1 00:00:00,200 --> 00:00:03,080 Speaker 1: Back in the fall of two thousand ten, Antonio Garcia 2 00:00:03,120 --> 00:00:05,720 Speaker 1: Martinez was sitting in an apartment in the Mission in 3 00:00:05,760 --> 00:00:09,360 Speaker 1: San Francisco. Antonio was co founder and CEO of a 4 00:00:09,400 --> 00:00:13,080 Speaker 1: brand new startup called ad Rock. It was an exciting 5 00:00:13,119 --> 00:00:15,800 Speaker 1: time for him. Yeah, Antonio at the time had just 6 00:00:16,000 --> 00:00:18,639 Speaker 1: finished his time at y Combinator, which is kind of 7 00:00:18,640 --> 00:00:22,720 Speaker 1: an elite startup accelerator of Silicon Valley. And at the 8 00:00:22,840 --> 00:00:24,639 Speaker 1: end of your time at y Combinator, you do a 9 00:00:24,680 --> 00:00:27,760 Speaker 1: big presentation in front of a room of entrepreneurs and 10 00:00:27,800 --> 00:00:30,639 Speaker 1: investors and show off in two minutes what you've made. 11 00:00:31,080 --> 00:00:33,960 Speaker 1: And Antonio's presentation had gone really well, and a bunch 12 00:00:33,960 --> 00:00:37,720 Speaker 1: of investors were interested in giving him funding. And now 13 00:00:37,760 --> 00:00:39,960 Speaker 1: he's sitting in the apartment of his co founder and 14 00:00:40,000 --> 00:00:43,199 Speaker 1: they're all drinking a couple of beers and it's it's thrilling, 15 00:00:43,320 --> 00:00:45,600 Speaker 1: and they're right at the precipice of all this opportunity. 16 00:00:45,960 --> 00:00:48,680 Speaker 1: And then they get a call from a lawyer representing 17 00:00:48,720 --> 00:00:52,360 Speaker 1: their company at Rock, and the news is devastating. It 18 00:00:52,360 --> 00:00:56,120 Speaker 1: turns out that their former employer is suing the company 19 00:00:56,160 --> 00:01:00,240 Speaker 1: for stealing secrets and stealing intellectual property, and it's basically 20 00:01:00,640 --> 00:01:02,800 Speaker 1: a death knell for ad roc because who in the 21 00:01:02,920 --> 00:01:05,240 Speaker 1: right mind would invest in a company that is plagued 22 00:01:05,280 --> 00:01:08,840 Speaker 1: by lawsuits. So things are looking pretty bad. But because 23 00:01:08,840 --> 00:01:11,759 Speaker 1: this is Silicon Valley where crazy dreams sometimes make it through, 24 00:01:12,000 --> 00:01:14,880 Speaker 1: and Antonio is a scrappy guy, he's backed into a 25 00:01:14,920 --> 00:01:17,560 Speaker 1: corner and he turns to his final resort, which is 26 00:01:17,560 --> 00:01:20,720 Speaker 1: something that was definitely dishonest, and as we'll discover later 27 00:01:20,760 --> 00:01:23,800 Speaker 1: in the show, of questionable legality as well. And it's 28 00:01:23,840 --> 00:01:26,039 Speaker 1: something that happens here in the world of startups a 29 00:01:26,040 --> 00:01:28,640 Speaker 1: lot more often than you think. This has been public 30 00:01:28,680 --> 00:01:30,240 Speaker 1: companies when we're on Wall Street, we would all have 31 00:01:30,280 --> 00:01:32,640 Speaker 1: gone to jail. Right. The level of sort of just 32 00:01:32,720 --> 00:01:36,480 Speaker 1: generalized lying, backstabbing, total conflict of interest and spilling of 33 00:01:36,480 --> 00:01:38,840 Speaker 1: secrets is just rife in Selicon Valley, and it's just 34 00:01:38,920 --> 00:01:45,120 Speaker 1: kind of the way it is. Hi, this is brad 35 00:01:45,160 --> 00:01:48,720 Speaker 1: Stone and this is Ellen Hewitt, and this week Undecrypted, 36 00:01:49,000 --> 00:01:51,920 Speaker 1: we're bringing you confessions of one startup founder who lie 37 00:01:52,000 --> 00:01:54,280 Speaker 1: this away and they're raising money from investors and how 38 00:01:54,280 --> 00:01:56,080 Speaker 1: he got away with it. But there's a little bit 39 00:01:56,080 --> 00:01:58,120 Speaker 1: of a dirty secret to the way these young startup 40 00:01:58,160 --> 00:02:01,240 Speaker 1: founders work and get funded in the valley. No matter 41 00:02:01,280 --> 00:02:03,960 Speaker 1: how many charts and spreadsheets you see, a lot of 42 00:02:04,000 --> 00:02:06,400 Speaker 1: these numbers are kind of made up, and how could 43 00:02:06,400 --> 00:02:08,440 Speaker 1: they not be made up? And these are brand new 44 00:02:08,480 --> 00:02:12,080 Speaker 1: businesses creating things that have never existed before. You can't 45 00:02:12,160 --> 00:02:15,040 Speaker 1: count on the normal rules of commerce and decency and 46 00:02:15,080 --> 00:02:18,160 Speaker 1: transparency to apply here. If you're thinking about going into 47 00:02:18,240 --> 00:02:22,440 Speaker 1: angel investing, consider yourself warned. So let's go back to 48 00:02:22,480 --> 00:02:25,320 Speaker 1: this moment. In two thousand ten, Antonio was sitting in 49 00:02:25,360 --> 00:02:27,640 Speaker 1: front of his spreadsheet trying to get a handle on 50 00:02:27,720 --> 00:02:29,560 Speaker 1: what the next year or two was going to look like. 51 00:02:30,200 --> 00:02:32,280 Speaker 1: So he's looking at his Excel and on one side 52 00:02:32,280 --> 00:02:34,280 Speaker 1: he has the cash that expects to raise, as well 53 00:02:34,320 --> 00:02:36,360 Speaker 1: as the revenue that he expects there soon to launch 54 00:02:36,400 --> 00:02:39,240 Speaker 1: service to start to bring in and plout it. Against that, 55 00:02:39,360 --> 00:02:43,000 Speaker 1: he has all the company's costs and salaries to office rent, 56 00:02:43,080 --> 00:02:45,480 Speaker 1: to these very expensive fees that he was gonna have 57 00:02:45,480 --> 00:02:48,520 Speaker 1: to pay his lawyers to fight this lawsuit, and it 58 00:02:48,600 --> 00:02:51,120 Speaker 1: shows something pretty dire that the company is going to 59 00:02:51,200 --> 00:02:54,520 Speaker 1: run out of money in less than a year. Antonio 60 00:02:54,560 --> 00:02:57,280 Speaker 1: published a best selling book called Chaos Monkeys that came 61 00:02:57,280 --> 00:02:59,200 Speaker 1: out a few months ago, and in the book he 62 00:02:59,240 --> 00:03:02,000 Speaker 1: has a passage which describes what he did next, and 63 00:03:02,040 --> 00:03:05,720 Speaker 1: we actually had him read that to us. I didn't 64 00:03:05,760 --> 00:03:08,600 Speaker 1: show the projections to the boys, I my my co founders, 65 00:03:08,760 --> 00:03:11,600 Speaker 1: it would just depress them pointlessly. I also didn't share 66 00:03:11,639 --> 00:03:14,120 Speaker 1: it with investors. Ag Rock was dead on arrival if 67 00:03:14,120 --> 00:03:17,280 Speaker 1: this got out, so I lied. I diminished the cost 68 00:03:17,320 --> 00:03:19,799 Speaker 1: of the lawsuit too far below the Undertaker's projections. The 69 00:03:19,880 --> 00:03:22,040 Speaker 1: Undertaker is the sort of grim looking litigator that we 70 00:03:22,080 --> 00:03:26,000 Speaker 1: had managed to cajole into defending us. Meanwhile, moving our 71 00:03:26,000 --> 00:03:28,960 Speaker 1: projected launch date forward to next month to generate revenues 72 00:03:29,000 --> 00:03:31,840 Speaker 1: immediately and impossibility given all the changes the boys were 73 00:03:31,840 --> 00:03:34,040 Speaker 1: making to the product. Then I jacked up the growth 74 00:03:34,120 --> 00:03:37,160 Speaker 1: rate to an unconscionable amount. It was outright chicanery, cooking 75 00:03:37,160 --> 00:03:39,040 Speaker 1: the books in the worst form. But it's either that 76 00:03:39,160 --> 00:03:41,680 Speaker 1: or give up now, and surrender was unthinkable. I still 77 00:03:41,720 --> 00:03:44,040 Speaker 1: can't believe the investors believe my numbers, but they did. 78 00:03:46,160 --> 00:03:48,520 Speaker 1: I mean, we're raising money for the sake of basically 79 00:03:49,000 --> 00:03:51,640 Speaker 1: continuing the company, but also defending ourselves with other people's 80 00:03:51,680 --> 00:03:54,280 Speaker 1: money effectively, and I love that. It's called the death clock. 81 00:03:54,280 --> 00:03:56,400 Speaker 1: Which I think. I mean that you called the spreadsheet 82 00:03:56,440 --> 00:03:58,680 Speaker 1: the death clock because it puts into perspective like what's 83 00:03:58,760 --> 00:04:01,400 Speaker 1: at stake, which is this or nothing? I mean, you 84 00:04:01,440 --> 00:04:03,200 Speaker 1: have no no choice but to try to do what 85 00:04:03,240 --> 00:04:05,320 Speaker 1: you could make it happen. And that's the name of 86 00:04:05,320 --> 00:04:07,520 Speaker 1: the startup game. Is that learning the game faster than 87 00:04:07,520 --> 00:04:08,920 Speaker 1: you burn money? And that is that is the day 88 00:04:08,960 --> 00:04:10,640 Speaker 1: I'd say in the death clock, it was literally just 89 00:04:10,680 --> 00:04:12,920 Speaker 1: a spreadsheet and it had all our top line items, 90 00:04:12,960 --> 00:04:15,440 Speaker 1: which is basically servers, rent and humans. That was it 91 00:04:15,960 --> 00:04:18,159 Speaker 1: um against you know, a cash pile, and we plotted 92 00:04:18,200 --> 00:04:20,080 Speaker 1: on a graph and I have a metaphor in there 93 00:04:20,080 --> 00:04:22,040 Speaker 1: that it kind of looked like one of those infographics 94 00:04:22,040 --> 00:04:23,800 Speaker 1: you see with any plane crash, like the planes going 95 00:04:23,839 --> 00:04:26,440 Speaker 1: okay and then suddenly something happens and then boom you 96 00:04:26,440 --> 00:04:28,240 Speaker 1: have like a smoking crater in the ground. Can you 97 00:04:28,240 --> 00:04:30,440 Speaker 1: think back to that time and think about what how 98 00:04:30,440 --> 00:04:33,120 Speaker 1: did it feel to cook the books? I mean, what 99 00:04:33,120 --> 00:04:34,719 Speaker 1: what was going on in your head when you when 100 00:04:34,720 --> 00:04:36,880 Speaker 1: you change these numbers the things you knew were untrue 101 00:04:36,920 --> 00:04:39,080 Speaker 1: and not even remotely possible. I mean, I think this 102 00:04:39,160 --> 00:04:41,320 Speaker 1: is how moral rationalizing happens. And I think it's fairly 103 00:04:41,320 --> 00:04:44,159 Speaker 1: common um. And I applied the same, you know, rational 104 00:04:44,160 --> 00:04:46,799 Speaker 1: calculus later when I was considering deceiving my co founders 105 00:04:46,839 --> 00:04:48,760 Speaker 1: to go to Facebook instead of Twitter. It's for the 106 00:04:48,800 --> 00:04:52,839 Speaker 1: greater good, right, Like everything, the world will be just 107 00:04:52,920 --> 00:04:55,880 Speaker 1: be better if we perpetrate this sort of not so 108 00:04:56,000 --> 00:04:58,600 Speaker 1: minor lie and get the company funded and continue. And 109 00:04:58,800 --> 00:05:00,640 Speaker 1: it turns out I was right. The investors ended up 110 00:05:00,640 --> 00:05:02,560 Speaker 1: making money, right. They ended up doubling their money in 111 00:05:02,600 --> 00:05:08,520 Speaker 1: six months. So even though investors were fed these complete 112 00:05:08,560 --> 00:05:12,080 Speaker 1: fabrications about the future of ad Rock, they still ended 113 00:05:12,160 --> 00:05:15,080 Speaker 1: up making a profit, right. And most of that is 114 00:05:15,120 --> 00:05:17,800 Speaker 1: things only to Twitter, which decided to buy ad Rock 115 00:05:17,839 --> 00:05:20,200 Speaker 1: about six months after the seed rout we're talking about. 116 00:05:20,680 --> 00:05:23,359 Speaker 1: If anyone was going to be upset about being lied to, 117 00:05:23,440 --> 00:05:26,040 Speaker 1: it would be a guy named Russ Siegelman. Russ was 118 00:05:26,080 --> 00:05:28,960 Speaker 1: a longtime venture capitalist at Kleiner Perkins. He was an 119 00:05:28,960 --> 00:05:32,479 Speaker 1: angel investor. He was really the biggest backer of ad Rock, 120 00:05:32,800 --> 00:05:35,440 Speaker 1: And I called him after the book came out and 121 00:05:35,520 --> 00:05:37,680 Speaker 1: asked him how he felt about being lied to. And 122 00:05:37,720 --> 00:05:41,280 Speaker 1: here's what he said, Well, I certainly don't approve of 123 00:05:41,800 --> 00:05:46,839 Speaker 1: submitting projections to investors or anybody that you don't believe in. 124 00:05:46,960 --> 00:05:49,400 Speaker 1: I don't know. I mean, it's not only dishonest, but 125 00:05:49,480 --> 00:05:53,279 Speaker 1: it's it's it's just not it's it's not good business practice. 126 00:05:54,040 --> 00:05:57,200 Speaker 1: But to be honest with you, the reason I don't 127 00:05:57,320 --> 00:06:00,520 Speaker 1: react to strongly to it is because I don't believe 128 00:06:00,880 --> 00:06:06,520 Speaker 1: anybody can project with any level of faith, accuracy or correctness, uh, 129 00:06:06,760 --> 00:06:10,880 Speaker 1: your revenues when you're at the seed stage. So you know, 130 00:06:10,960 --> 00:06:14,640 Speaker 1: I frankly couldn't have even I probably would never have 131 00:06:14,680 --> 00:06:18,640 Speaker 1: even noticed that the growth rate was unconsfortably high quote unquote, 132 00:06:18,880 --> 00:06:25,159 Speaker 1: because I wouldn't have even looked at it. It's funny 133 00:06:25,160 --> 00:06:28,240 Speaker 1: because he asked me for that projection. Do you think 134 00:06:28,240 --> 00:06:31,400 Speaker 1: he just wanted to give the impression of reading it 135 00:06:31,600 --> 00:06:34,880 Speaker 1: or I think that the big hang up there was 136 00:06:34,960 --> 00:06:37,400 Speaker 1: that he no one wants to put money into a 137 00:06:37,400 --> 00:06:39,760 Speaker 1: sinking ship, right, And I thought of putting money into 138 00:06:39,920 --> 00:06:41,960 Speaker 1: a company that's fighting its way to have lawsuit. And 139 00:06:42,320 --> 00:06:44,680 Speaker 1: he felt he was subsidizing Fenwick because I would literally 140 00:06:44,680 --> 00:06:46,640 Speaker 1: take money from one rich guy and give it to 141 00:06:46,680 --> 00:06:48,560 Speaker 1: another rich guy called a lawyer, and we would just 142 00:06:48,560 --> 00:06:51,039 Speaker 1: be the middleman. He didn't want that to happen Fenwick, 143 00:06:51,120 --> 00:06:53,279 Speaker 1: by the way, is the law firm that Antonio hired 144 00:06:53,320 --> 00:06:56,120 Speaker 1: to defend him in the lawsuit. And so I could 145 00:06:56,200 --> 00:07:00,240 Speaker 1: only convince Rest to invest after Fenwick basically a great 146 00:07:00,320 --> 00:07:02,760 Speaker 1: loanus the money. And so you know it's possible that 147 00:07:02,880 --> 00:07:04,320 Speaker 1: it was you know, it was someone in my head 148 00:07:04,320 --> 00:07:05,800 Speaker 1: and he didn't even look at the projections. Maybe it's 149 00:07:05,800 --> 00:07:08,160 Speaker 1: interesting because he he is a savvy investor. In Krissock, 150 00:07:08,200 --> 00:07:10,600 Speaker 1: it was a savvy investor, and and so it wouldn't 151 00:07:10,640 --> 00:07:13,440 Speaker 1: surprise me if for very early companies, you know, projections 152 00:07:13,440 --> 00:07:15,200 Speaker 1: are projections, and they don't they don't look at it, 153 00:07:15,240 --> 00:07:17,560 Speaker 1: and they're they're evaluating a company more on the quality 154 00:07:17,560 --> 00:07:19,800 Speaker 1: of the team and the quality of the idea. Right now, 155 00:07:19,920 --> 00:07:21,800 Speaker 1: I think they are canny investors, right And I remember 156 00:07:21,800 --> 00:07:24,240 Speaker 1: one investor I won't name, we immediately excluded because you 157 00:07:24,240 --> 00:07:27,080 Speaker 1: asked me for a yeah business plan and a cash 158 00:07:27,120 --> 00:07:29,440 Speaker 1: flight projection has like the first question he asked and 159 00:07:29,480 --> 00:07:31,160 Speaker 1: I never got it to him, and it just it 160 00:07:31,280 --> 00:07:33,040 Speaker 1: felt like a very j V movement. And you're absolutely 161 00:07:33,080 --> 00:07:34,520 Speaker 1: right there. I think at that stage what you invest 162 00:07:34,600 --> 00:07:37,400 Speaker 1: is in the team, not some spreadsheet. So the question 163 00:07:37,440 --> 00:07:40,200 Speaker 1: I think that interests us is you know how how 164 00:07:40,240 --> 00:07:44,200 Speaker 1: widespread then is as as you describe it, outright chicanery? 165 00:07:44,360 --> 00:07:46,800 Speaker 1: Is it? Is it? Is it seed stage startups? Or 166 00:07:46,840 --> 00:07:48,840 Speaker 1: does it expand beyond that? Could we see a late 167 00:07:48,920 --> 00:07:51,920 Speaker 1: stage company, uh, you know that's not yet public, that 168 00:07:51,960 --> 00:07:55,760 Speaker 1: has that same sense of desperation the spotlight is on them, 169 00:07:55,800 --> 00:07:58,320 Speaker 1: you know, resort to fudging the numbers? I think a 170 00:07:58,360 --> 00:08:01,920 Speaker 1: little bit harder um um. Like a piece of advice 171 00:08:01,920 --> 00:08:03,920 Speaker 1: I think I got from Russ actually was at the beginning, 172 00:08:03,960 --> 00:08:06,440 Speaker 1: it's easy to sell the dream right before you've actually launched, 173 00:08:06,440 --> 00:08:08,040 Speaker 1: because you can tell the story and no one cares 174 00:08:08,040 --> 00:08:10,480 Speaker 1: about the numbers. But after the dream has sort of launched, 175 00:08:10,720 --> 00:08:12,880 Speaker 1: at some point you have to provide numbers, and maybe 176 00:08:12,920 --> 00:08:15,040 Speaker 1: even audited numbers. And so I think if you ask me, 177 00:08:15,120 --> 00:08:17,920 Speaker 1: is there is it common to have outright fraud at 178 00:08:18,000 --> 00:08:20,040 Speaker 1: large companies just to name names, Not that I know anything, 179 00:08:20,040 --> 00:08:22,080 Speaker 1: but like an ubern Airbnb, I think no, there isn't 180 00:08:22,280 --> 00:08:25,280 Speaker 1: sort of widespread fraud. Yeah they're being Yeah, there's no 181 00:08:25,320 --> 00:08:27,520 Speaker 1: way you'd get away with with that. What what I 182 00:08:27,520 --> 00:08:29,720 Speaker 1: did at that level just absolutely I can't imagine that's 183 00:08:29,760 --> 00:08:31,440 Speaker 1: that would happen. The reason why this is all funny 184 00:08:31,440 --> 00:08:34,559 Speaker 1: money and funny numbers is because not to get too wonky, 185 00:08:34,720 --> 00:08:38,720 Speaker 1: the evaluations we're talking about are the theoretical valuation of 186 00:08:38,720 --> 00:08:40,760 Speaker 1: the company if the company were to raise another round 187 00:08:40,760 --> 00:08:42,880 Speaker 1: and there were these these people are buying their lending 188 00:08:42,920 --> 00:08:45,000 Speaker 1: you money on the terms that hey, when you actually 189 00:08:45,080 --> 00:08:47,360 Speaker 1: raise money, this is how much I paid per share, 190 00:08:47,400 --> 00:08:49,719 Speaker 1: which is less than later investors, and that's that number is. 191 00:08:49,720 --> 00:08:51,920 Speaker 1: So it's an input to a theoretical calculation. It sounds 192 00:08:51,960 --> 00:08:54,320 Speaker 1: a little bit that it has a little whiff of 193 00:08:54,520 --> 00:08:57,360 Speaker 1: pyramid scheme to it. No, No, it absolutely is. Yeah, No, 194 00:08:57,440 --> 00:09:01,680 Speaker 1: it does, it does. Just to be sure, I called 195 00:09:01,760 --> 00:09:04,920 Speaker 1: up an expert on startups, Rob Siegel, not to be 196 00:09:04,960 --> 00:09:07,800 Speaker 1: confused with Russ Siegelman, who we just talked to. Rob 197 00:09:07,840 --> 00:09:10,840 Speaker 1: Siegel teaches at Stanford Business School, and he said that 198 00:09:10,880 --> 00:09:15,000 Speaker 1: it's true that startups give investors optimistic protections all the time. 199 00:09:15,520 --> 00:09:18,280 Speaker 1: When an entrepreneur at the seed level walks in, every 200 00:09:18,320 --> 00:09:24,320 Speaker 1: sophisticated investor knows that the forecast is wrong. What you're 201 00:09:24,360 --> 00:09:28,720 Speaker 1: looking for is the thought logic that goes into not 202 00:09:28,880 --> 00:09:32,640 Speaker 1: the tops down. The market is worth six trillion dollars 203 00:09:32,640 --> 00:09:35,120 Speaker 1: and we're going to capture five percent of it. But 204 00:09:36,120 --> 00:09:38,240 Speaker 1: how many units of whatever good or service are you 205 00:09:38,320 --> 00:09:40,559 Speaker 1: going to sell? And how much are people going to pay? 206 00:09:40,600 --> 00:09:42,560 Speaker 1: And how many people are out there that might buy it? 207 00:09:42,760 --> 00:09:46,640 Speaker 1: And what's the logic that's gone into that forecast? Are 208 00:09:46,679 --> 00:09:49,680 Speaker 1: any customers using it already and are they paying a 209 00:09:49,760 --> 00:09:53,280 Speaker 1: company any money? The forecast, by definition are going to 210 00:09:53,360 --> 00:09:56,640 Speaker 1: be wrong. It's impossible to know the future exactly, especially 211 00:09:56,720 --> 00:10:00,199 Speaker 1: at the seed stage. So institutional investors know that when 212 00:10:00,240 --> 00:10:07,000 Speaker 1: something comes in, it's probably aggressive, it's probably uh, slightly overstated. 213 00:10:07,400 --> 00:10:11,800 Speaker 1: You hope it's not over lying, but you know, if 214 00:10:11,840 --> 00:10:15,360 Speaker 1: somebody's being aggressive, is their logic behind the expected ramp 215 00:10:15,400 --> 00:10:20,160 Speaker 1: and forecast? That's completely common and normal. But Rob said 216 00:10:20,280 --> 00:10:23,120 Speaker 1: that even in a world where Rosie projections are the norm, 217 00:10:23,280 --> 00:10:26,640 Speaker 1: he thinks Antonio crossed the line. So to Russ his 218 00:10:26,760 --> 00:10:29,000 Speaker 1: point that he knows that the forecast don't make sense. 219 00:10:29,040 --> 00:10:31,600 Speaker 1: I think all vcs and all institutional investors and all 220 00:10:31,640 --> 00:10:37,280 Speaker 1: sophisticated angels know that the forecast is going to be wrong. 221 00:10:37,360 --> 00:10:40,719 Speaker 1: The question is that they're good logic behind it. The 222 00:10:40,760 --> 00:10:43,120 Speaker 1: point about whether or not this is legal that's more 223 00:10:43,160 --> 00:10:46,840 Speaker 1: worrisome in this particular example because if an entrepreneur is 224 00:10:47,040 --> 00:10:51,240 Speaker 1: knowingly lying, knowing the line that revenues will not commit 225 00:10:51,280 --> 00:10:54,080 Speaker 1: at a certain time, knowing the line that the growth 226 00:10:54,120 --> 00:10:58,200 Speaker 1: rate is impossible as opposed to aggressive, you know, um 227 00:10:58,360 --> 00:11:03,520 Speaker 1: is purposefully cutting down the costs of the expected lawsuit 228 00:11:04,120 --> 00:11:06,800 Speaker 1: because the entrepreneur knows it's going to be much higher, 229 00:11:06,920 --> 00:11:10,880 Speaker 1: but is knowingly you know, dividing by two. That's where 230 00:11:10,920 --> 00:11:15,560 Speaker 1: you get into, you know, potential legal complications because you 231 00:11:15,600 --> 00:11:26,920 Speaker 1: are actually misleading investors. You're knowingly misleading in investors. So, Ellen, 232 00:11:27,000 --> 00:11:30,280 Speaker 1: you reviewed Chaos Monkeys for Business Week. We talked to Antonio. 233 00:11:30,679 --> 00:11:34,679 Speaker 1: Did this episode make you more cynical about Silicon Valley? 234 00:11:35,559 --> 00:11:38,920 Speaker 1: You know, I think as a startup reporter covering Silicon Valley, 235 00:11:38,960 --> 00:11:40,960 Speaker 1: I get the impression that people lied to me all 236 00:11:40,960 --> 00:11:43,760 Speaker 1: the time, but I'm never sure. So reading someone talking 237 00:11:43,800 --> 00:11:46,520 Speaker 1: so baldly about it, uh, definitely made me a little 238 00:11:46,559 --> 00:11:48,400 Speaker 1: bit more cynical about it. It It made that part of 239 00:11:48,440 --> 00:11:52,040 Speaker 1: me that thinks people aren't really honest about the month 240 00:11:52,080 --> 00:11:54,520 Speaker 1: or a month growth. That part of me is smaller now. 241 00:11:54,880 --> 00:11:57,400 Speaker 1: I guess I'm more inclined to give them the benefit 242 00:11:57,559 --> 00:11:59,560 Speaker 1: of the doubt. I mean, I guess I feel like 243 00:11:59,840 --> 00:12:02,440 Speaker 1: no one here knows what's around the corner. Everyone's just 244 00:12:02,440 --> 00:12:05,360 Speaker 1: trying to do their best impression of being confident about 245 00:12:05,360 --> 00:12:08,520 Speaker 1: all these changes, and at least the savvy investors are 246 00:12:08,559 --> 00:12:10,920 Speaker 1: going to take any projections with a grain assault. And 247 00:12:11,080 --> 00:12:13,480 Speaker 1: I feel maybe Antonio was grandstanding a little bit and 248 00:12:13,640 --> 00:12:16,960 Speaker 1: describing what was really typical uncertainty as a sort of 249 00:12:17,000 --> 00:12:21,000 Speaker 1: outright falsehood. And another wrinkle is as Silicon valiant and 250 00:12:21,120 --> 00:12:24,120 Speaker 1: startups become more popular and people see these huge gains 251 00:12:24,160 --> 00:12:26,120 Speaker 1: coming out of it, I think we're gonna see a 252 00:12:26,160 --> 00:12:30,559 Speaker 1: lot more people outside of the traditional investors. We're talking celebrities, 253 00:12:30,720 --> 00:12:34,000 Speaker 1: other people of high net worth interested in investing in 254 00:12:34,120 --> 00:12:38,000 Speaker 1: early stage startups, kind of like Antonio's. And I just 255 00:12:38,000 --> 00:12:41,120 Speaker 1: wonder if it means that we should be hoping that 256 00:12:41,160 --> 00:12:43,720 Speaker 1: they get more fair information. They don't have the same 257 00:12:43,760 --> 00:12:46,080 Speaker 1: savvy that Rusta. They haven't been doing this for thirty 258 00:12:46,200 --> 00:12:48,280 Speaker 1: That's a good point, right, do do Britney Spears and 259 00:12:48,360 --> 00:12:51,920 Speaker 1: her agent know that that? And Antonio Garcia Martinez may 260 00:12:51,960 --> 00:12:56,679 Speaker 1: be making up as numbers should probably not, maybe after 261 00:12:56,720 --> 00:12:59,600 Speaker 1: you've written this book. This is a mooch question, But 262 00:12:59,640 --> 00:13:04,400 Speaker 1: if you were to make a new startup today and 263 00:13:03,200 --> 00:13:05,960 Speaker 1: you and you ended up in a position like this again, 264 00:13:06,040 --> 00:13:12,200 Speaker 1: death clock, would you lie? Oh yeah, yeah, I think yeah, yeah, 265 00:13:12,240 --> 00:13:14,679 Speaker 1: definitely it's for the great because because when you're in 266 00:13:14,720 --> 00:13:16,000 Speaker 1: the ship, you do everything to save the ship. It 267 00:13:16,040 --> 00:13:19,160 Speaker 1: just doesn't matter. That's the way it works, right, I 268 00:13:19,200 --> 00:13:22,000 Speaker 1: mean why Combinator was still relatively new back in two 269 00:13:21,880 --> 00:13:23,560 Speaker 1: thou ten. Do you think that there are more checks 270 00:13:23,559 --> 00:13:27,079 Speaker 1: and balances that exist in those programs and other other 271 00:13:28,040 --> 00:13:32,760 Speaker 1: incubators to ensure that there's a level of honesty in 272 00:13:32,800 --> 00:13:36,760 Speaker 1: the dialogue between investors and entrepreneurs. No, No, I don't 273 00:13:36,760 --> 00:13:38,440 Speaker 1: think so. I mean the real is that it's never 274 00:13:38,520 --> 00:13:41,120 Speaker 1: lying right like, it's never outright fraud like Obviously I'm 275 00:13:41,120 --> 00:13:43,760 Speaker 1: a little hyperbolic in the book, right I've I've I've 276 00:13:43,800 --> 00:13:46,040 Speaker 1: personally seen very few cases of like fraud like we 277 00:13:46,080 --> 00:13:47,920 Speaker 1: claimed we had a hundred million top line. In fact 278 00:13:47,960 --> 00:13:50,080 Speaker 1: it was nothing like. I've never seen that before. But 279 00:13:50,160 --> 00:13:52,160 Speaker 1: you could definitely there's all sort of ways you can 280 00:13:52,200 --> 00:13:55,559 Speaker 1: lie with statistics and with figures that would impress um, 281 00:13:55,640 --> 00:13:58,400 Speaker 1: that would impress and and yse startups. I think maybe 282 00:13:58,440 --> 00:14:01,080 Speaker 1: unfairly our character are in the sleeve are famous for 283 00:14:01,120 --> 00:14:03,240 Speaker 1: their up into the right graphs and which they rescuyle 284 00:14:03,280 --> 00:14:05,240 Speaker 1: the y exist always make look make it look amazing 285 00:14:05,240 --> 00:14:07,360 Speaker 1: on demo day, right, And so you know, stuff like 286 00:14:07,400 --> 00:14:09,000 Speaker 1: that I think is pretty common, and I think it's 287 00:14:09,000 --> 00:14:11,520 Speaker 1: still happened, and there us as point investors are probably 288 00:14:11,520 --> 00:14:13,960 Speaker 1: savvy to it and they know they know it. The 289 00:14:14,000 --> 00:14:15,760 Speaker 1: better questions why do we even go through the arade? Right? 290 00:14:15,880 --> 00:14:17,800 Speaker 1: But I don't know. Actually that's a good question. Well, 291 00:14:17,800 --> 00:14:19,440 Speaker 1: and so when when we saw us as answer, which 292 00:14:19,480 --> 00:14:22,400 Speaker 1: which came in um uh pretty you know, pretty soon 293 00:14:22,520 --> 00:14:26,200 Speaker 1: just before we talk to you, it made me think, um, 294 00:14:26,240 --> 00:14:28,720 Speaker 1: you know, Russ has been doing this for decades. He 295 00:14:28,720 --> 00:14:32,360 Speaker 1: knows what's up. If you continue to see I think 296 00:14:32,680 --> 00:14:35,480 Speaker 1: a trend of more people and we're talking like celebrities 297 00:14:35,600 --> 00:14:37,640 Speaker 1: or other rich people with with cash who want to 298 00:14:37,680 --> 00:14:40,720 Speaker 1: get in on startups and and seeing investing is very 299 00:14:41,120 --> 00:14:44,440 Speaker 1: um attractive to them. Do you think that changes the 300 00:14:44,440 --> 00:14:46,040 Speaker 1: moral calculus at all? Like is there more of a 301 00:14:46,080 --> 00:14:49,240 Speaker 1: responsibility to be up front? You'd like to think so, 302 00:14:49,440 --> 00:14:52,400 Speaker 1: but not really. It's like the battlefield and there's like 303 00:14:52,480 --> 00:14:54,240 Speaker 1: no women and children out there, right, and like if 304 00:14:54,240 --> 00:14:55,520 Speaker 1: you show up and you're you know, it's like the 305 00:14:55,560 --> 00:14:57,120 Speaker 1: old drug about like we're sitting at the poker table 306 00:14:57,120 --> 00:14:58,240 Speaker 1: and you you don't know who the sucker is. Then it's 307 00:14:58,280 --> 00:15:01,040 Speaker 1: you right then, like you know still can value still 308 00:15:01,080 --> 00:15:05,680 Speaker 1: that way? There it is, And that's it for this 309 00:15:05,720 --> 00:15:09,120 Speaker 1: week's episode of Decrypted. Thanks for listening. We're a brand 310 00:15:09,120 --> 00:15:11,720 Speaker 1: new show and we'd love your help in spreading the word. 311 00:15:11,840 --> 00:15:14,000 Speaker 1: If you have an iPhone, please subscribe to the show 312 00:15:14,000 --> 00:15:16,800 Speaker 1: on your native podcast app and leave us a rating 313 00:15:16,840 --> 00:15:19,360 Speaker 1: and a review there. You can also rate and review 314 00:15:19,440 --> 00:15:21,080 Speaker 1: us on iTunes, and we're on a bunch of other 315 00:15:21,160 --> 00:15:24,480 Speaker 1: platforms like SoundCloud, pocket Cast, and Stitcher. And tell us 316 00:15:24,520 --> 00:15:26,840 Speaker 1: what you thought of today's show. Write me on Twitter 317 00:15:27,040 --> 00:15:30,600 Speaker 1: at at Bradstone and I'm on Twitter at Ellen Hewitt. 318 00:15:31,000 --> 00:15:34,480 Speaker 1: This episode was produced by Magnus Hendrickson and Liz Smith 319 00:15:34,560 --> 00:15:39,040 Speaker 1: and aki Ito. Aaron Black assisted with recording Alec McCabe 320 00:15:39,040 --> 00:15:42,120 Speaker 1: as head of Bloomberg Podcast. We'll see you next week.