The tech industry is shifting away from nice guys

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: lawrence@krubner.com

Interesting:

Here’s the problem. Every venture capitalist, in every interview they’ve ever done will tell you the same casual lie: That they invest in people first and ideas second. They’ll tell you they invest only in people they’d want to work with. They’ll tell you that they have the luxury to say no to companies that don’t do things in line with the way they like to work, the way they like to treat people.

You don’t have to look too far into this year’s frenzied pace of dealmaking, and at the price tags of those deals to know that’s complete bullshit. In all too many cases, what venture capitalists are investing in is assholes.

It’s weighing on those who’ve been in the business for decades, and I’ve been having conversations about it all summer. A senior partner at a top firm recounted a partner meeting at breakfast recently.

“Why are we backing this guy?” he said to a younger rainmaker at the firm. “He’s an asshole.”

His partner replied: “Hey, you gotta get over it. It’s no longer about whether someone is an asshole it’s about can he make money.”

That conversation happened a year ago. Said this multi-decade veteran of the business: “It didn’t use to be that way.”

As an industry we need to think about what that means. Think about what the line is—either in terms of bad behavior or opportunity. Decide when an asshole is a functional asshole or just an asshole. Own it even. But most of all we need to stop lying to ourselves: This is an ecosystem with many successful nice guys, but they didn’t get funded by being nice.

…Let’s name some of the biggest perpetrators of what I’m talking about.

Snapchat. There’s been plenty of intrigue and rumors about the behavior and ethics of CEO founder Evan Spiegel around venture circles. He’s never been considered a warm and fuzzy guy, but the truly horrifying glimpse into his soul came from a batch of leaked college emails where he told his fraternity brothers to “have some girl put your large kappa sigma dick down her throat.” And that wasn’t even the worst. Spiegel has apologized, and the emails weren’t written while he was running Snapchat, but nor were they written that long before. More worryingly, unlike a lot of examples on this list, there appear to have been zero repercussions. Snapchat is rumored to be raising a round at a heady $10 billion valuation—including participation by the well-heeled Kleiner Perkins.

Uber. Where to begin with Uber? It’s a company that prides itself on playing rough and aiming to break laws. It has a self-described “war room” inside its new hard-edged headquarters. It’s played fast and loose with background checks on drivers and with the truth. A Pando investigation earlier this year showed that a driver accused of assault whom the company blindly defended had a criminal record that should have been caught in Uber’s background checks. More recently, it’s hired a campaign manager to shape the company’s narrative. This is an area CEO Travis Kalanick already knows plenty about, if we understand ‘shaping the company’s narrative’ to mean slinging mud and misleading the public in an image war between Uber and taxi companies.

Not only has Uber vilified riders accusing their drivers of rape, assault or general bad behavior, they’ve also betrayed all their drivers; Kalanick has said he can’t wait to replace them all with self-driving cars. Time and again, he’s shown he is loyal to little more than his growing bank account and to the all-mighty free market. The Verge recently exposed a campaign called SLOG, publishing internal documents that detail a plan for agents to pose as passengers to recruit drivers from competitor Lyft and vie to tie up their cars so they couldn’t pick up passengers.

Oh. And in a recent interview Kalanick bragged about how many ladies he could get with the success of the company referring to it as “boob-er.”

Uber has raised a jaw-dropping $1.5 billion, with its most recent $1.2 billion round coming at a rumored $17 billion valuation. No one doubts egomaniacal stories like the one where Kalanick publicly offered a job to a well-heeled investor at the elite Goldman Sachs conference who asked an astute question of the CEO. Still, he’s widely considered one of the best entrepreneurs of our age.

Secret. Most of the companies on this list and in this article do some good in the world, despite asshole-ish behavior on the part of the founders. You could even argue that the same qualities that make Kalanick and Spiegel such assholes are also what make them so incredibly effective as CEOs. Spiegel would need something a bit “wrong” with him to turn down $3.5 billion from Mark Zuckerberg, and Kalanick is just the kind of guy to think he can overturn the world’s most powerful transportation lobby city-by-city. Perhaps nice guys simply couldn’t do those things. But Secret is the lone exception to any of that, and hence, for my money, the worst one on this list.

The company exists for the sole purpose of writing things without accountability, and when Pando wrote about the concern for bullying and potential suicides, founder David Byttow replied on Twitter that we didn’t drive enough traffic to the site to address our concerns. This wasn’t really too much of a hypothetical. The app store ratings showed people actually boasting the service was a bully’s dream.

Astoundingly, his head of PR Tweeted that it was hard when people wrote things about her or her company without any accountability. Hey, at least we used our names. Only after a subsequent story was picked up widely, on the front page of the Huffington Post and in Fortune, did Byttow change his tune. Weeks later, the company grudgingly admitted there was no context in which you anonymously write nice things about someone. He did what we recommended and blocked any posts with specific names attached. Secret has raised $36 million—including a $6 million cash out for the founders.

Rap Genius. One of the most bizarre examples, in terms of a company engaging in bad behavior without suffering immediate repercussions, was Rap Genius, now called simply Genius. Co-founder Mahbod Moghadam was involved in a series of startling incidents before finally being forced out. These included shady practices that got the site penalized by Google and an annotation of the manifesto of Elliot Rodger, who stabbed three people and shot three others outside of UC-Santa Barbara. Moghadam noted it was “beautifully written” and speculated the killer’s sister might be “smokin’ hot.” The annotation was finally enough to have him pushed out of the company. However, a string of errors and abuses prior to this should have served as a warning of what was to come. And sadly, if Genius was doing as well as Snapchat or Uber, and he was the sole founder, he probably wouldn’t have been fired. The company has raised a whopping $56.8 million from some of the largest investors in the world.

Tinder. Tinder’s CMO Justin Mateen was accused by former VP of Marketing Whitney Wolfe of sexual harassment. She further accused the company, its CEO and its parent company IAC-owned Match.com of knowingly letting these abuses occur and wrongfully terminating Wolfe when she called the behavior into question. Mateen was suspended when the case came out. There are many unknown details of what actually occurred here and even more conflicting accounts in the press. But, as we wrote at the time, the news was unlikely to have any business repercussions for Tinder since it’s not an ad-based business model, and it’s already full owned by IAC and hence not open to the whims of venture investors. Further, it’s an app whose principle selling point is about making snap judgements based on someone’s appearance and keeping them or discarding them. Not exactly a “pearl clutching” crowd when it comes to this type of behavior.

Crunchfund. Many in the industry were agog when it was reported that Crunchfund had raised a second fund. Its controversial founder Michael Arrington (who is a Pando investor and was fired from our board two years ago) was accused by an ex-girlfriend of rape and abuse, a scandal that was widely reported and even written up in a large Vanity Fair profile back in December 2013. The claims were retracted after Arrington sued his accuser but following the claims, several other figures in the tech industry came forward to accuse Arrington of a pattern of abusive, bullying behavior to both men and women. But that didn’t matter. Even before the initial claims were retracted, investors had committed to a second fund.

And more to the point: Crunchfund wasn’t exactly killing it. The biggest hits had been investments in companies like Yammer and Tumblr which just got over the $1 billion Mendoza line. Even in those “hits” Crunchfund’s partners invested too little, too late for it to return the fund. Other early bets like Mailbox generated excitement but were acquired very early on.

A lot of this has to do with the bizarre co-dependent relationship between Arrington and AOL. AOL— which bought TechCrunch—took the majority of the fund both times, never mind this was a company that publicly and unceremoniously fired Arrington before sheepishly hiring him back because it needed someone to interview big name founders at its conferences.

These may be some of the more public examples, but they aren’t the only ones. And behind each of these are more reports of fucked over partners, promises made and then broken, and a general attitude that there are no repercussions for bad behavior. In fact, if you look at the valuations of Snapchat and Uber, it appears to be rewarded these days at higher and higher prices.

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