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Comment by game_the0ry | Hacker News Reader

I struggle to understand the psychology of how founders who are clearly incompetent charlatans get second+ chances -- they couldn't do fraud successfully but investors have a faith they could do business successfully. But they still get funding (like adam neumann of wework fame) and full on "narrative tongue baths" by the business media community (like this wsj article on trevor milton).

Why? I struggle to understand the incentives + motivations here.

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"Hey this guy fooled a lot of people last time and the people who got in and out early made a killing. This time I'm going to get in early."

"He's got the hustle to do what it takes to succeed and is unencumbered by a moral compass. Gotta break a few eggs to make an omelet."

"Pssh that's nothing compared to the fraud I committed to get here. Fake it till you make it baby!"

"It takes balls to defraud powerful people and then do it again. I respect the machismo."

Take your pick.

"I respect the machismo."

I believe the word he was looking for is "chutzpah", and no, it isn't a virtue, and no, it cannot be respected.

Trash.

“gall” has the more negative connotations.

Unmitigated gall, even.

Whan I go to the Stacioners, I ever aske for mitigated Gal and meteoric Iron fillings. I fynde that it maketh the derkest and most persistente inke. Make sure that thou onlie bye swan quill, not goose, and specifie that they sholde onlie be from the right-handed wing.

This was the lesson from the Fyre Festival debacle. Most of his inside partners and enablers knew he wasn’t likely to succeed. They just saw an opportunity to benefits themselves and made sure their own risk was limited.

In return, he got to trade on their reputation which allowed him to rope in more respectable partners and appear more legitimateto potential customers. It’s a vicious cycle.

>"Pssh that's nothing compared to the fraud I committed to get here. Fake it till you make it baby!"

See also:

"the powers that be could nail anyone they scrutinized for what they got him for, the conviction means nothing".

It's definitely the first one. People at the upper echelons of the pyramid know how exactly unstable it is, but hope to grift off of the latecomers

The past failure is in the abstract, and in the past. And anyway, they were unfairly maligned. There is an inside version of the story that they will be happy to tell you, which was clearly not their fault.

But that is neither here nor there. What is important is the now, and in the now you are in the presence of someone who is Good At Making Money. And you too, by joining forces, will be Making Lots Of Money with this charismatic person, who can clearly achieve great things and will be clearly avoiding any past missteps that may have caused their downfall right before reaching greatness (but weren’t their fault anyway).

Think of the future, not the past!

This guy is a crook. Every adjective you could use to describe this guy goes against my core values.

I suspect the person you replied to was being subtly sarcastic. edit: but honestly, I'm not sure.

It's hard for me to tell because I've seen this multiple times in my career (in tech). People wasting investors' money getting funding over and over while those actually building stuff get suppressed.

I swear there are some people who control a lot of money who are just having fun ruining people's lives for laughs.

There are people who spend years working for some company, betting their career on it but it turns out the whole thing was some kind of inside joke.

My view is that some companies are basically somebody's toy and the employees are part of the entertainment like a personal reality TV show for some rich person so they can play-act as a hotshot entrepreneur.

Probably it serves as some kind of inflation control mechanism. If you have a lot of money and want to spend it without driving inflation, you have to find things with extreme diminishing returns and you have to invest in people who value such things.

Thanks for the reply.

The only thing I can add (regarding the motivations of people willing to invest with a fraudster) is that many people invest with the belief that they'll make money because they are just part of the scam and they assume there's a greater fool somewhere down the line.

But that's probably obvious.

I thought I was laying on the sarcasm pretty thick. But I guess it’s harder and harder to tell these days!

There is no tone of voice in writing. This is part of the problem with written social media. Some writers will say "only an idiot would believe what I wrote", showing themselves to be adversarial in their communications. I don't think that's you in this case.

Dry humor wouldn't work if tone was necessary. Tone is a bit on the nose.

I took as beyond sarcasm, just a simple explanation of how they manage to keep going written in the first person. From my perspective it is incredible anybody could misunderstand.

That's how I took it too, and didn't realize someone might read it otherwise, but I can see how it could be misunderstood if someone isn't paying as much attention.

It was very thick, IMO.

Airplane shaped blimp, here we go! =)

The reason for this is the same as why real estate is so expensive and the price of gold is so high. There is far too much capital accumulation among the ultra-wealthy, who don’t know what to do with all that money. The expertise of someone like this founder lies simply in recognizing that this is the case and that it can be monetized.

There was a great Money Stuff blurb about that w/r/t Adam Neumann. I can't find it to quote it directly, but the gist was that if you disabuse yourself of the notion that Neumann was playing a game of entrepreneurship and good-faith empire building, and instead conclude that the game he was playing was shameless capital extraction, every step and action he took suddenly makes sense.

The truly amazing thing, especially the second time around, are the supposedly sophisticated investors who fall for it. "Oh, he's learned his lesson -- he won't do it again!".

> ...if you disabuse yourself of the notion that Neumann was playing a game of entrepreneurship and good-faith empire building, and instead conclude that the game he was playing was shameless capital extraction, every step and action he took suddenly makes sense.

Sort of. I get the capital extraction part, but you also need to be a good steward of capital and make a profitable business out of it. He failed badly at the later part, and his reputation is an obstacle for the former.

Not saying you are wrong, but if I am a "capital allocator" at a16z, he would be no-go.

IMO you're being unfair; he talked his way into getting paid half a billion dollars for wework, and he's now a billionaire. That's a massive success at capital extraction.

This is too cynical for even a turbo cynic like me.

Basically, you’re saying he mislead investors and got a bunch of money, so those investors see themselves being ripped off as a valuable skill, so they invest in him again. Wut?

I say again — why would investors trust him if his only track record is losing investor money?

I misinterpreted you; I was arguing that he's already succeeded completely, so it doesn't matter if anyone gives him more money.

But, IMO the reason they're still giving him more money is that they're stupid and greedy. They know WeWork was a disaster, but it was a huge disaster. That shows them he's good at running a con, and they want to get in on the next one.

Class solidarity doesn't hurt either. Being a billionaire makes him an actual person in the eyes of other rich people.

EDIT: Also, it's funny you used a16z as an example:

> Not saying you are wrong, but if I am a "capital allocator" at a16z, he would be no-go.

because Andreesen Horowitz are the ones investing in his new WeWork 2.0 startup Flow.

> I say again — why would investors trust him if his only track record is losing investor money?

Because they look at a serial fraudster and see themselves in him.

If you know he is good at duping investors then you know he is good at gaining investors, and if you think you will be able to well time your exit you will make a shit ton of money off the other investor's investment. Many investors are just straight up gamblers and risk is just part of the game.

Its like people who invest into a ponzi scheme knowing full well it is a ponzi scheme, just thinking they are smart enough to leave before it all comes crashing down. And once you get enough critical mass, other people will invest based entirely on the fact that there is a lot of other investors and a rising price.

Ironically Neumann's latest startup is funded by a16z.

Some of those sophisticated investors are also engaged in shameless capital extraction. Their investment thesis is based on the "Greater Fool Theory": they're gambling that they can dump the inflated assets on another bag holder before it blows up.

But they might end being the bag holder themselves. And is the reputational risk worth it? I would say - no.

Reputational risk is dead. All publicity is good publicity, the alternative is obscurity aka being a loser

> And is the reputational risk worth it?

Yes! The only metric that matters is assets under management, since that’s where funds take their cut. Nothing else matters.

A16Z used to be a respected investor, then they went crazy deep into crypto scams and their AUM exploded, so they made more money than ever before.

To be fair that theory works handsomely.

It's distribution. Guy's got a brand name now. People and investors recognize his name. It's a lot easier to find an absolute quantity N of investor money for a fraudulent but well-known name than it is for an unknown upstart.

The fraud might have a low close rate but the top of the funnel is huge. The unknown upstart can't even get meetings.

He might credibly have access to federal bailout, too. That's worth something.

His “brand” is “torching investor money.”

Still don’t get it.

Charisma and connections are pretty much all it takes. Really only connections are needed but since these people are coming back from being exposed they need charisma to assuage the concerns of their connections.

I remember listening to a podcast (possibly complex systems?) that said the best way to find what kinds of frauds are out there is by looking at what known fraudsters are up to.

[0] It might have been this one, but I can't find it in the transcript https://www.complexsystemspodcast.com/episodes/fraud-as-infr...

I recently invested a small amount of money in an early stage company where I had to declare I was either a 'high net worth individual' or a 'sophisticated investor'. The mutually exclusive clause seemed important to me.

Maybe you become both by not investing in such a company.

And the beauty is that one also becomes not both by investing in such a company!

In the US, we have this class called “accredited investor”

The type of person who funders fall for is a personality type. That they have failed in the past doesn't matter, they fall in love anyway. This time is different.

Venture guys aren't as smart or analytical as their propaganda would lead one to believe. A lot of them are just people who got lucky once.

I can guarantee you that Elizabeth Holmes will get a big bunch of funding for a new startup as soon as she's out of jail.

Even with SBF I'm 50/50 on that.

A lot of companies are currently doing what (if you squint) Holmes was claiming Theranos would be able to do a decade ago. I agree with you that this is enough for her to claim, plausibly to some, that she was basically on the right track.

SBF, similarly, happened to have FTX invest in Anthropic early, and while we don't know how that's gonna play out now that they're at odds with the DoW, the value of Anthropic has already increased enough that it would have made whole all the money he was wasting/embezzling, so there's going to be a path for people to claim that he's directionally worth investing more money in, if he's out anytime soon.

> SyberJet’s own history shows the challenges. Over the past 40 years, an eclectic mix of financiers from Dubai to Taiwan invested hundreds of millions of dollars in developing the plane maker’s lightweight business jets. But in all that time just four planes made it into the hands of customers.

Putting two and two together it seems to me that this business is a front for money laundering or something.

A lot of the investors are also bullshitters so they like bullshitting founders. I see a similar thing in companies. People wonder why people who don’t produce much but are politically savvy are moving up. The answer that most leadership is the same so they recognize each other.

These fraudsters who get second chances have got blackmail. Trust me, all the people we see in the media are sharks. They only help each other if they feel a threat or have something to gain.

Like it or not these people know how to contact people who hand out money. That is really the skill in the VC world, not competence in some domain. It is a fundraising job. It takes charisma. Just got to keep the music going until you cash out. How many founders are actually trying to make a company last 100+ years, vs securing retirable wealth early in life?

This come up in a subthread last week https://news.ycombinator.com/item?id=47305450

My guess is that they're good talkers. They make it sounds like they learned their lesson or were framed but regardless if you hire them they'll make you rich!

Well, here we all are clicking the link and engaging in a discussion on the loathsome creep. Attention, attention.

Does anybody know his investors? I'd like an intro:)

Because those investors have exactly same moral and ethical framework. The fraud is just another legitimate way to make money to them. It is the same thing with Epstein or meetoo ... they were actually fine with all that and whoever complains is just pesky idiot.

This article is not praising trevor milton tho.

Look how many people couldn't care about Epstein and the fact he was a convicted sex offender. Bill Gates didn't care and he was literally the richest person in the world at one point.

The rich VCs and billionaires and aspirational billionaires only care about doing what they want to do and don't care what the peons like us think or care about.

some of the 'investors' use such as investments as tax-write offs

Greater fool theory.

My assumption is that the people he's working with today also would like to do some fraud, and are hoping he'll be better at it this time.

And/or they're part of the Trump rich people's club. They all tend to stick together and help each other.

They are charismatic. They know how to work people.

If you've ever worked with narcissists and sociopaths, you'll soon enough discover that they will do anything to get what they want. And they are professionals at playing people.

They know what to say, how to present themselves, how to make their story, and what strings to pull on the people they try to convince.

Some investors are also willing to suspend their disbelief - thinking that if they are the first to ditch to bag, there's money to be made...as long as they're not the ones holding the bag.

not speaking for upwards failures in general, but for the extraordinary cases of convicted frauds being pardoned, the incentives are:

1. his $1.8M donation to Trump shows other felons and fraudsters that paying Trump will pay back in dividends (Trump profits)

2. By pardoning thousands of frauds, con artists and outright violent nazis (Jan 6), Trump builds himself an army of loyalists who owe him their lives

3. By putting pardoned frauds, con artists and violent nazis in charge of government functions, Trump replaces the entire US government with one that will do his personal bidding

textbook autocrat stuff

Having a great exit is the golden dream for VCs.

But having founders that raise lots of money also have a value in itself even if the business fails in the long run.

But you also have to build a business with the money you raise, or else you kill your reputation along the way.

As the founder, yes. For the VCs there's not a lot of consequences by having hyped things like Theranos or WeWork.

I guess I would make a terrible VC, bc my money and reputation would matter to me.

To understand why you must understand the tax code. You can write off any investment losses. You can also recover losses if its from fraud. Though usually not fully. But you give 1 million for investment, boom its a fraud, and you get $800,000 back as opposed to keeping a million and paying $400,000 on it in taxes. It's a win-win situation. There is no penalty in betting on fraudsters. Whether this guy's schemes are deliberately for that is debatable. But on the flip side, putting downsides to investing on possible fraudsters considerably hinders any new genuine start up ideas from gaining investors.

How do you get $800k back? Where does that come from?

What?

Why would you get $800k back? Also why would owe $400k in taxes for "keeping a million"? Nothing you've said makes any sense.

We're mid tax season but I really hope you hired a CPA.

I just can't comprehend the mental process or discussion that happened which led to this guy getting a pardon.

It's just hard to imagine that anybody would give a f about this fraudster. Only explanation is he must know some dirt on someone.

It's clear now. Modern society runs on blackmail. There's a blackmail hierarchy all the way to the top.

I bet there are many people out there just making a living from just knowing dirt about people.

> I just can't comprehend the mental process or discussion that happened which led to this guy getting a pardon.

Trump when pardoning Trevor Milton said that he didn't know the guy, but heard that he said nice things about him.

And Milton made a $1m donation.

It's not that complicated. From the article:

> Milton and his wife had also donated at least $3.2 million to Trump’s 2024 election and to political groups and people in Trump’s orbit, including Health Secretary Robert F. Kennedy Jr.

Trump seems to have a weak spot for fraudsters. Milken, Conrad Black, Keith, Blagojevich and many more. Not sure why though.

The problem with Trump is that his only values are centered around business and deal making. It's all about loyalty, not about truth. Clearly he doesn't have much tolerance for disagreement.

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