Aug 11, 2017 · 9 minutes

In the late 1990s, the phrase the “new economy” was coined in reaction to Internet companies that seemed to defy all the normal laws of business physics.

They could raise massive sums of capital, and go public for billions of dollars with no revenues a year later. John Doerr famously called it the largest “legal creation of wealth in human history.”

It went on long enough, and the valuations and even actual liquid returns became so huge, that even the cynics came to believe somehow the math would just work.

Of course, then we got the dot com crash. While the Internet indeed was a gargantuan opportunity, it turned out you still needed to put in shit loads of time and work and capital to unlock it.

We’re seeing something similar play out right now, in what I’ve called Silicon Valley’s “morality crash.” Having explicitly funded people who call themselves “hackers” who want to “disrupt” industries by breaking laws, “moving fast and breaking things” and “asking forgiveness not permission”, VCs suddenly seem shocked that these founders are... breaking laws, balking at any legal and board oversight, assuming they can apologize later, keep doing it, and all will be fine.

There’s been a similar kind of moral disconnect -- a “somehow it will all work even if it doesn’t make sense”-- as the math disconnect in the late 1990s.

In the late 1990s, it turned out you still needed to find a way to make money to build a sustainable public company. Now, in 2017, it’s becoming clear that assholes create toxic cultures. The don’t only disrupt existing industries… they actually disrupt themselves.

It took a stock market crash to take out companies in the late 1990s and a mortgage crisis to cause the recession of 2008. An absolute lack of discipline, lawfulness, or basic respect for the people working for you and using your product is now bringing down some of the largest companies of this era: It may be Silicon Valley’s first crash that had no external factor. Completely self inflicted, completely avoidable. If only fewer assholes had access to cash, or at least some level of discipline and oversight.

As someone who has covered this industry for twenty years, it’s astounding to watch.

This post is in part a reaction from the latest saga at Uber. Benchmark is suing Travis Kalanick-- a CEO they have long lauded and enabled through multiple scandals that would give other investors pause, comparing him to great CEOs like Jeff Bezos, saying his controversial personality was “necessary” to build a company as disruptive as Uber-- for fraud. Kalanick has answered just as the guy they funded and lauded would: He’s going ahead to plan to fill the seats that they are alleging he gained access to fraudulently, by withholding information that showed “gross mismanagement.”

Just as he’s said to lawmakers, to taxi companies, to drivers trying to unionize, to journalists, to anyone accusing him of anything over the last eight years, Kalanick’s reaction is essentially: Bring it, Benchmark.

But this post is also about Binary Capital: Justin Caldbeck and Jonathan Teo were funded because of their party lifestyle where women say they were treated like objects, required to act in a certain way to continue to gain access to their “network.” Several LPs reportedly felt it would bring them more deal flow. That lifestyle-- and the role women were expected to play in it-- is a big part of what’s brought down the firm.

It’s also about Google. In the wake of the manifestbro scandal and James Damore’s subsequent firing, the alt right has given him a full-on bear hug and he’s returned it with both arms. If you were one of those folks (oh, hey, Paul Graham!) who tried to argue he made some good points in his sexist and misleading exactly do you feel about all of his actions since?

The t-shirt that reads Gulag in Google font. Yep, making six figures and getting free meals at the Googleplex is exactly like a Gulag. The interviews with prominent figures in the alt right. If there was any doubt of the disgusting ideology behind his words, there shouldn’t be by looking at his actions since.

And most disturbingly, there are the thousands of people inside the organizations and spread throughout Silicon Valley who wanted Travis Kalanick to stay at Uber. Who didn’t think James Damore should be fired. Who think a memo that’s become a rallying point for Nazis made good points.

Many people across the Valley are having an, “Oh fuck, what have we done?” moment right now. Remember back in February when we were all celebrating the tech rank and file for pushing their CEOs to stand up to Trump? Remember when we thought they were the good ones? It was just a few corrupt leaders taking us down a bro path?

Turns out the nazis were calling from inside the house.

This is a problem. Replacing a toxic founder or partner is easy compared to rooting out thousands of toxic bros in an organization.

It’s another major revelation in the summer of “holy shit, we really should have been hiring women all this time.” Fairness didn’t convince anyone. Data that companies with gender balanced teams didn’t either. Perhaps tech leaders suddenly finding the alt right is firmly rooted inside their organizations they thought were so liberal, progressive and well-meaning might be.

This is a consequence everyone should have seen coming.

When you shrug at bad behavior and say “Worked for Steve Jobs,” you enable assholes.

When you fund and hire people expressly because they like to break laws, you get…. People who break lots of laws, whether harassing and discriminating against women and people of color or actually stealing trade secrets.

When you breed a cult of the founder culture where founders don’t think they should have to answer to a board or shareholders, you get founders and wanna be founders who continually thumb their nose at any accountability.

This should surprise no one.

And while assholes have been consistent throughout Valley history, there’s been an intensification of funding and celebrating them in the bro era. It’s not merely “fund someone even though he’s an asshole,” it’s “fund someone because he’s an asshole.” The lazy pattern recognition that is behind funding white, “nerdy” drop outs because that “type” has done well here, has become the lazy pattern recognition of funding people who act like Travis Kalanick.

Ask Bill Gurley right about now, how much he wants to fund “another Travis Kalanick.” 

From a piece I wrote about this phenomenon three years ago:

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.”

Here’s what Eric Vishria told me when he was hired as a partner at Benchmark, and I asked him what was going to be the biggest challenge for him:

“I like working with a certain kind of person. I like working with people who are very smart, who have a little introspection, who have some humility, and high integrity. People that have some kind of honorableness about them. That’s how I attempt to carry myself. The truth is a lot of really successful entrepreneurs aren’t those kind of people. I think that’s something I have to watch out for. The models that work are not always created by those kind of people, and I want to be able to invest in them. That’s the biggest thing.”

He had to “watch out for” a bias to fund honorable people to succeed as a VC. Think about that. This is how we got here.

And then there’s the standard line that Uber’s investors would repeatedly utter in defense of any of Uber CEO Travis Kalanick’s atrocious actions: That it took someone like Kalanick to be able to build a company this disruptive. No one else could have done it.

Kalanick would famously cut investors out of his life-- and off his board, sometimes-- if they disagreed or challenged him. Benchmark happily watched him do this, still pumping him up in the press, even lauding these qualities. And then seemed somehow stunned to be on the other side of it recently. They helped set up a company that didn’t have to respect them or listen to them, and are now suing because he didn’t respect or listen to him. His “gross mismanagement” in the suit alledges that he broke laws. The exact thing he was long celebrated for doing.  

It takes a certain kind of arrogance or delusion to think a guy you funded because he was such a disrespectful, law breaking, maverick who refused to answer to anyone would know which laws he shouldn’t break or suddenly fall into line when the board asked.

Put another way: Kalanick is doing to Gurley all the things he’s done to everyone else over the last eight years. Journalists, critics, drivers, the taxi industry. This wasn’t a “bug” in his personality. This was why you backed him. This is what you always said was great about him.

What did you think was going to happen?

Benchmark shouldn’t get credit for making some brave move here, any more than Doctor Frankenstein should get credit for destroying his monster after it ravages the town.

On cue, Kalanick has answered back with a whisper campaign against Benchmark, painting them as “anti-founder.” Long time Kalanick enabler Shervin Pishevar has also written a letter admonishing Benchmark for hurting Uber’s value.

Susan Fowler -- the former developer who set so much of Uber’s 2017 woes in motion-- pierced through this revenge spin perfectly on Twitter this morning: