How I Screwed Yasser Arafat out of $2mm (and lost $100mm in the process) | Hacker News Reader

How I Screwed Yasser Arafat out of $2mm (and lost $100mm in the process)

jamesaltucher.com

220 pointscturner70 comments

Moral of the story: When you get a phone call from someone you don't know, working for a company you've never heard of, saying they want to buy your company, be very very careful.

Or insist on an all-cash deal.

Insisting on an all-cash deal doesn't avoid the fact that you've wasted a lot of time if the deal falls through -- and I'm guessing that swindlers like this have an even higher than normal deal-falling-through rate.

First off, nobody swindled anyone of anything. Ahh, I shouldn't even be responding to you.

You phoned 20 companies and said that you wanted to buy them. You promised them ten million dollars which you didn't have. You promised them ten million dollars worth of stock which you knew was worthless (while telling them that it would be worth a hundred million dollars).

You lied, many times over. Maybe to you that's just "being a good salesman"; but to me, that's simply unacceptable.

> phoned 20 companies and said that you wanted to buy them

Not a lie. He actually did buy the company which responded. For more than it received from the former bidder.

> You promised them ten million dollars which you didn't have.

Most of the purchases are made without the hard cash in the bank.

Not a lie. He actually did buy the company which responded.

True, but he didn't want to buy 20 companies. Do you think it's reasonable for a man to ask 20 women to marry him, based on the premise of "19 of them will probably say no"?

For more than it received from the former bidder.

Only if you accept his completely fictitious stock valuation.

Most of the purchases are made without the hard cash in the bank.

Sure, but I'd hope there's usually a fairly clear path to obtaining the cash -- clearer than turning around and selling (part of) the company you just bought.

>> For more than it received from the former bidder.

> Only if you accept his completely fictitious stock valuation

It's about what those who sell are willing to accept. They accepted, they did consider that a better offer.

> Do you think it's reasonable for a man to ask 20 women to marry him

That's obviously a wrong analogy for his search for a company ready to be sold.

> True, but he didn't want to buy 20 companies. Do you think it's reasonable for a man to ask 20 women to marry him, based on the premise of "19 of them will probably say no"?

Oh, come on. Do you think its reasonable to try to buy a car at 20 different dealers, even if you only want one of them?

If I wanted to buy a car, I might go to 20 different dealers and say "I want to buy a car and I'm considering car X", but I wouldn't phone up 20 dealers and say "I want to buy car X" for 20 different values of X.

...but the point of a rollup is that you do want to buy five or seven cars out of those twenty.

>> Sure, but I'd hope there's usually a fairly clear path to obtaining the cash -- clearer than turning around and selling (part of) the company you just bought.

Mezzanine financing? Interest rates suck for that stuff though. In the world of M&As, I don't think stuff like this is uncommon, given what I hear from my finance friends.

Promises based on stock valuations are hollow, unless backed by an option to sell at a fixed price.

>promised them ten million dollars which you didn't have.

When I bought my house I promised the seller an amount of money which I didn't have at the time. There is no difference.

Not having the money at the time of agreeing a sale is routine. Not having the money at the time of the transaction would be unacceptable.

In Canada it's commonplace for people to go to a bank and get pre-approved for a mortgage before they go house-hunting, so that they know how much they can afford to spend.

Are things done differently in the US?

May I point out that the headline does say "screwed".

Well, in hindsight Arafat got screwed but clearly it wasn't the author's intent to do so; he wanted to get rich by taking funding and later selling the company, not by stealing money from the investors.

Interesting that Aether gets mentioned in this article. They raised about $2B in a stock offering at the height of the late 90's bubble and by buying and selling companies they parlayed that into about $100M a few years later. If it were in a movie you would think it was un-believable but in 2004 the still CEO decided to invest the money he had left in leveraged mortgaged backed securities:

http://findarticles.com/p/articles/mi_m0EIN/is_2004_June_8/a...

EDIT: here is a link to a better overview of Aether. Someone should write a book about this company:

http://articles.baltimoresun.com/2004-07-22/news/0407220158_...

> traveling for business almost never generates more revenues

This is not true at all. If you are selling expensive software to enterprises (or organizations of any kind), the only effective way to do it is to travel to their office and give an in person demo.

At least the author acknowledges he didn't deserve to make any money. If he had deployed his deal making skills for a company that actually created value, he would have ended up making a ton of money. This assumes it wasn't just the dot com euphoria driving the deals of course.

Sentences such as:

  There were companies going public then with zero dollars in revenues that were now worth over a hundred trillion dollars.

and

  Jerry Levin might very well have been at the table next to us buying AOL right in front of our eyes.

Make me cringe.

Am I being an idiot to assume that anyone with this kind of success (sure, this story didn't end well for him, but still extremely successful in his attempts to bring in money) ought to be able to write it up in such a way that it doesn't read like a schoolboy's work of fiction?

Yes it certainly sounds like a fiction, but it's really entertaining. I've found the plain bio of the guy here:

http://news.ycombinator.com/item?id=2134825

If anybody knows something useful apart from what he wrote about himself:

http://www.jamesaltucher.com/about/

please add here.

I should mention two things: A) every ounce of the story is true. If you read through my blog you'll see there is no fiction. Many people sometimes question the stories but, for better or for worse, I tend to throw myself into various situations.

B) if you have any questions on my bio, feel free to ask me. Or, I would also advise, checking out the rest of jamesaltucher.com for the answers.

I fucking want to write like this guy.

James, do please tell how you got your writing to be as it is. (no cynicism)

You can probably start here: http://www.jamesaltucher.com/2011/01/how-to-steal-and-get-ri...

Why would business success translate into literary skill?

I'm work in the hard sciences, and those sentences sounds fine to me :)

> I'm work in the hard sciences, and those sentences sounds fine to me

Did you write that on purpose?

Ugh...I'm going to leave that ambiguous.

I think the obvious exaggeration helps to portray the manic environment at the time.

There was no exaggeration at all. If anything, I left a lot out (the trip to CMGI's conference is worth an article all by itself). Plus I left out that RIMM invested and several other well-known funds.

   now worth over a hundred trillion dollars.

Unless there were companies I was unaware of that were worth more than 200 times today's most valuable companies (for example the #1 publicly traded company, Exxon Mobil, which is worth ~$370b or 270 times less that your "hundred trillion dollars", then that was definitively exaggeration.

Yes, that wasn't a key fact in the story, but it does mean you can't claim that "there was no exaggeration at all."

Well, that was a joke. I would say "exaggeration" would be if I said, "we raised $50mm" when we only raised "30mm" in that first round.

The fact that it was written for humour not to mislead doesn't change the fact that it was exaggeration, and for sure I don't think anyone reading it thought you were genuinely trying to mislead people into thinking that companies were actually worth that much. But... it still invalidates the idea of there being no exaggeration ;)

I guess if it were a computer program instead of an article it could be considered exaggeration.

"...if you have to raise thirty million to start your business, its probably not a good business (at least for me)."

I've lost count of the number of articles I've read saying "Startup XYZ Inc just raised $X million!" and a dearth of the "Startup ABC Inc made $X million profit on revenues of $Y million" kind.

It's refreshing to see an article on HN that points out the obvious: if you have such a good business, why doesn't it make any money?

Articles do not get written unless the company pushes for it. They need the publicity when they raise the money, not when they are making money. Its quite simple, really.

Thats totally it. "raising money" is a marketing event for many companies. And then the list of investors put you on a status hierarchy so that you become first in line when Google goes shopping. Or so the CEOs think. I'm almost embarassed when any company I invest in announces their funding. Thats not the real world. The real world is buying something low and sell high. I learned this many times over, some times the hard way.

They don't have to report that sort of thing until they're public, correct? That might be part of it.

As I was reading this I kept trying to think of why I knew the name Vaultus, it was so familiar. And then it hit me. They made the first iphone app for one of our clients, they use some sort of proprietary java system that compiles to iphone blackberry and android and it's TERRIBLE, which is why we came in to build the second version natively. So reading how thrown together their company is explains a lot about how thrown together their software is.

Is it just me or does this article have a pretentious tone to it? Also if you follow the line of thinking in the last paragraph to it's logical conclusion then a lot of people were "screwed" out of their millions of dollars.

I felt the same way, but I interpreted it as the writer's subtle mockery of his earlier "hotshot" self. Towards the end he notes that he made no money off the deal, and that he deserved to make none.

Holy shit, thanks to cturner who posted this. This is going to be the best new blog I find in 2011. This guy is not only a very talented writer and storyteller, he also has a shit ton of stories to tell. Dynamite combination.

I took it straight from a financial times site I follow. http://ftalphaville.ft.com/

But thanks all the same :)

"...and Dennis something or other who just sold a huge Irish telecom company and was worth a random billion or so."

He's talking about Denis O'Brien, a telecoms billionaire:

http://en.wikipedia.org/wiki/Denis_OBrien

And they say what is going on right now is a bubble?

It still is. Not nearly as big as the dot.com one (it was the first bubble, the economy was in better shape, etc) but still a bubble.

We're in a bubble-bust industry. It will be this way for some time.

I think any industry that can show the kind of returns this industry does - "Two Guys in a Garage" Become "$200Bn Market Cap" in about a decade - is going to inspire mania. It's not necessarily a broken model - all farmville jokes aside, I'd wager the overall value of the enormous amount of social well-being that's been spawned by even the few companies that have made it out of the valley far exceeds the money lost to the busts - but the whole place is leverage incarnate.

Yeah, I'm not saying it as judgmentally, just that it is what it is. It's similar to Hollywood, in a sense - an industry where a product can earn you a lot of money or nothing at all, and it's hard to predict which is which.

"Not nearly as big as the dot.com one"

Give it time man. Give it time.

This guy's blog reminds me of Tucker Max, some proud to be a*hole who writes well and is hilariously entertaining.

http://www.jamesaltucher.com/2011/01/how-to-lose-all-your-fr...

2 dollar millimeters? Is this "mm" some odd Americanism?

MM is widely used within the finance industry to mean million(s).

It comes from Latin "Mille" meaning "thousand", so MM is a "thousand thousands" which equals one million.

"MM" is even worse than "mm", because "M" is the international standard abbreviation for 10^6, so MM would by extension mean 10^12.

Except it doesn't. The metric system doesn't work that way.

M is not the international standard abbreviation for 10^6. M is the SI system for 10^6, which is not the same thing - SI has some extra rules.

If you write MM you are clearly not using SI (since it makes no sense in SI), so it's not that hard to figure out.

M has meant 1000 for a lot longer than it's meant 10^6.

And BTW, lowercase m means milli, so by your logic mm should mean 1/1000000 - so tell me again why MM is worse?

I meant to downvote but misclicked, so I'll just comment ars's comment above is to the best of my knowledge much more accurate than yours.

No. It's a financial thing. It looks odd to Americans too.

And BTW, you could have googled that yourself in two seconds.

I used to just say "2M" for $2 million but an editor I had once at thestreet.com said you have to do "$2mm". I don't know whats right worldwide.

In general-audience journalism, $2M or $2m is a lot more common, I believe, though $2mm / $2MM is also used, but less frequently. In finance-industry news it seems to be the opposite.

Compare: http://news.google.com/news/search?aq=f&pz=1&cf=all&... vs. http://news.google.com/news/search?aq=f&pz=1&cf=all&...

Well, you would never say "$2M" to mean $2,000, so either one works and it's really just a matter of house style.

If you are ordering a manufactured good, however, 2M definitely means 2000. There was some hilarity in ordering the first round of MakerBeam parts arising from this; we thought we were going to be getting 2 meter long beams, for a panicked minute.

Yeah thanks. I apologise for taking up some of your pixels.

It might be interesting to you - I played with the representation of that when I posted, but couldn't find anything that was both brief and which looked satisfying so I settled on the same as the original article.

The simplest bio of the author:

http://apps.thestreet.com/cms/rmy/biography.jsp?authorId=100...

American Psycho but with lighter humor. There's definitely some similarities. I'd love to read a book lightly based on the author and his adventures during the bubble.

I don't think you will be disappointed by my other experiences I write about in my blog at jamesaltucher.com

I'd love to hear more stories like this one - except from successful tech startup founder/CEOs :) Not that this one wasn't interesting; it was.

He mentions the Shakespeare & Company on Broadway, but the photo is of Shakespeare & Company in Paris.

P4Wn3d!

But does that make the story worthless?? I think, No!!

Well, I wanted to buy both. Why not?

D) Hiring smart people doesn’t work if you aren’t smart. Everything ultimately comes form the top down.

What are you doing now?

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