When you reflect that successful entrepreneurship is all about spotting a screaming need in society for goods or services, it is perhaps inevitable that there have been some blurred ethical lines on occasion. Bootleggers, for example, were successful entrepreneurs but illegal. But on the whole, entrepreneurs have built companies from hard graft, skill, and staying just about on the right side of the law.
There seems to be some change occurring. Several articles have emerged in recent weeks concerning the high numbers of Forbes under 30 accused of criminal behaviour. While they have raised $5.3B in funding, Chris Bakke, founder of Laskie, estimated on Twitter that between them all, they have been arrested for fraud worth over $18.5B. That is a pretty staggering ratio and a little beyond some creative petty cash records.
To remind you of a few: Sam Bankman-Fried is perhaps one of the best-known. FTX, his crypto platform, collapsed while he stood accused of bribery and money laundering. Charlie Javice, founder of Frank, which was acquired by JPMorgan Chase for $175m, was recently found to have been “falsely and dramatically inflating the numbers of her customers” to achieve that valuation. Charges against Caroline Ellison of Alameda Research included wire fraud, money laundering, and securities fraud. Zixiao Wang, CTO of FTX Trading was charged alongside. Martin Shkreli has already served seven years for securities fraud. Elizabeth Holmes of Theranos was not a 30 under 30 but from the same generation, and heralded by them at the 30 under 30 Summit yet also found guilty of defrauding investors and sentenced to eleven years. Note the re-occurrence of the word fraud.
Forbes themselves are understandably quick to deflect any responsibility for this trend. Instead, one columnist blamed the pressure to hit high spots before old age sets in (at 30 we assume) leading ambitious people to take shortcuts. I refute that for three reasons.
It discounts changes in our society. There is a massive reactionary swing to the overwork of earlier decades. I read a social media post recently from one of the founders of a UK company that has raised several $ million in the last couple of years, lauding their lazy days, and how little work they do. True or not, this is part of their “cool” image and reinforces the idea that big money is available if your idea is clever enough, presented originally enough, not from hard work. Working smarter not harder is great. Snickering that you are doing next to nothing at the expense of others is something else.
And that encapsulates the problem. Historically, investment only came once a company had a proven track record, the founders having worked hard and built it up, earned their spurs from their garages up. Look at Apple. Bootstrapping was applauded and far from holding companies back, led to massive success for many companies, Shutterstock, Mailchimp, Tough Mudder, Spanx, and GitHub amongst them. It was the investors, not the founders, that changed the rules.
As the numbers of VCs and investors grew, the deals available became fewer and they had to start looking toward companies at earlier stages. With less track record to examine, their focus shifted from past achievements to future possibilities, and with that shift, it is all too easy to believe that the emphasis on due diligence might well have shifted too. Certainly, it is about the most plausible explanation as to how a company such as JPMorgan Chase could have possibly failed to spot that the information they were being fed on customers by Javice was entirely false. But if the system has become lax in its diligence, it offers too much opportunity to invent. And when money is raised on an invention, it does the image of entrepreneurship no favours at all.
My third objection to the idea that it is that the pressure to succeed is at fault may seem old-fashioned. But I have a problem with the blame game we now play, where every mistake we make, every wrongdoing we do, is the fault of someone else. Inevitably, if society is lauding clever ideas and false facts over hard graft, there is an Eve’s apple of temptation toward corruption. But when all is said and done, we still have the option to make personal choices and say no to venal behaviour.
