(09:01):
up an expert on startups, Rob Siegel, not to be
confused with Russ Siegelman, who we just talked to. Rob
Siegel teaches at Stanford Business School, and he said that
it's true that startups give investors optimistic protections all the time.
When an entrepreneur at the seed level walks in, every
sophisticated investor knows that the forecast is wrong. What you're
(09:24):
looking for is the thought logic that goes into not
the tops down. The market is worth six trillion dollars
and we're going to capture five percent of it. But
how many units of whatever good or service are you
going to sell? And how much are people going to pay?
And how many people are out there that might buy it?
And what's the logic that's gone into that forecast? Are
(09:46):
any customers using it already and are they paying a
company any money? The forecast, by definition are going to
be wrong. It's impossible to know the future exactly, especially
at the seed stage. So institutional investors know that when
something comes in, it's probably aggressive, it's probably uh, slightly overstated.
(10:07):
You hope it's not over lying, but you know, if
somebody's being aggressive, is their logic behind the expected ramp
and forecast? That's completely common and normal. But Rob said
that even in a world where Rosie projections are the norm,
he thinks Antonio crossed the line. So to Russ his
point that he knows that the forecast don't make sense.
(10:29):
I think all vcs and all institutional investors and all
sophisticated angels know that the forecast is going to be wrong.
The question is that they're good logic behind it. The
point about whether or not this is legal that's more
worrisome in this particular example because if an entrepreneur is
knowingly lying, knowing the line that revenues will not commit
(10:51):
at a certain time, knowing the line that the growth
rate is impossible as opposed to aggressive, you know, um
is purposefully cutting down the costs of the expected lawsuit
because the entrepreneur knows it's going to be much higher,
but is knowingly you know, dividing by two. That's where
you get into, you know, potential legal complications because you
(11:15):
are actually misleading investors. You're knowingly misleading in investors. So, Ellen,
you reviewed Chaos Monkeys for Business Week. We talked to Antonio.
Did this episode make you more cynical about Silicon Valley?
You know, I think as a startup reporter covering Silicon Valley,
(11:38):
I get the impression that people lied to me all
the time, but I'm never sure. So reading someone talking
so baldly about it, uh, definitely made me a little
bit more cynical about it. It It made that part of
me that thinks people aren't really honest about the month
or a month growth. That part of me is smaller now.
I guess I'm more inclined to give them the benefit
of the doubt. I mean, I guess I feel like
(11:59):
no one here knows what's around the corner. Everyone's just
trying to do their best impression of being confident about
all these changes, and at least the savvy investors are
going to take any projections with a grain assault. And
I feel maybe Antonio was grandstanding a little bit and
describing what was really typical uncertainty as a sort of
outright falsehood. And another wrinkle is as Silicon valiant and
(12:21):
startups become more popular and people see these huge gains
coming out of it, I think we're gonna see a
lot more people outside of the traditional investors. We're talking celebrities,
other people of high net worth interested in investing in
early stage startups, kind of like Antonio's. And I just
wonder if it means that we should be hoping that
(12:41):
they get more fair information. They don't have the same
savvy that Rusta. They haven't been doing this for thirty
That's a good point, right, do do Britney Spears and
her agent know that that? And Antonio Garcia Martinez may
be making up as numbers should probably not, maybe after
you've written this book. This is a mooch question, But
if you were to make a new startup today and
(13:03):
you and you ended up in a position like this again,
death clock, would you lie? Oh yeah, yeah, I think yeah, yeah,
definitely it's for the great because because when you're in
the ship, you do everything to save the ship. It
just doesn't matter. That's the way it works, right, I
mean why Combinator was still relatively new back in two
thou ten. Do you think that there are more checks
(13:23):
and balances that exist in those programs and other other
incubators to ensure that there's a level of honesty in
the dialogue between investors and entrepreneurs. No, No, I don't
think so. I mean the real is that it's never
lying right like, it's never outright fraud like Obviously I'm
a little hyperbolic in the book, right I've I've I've
(13:43):
personally seen very few cases of like fraud like we
claimed we had a hundred million top line. In fact
it was nothing like. I've never seen that before. But
you could definitely there's all sort of ways you can
lie with statistics and with figures that would impress um,
that would impress and and yse startups. I think maybe
unfairly our character are in the sleeve are famous for
their up into the right graphs and which they rescuyle
the y exist always make look make it look amazing
(14:05):
on demo day, right, And so you know, stuff like
that I think is pretty common, and I think it's
still happened, and there us as point investors are probably
savvy to it and they know they know it. The
better questions why do we even go through the arade? Right?
But I don't know. Actually that's a good question. Well,
and so when when we saw us as answer, which
which came in um uh pretty you know, pretty soon
just before we talk to you, it made me think, um,
(14:26):
you know, Russ has been doing this for decades. He
knows what's up. If you continue to see I think
a trend of more people and we're talking like celebrities
or other rich people with with cash who want to
get in on startups and and seeing investing is very
um attractive to them. Do you think that changes the
moral calculus at all? Like is there more of a
responsibility to be up front? You'd like to think so,
(14:49):
but not really. It's like the battlefield and there's like
no women and children out there, right, and like if
you show up and you're you know, it's like the
old drug about like we're sitting at the poker table
and you you don't know who the sucker is. Then it's
you right then, like you know still can value still
that way? There it is, And that's it for this
week's episode of Decrypted. Thanks for listening. We're a brand
new show and we'd love your help in spreading the word.
(15:11):
If you have an iPhone, please subscribe to the show
on your native podcast app and leave us a rating
and a review there. You can also rate and review
us on iTunes, and we're on a bunch of other
platforms like SoundCloud, pocket Cast, and Stitcher. And tell us
what you thought of today's show. Write me on Twitter
at at Bradstone and I'm on Twitter at Ellen Hewitt.
This episode was produced by Magnus Hendrickson and Liz Smith
(15:34):
and aki Ito. Aaron Black assisted with recording Alec McCabe
as head of Bloomberg Podcast. We'll see you next week.
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