I'M JUST WONDERING: How many preventable failures must we endure . . .

. . . before investors recognize that visionary entrepreneurs often have devastating blind spots and fatal flaws that lose people a lot of money and cost good people their jobs?

I ask myself this question often because for years, as I observed poor management, I thought there might be a reasonable answer to that question. Now, I am not so sure. Maybe we venture capital investors are meant to ?endure eminently preventable failures caused by eminently flawed entrepreneurs/human beings, rather than miss the next big thing.

Sam Bankman-Fried and FTX are but one example that have led me to this conclusion. Bankman-Fried cofounded FTX, a cryptocurrency exchange and hedge fund. He did not adhere to business ethics or the law. It should have seemed so obvious to investors that this was the case, not just retrospectively, but at every turn, from FTX founding in 2019 to its 2023 demise.

He had a great idea, but a combination of disastrous management, poor decision-making, extraordinary hubris, and poor ethics did him in. He grew the company at breakneck speed, hit a wall, blew apart, lost investors money and, of course, ended up laying off lots of people who had no responsibility for the failure (and who now hold worthless equity).?

Why?

For one, he did not have the requisite expertise to do what he and FTX investors intended for him to do, namely grow a complex cryptocurrency firm so that it would be the winner of the wild-west crypto industry. Age 27 when he founded FTX, Bankman-Fried had not had prior company successes in the regulated world of currency, trading, and Fintech. He thumbed his nose at regulation, the rule of law, and, generally, any sense of order. Yes, I know ?he said a few times―that he was “pro” prudent regulation. ?However, as his firm began failing, he said the opposite. He said the equivalent of “just kidding about the desire for more regulatory oversight.” Specifically, he stated that his advocacy for prudent regulation was “just PR,” adding, “F**ck regulators. They make everything worse.”

Investors reportedly did not require board seats, and he only formed a (partial) board in 2022 anyhow. I have written previously about venture-backed boards of directors and how they should be structured, managed, and led. Their primary duties are duty of care and loyalty (to the company) as well as fiduciary duty to shareholders. It is outrageous that sophisticated investors like Sequoia, Softbank, and Accel, among others, who (collectively, among 60 investors) put in almost a billion bucks, did not require a board or a seat on the board. That is basic management. They did not make it happen they failed.

Bankman-Fried did not put outside capital to work responsibly. There were minimal corporate controls. FTX reportedly intermingled and double counted its money with another firm Bankman-Fried owned, Alameda Research, in turn led by a woman with whom he is said to have had romantic involvement. He also donated generously to various political and social causes to burnish his standing and gain influence. His firm mishandled customer funds. He had his company buy $300 million of real-estate such as homes and vacation properties, including a $30 million condo for his and his teams’ use.

John J. Ray III, who was appointed as CEO to make sense of and clean up the FTX mess, said, “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”

I am a lot older than Mr. Ray, so ?I have seen this movie, I mean mess, ?before.

Look at WeWork’s Adam Neuman, who spent lots of other peoples’ money ?on private aircraft, absurdly luxurious homes (waterfalls and more), and massive parties, as well as exploiting business opportunities outlandishly far removed from its core business. Elizabeth Holmes and erstwhile lover Sunny Balwani could not have mismanaged products and patient safety more if they had tried (actually, I take that back; they did try). Also, Mark Zuckerberg spent outrageous sums in an unsustainable attempt to scale up the so-called metaverse, and Meta has now laid off about 21,000 people in 4 months. That was simply stupid and arrogant mismanagement. Any independent board member should have argued against such unsustainable spending, and loudly. Then there is Silicon Valley Bank’s CEO, seen touting his bank’s exciting future, only days before it collapsed. No such list is complete without the petulant Travis Kalanick (Uber), or Elon Musk, the poster child of brilliant vision and a human’s flaws.

As I grow-up, I am attempting ?to find the answer to my question about how many more of these investors-asleep-at-the-wheel situations we must endure before we investors wake up. Can you believe we venture?investors keep making the SAME DUMB ?MISTAKES when it comes to entrepreneur leadership and capable management?

I'm just wondering.

Joe Mandato?is a former leader of a number of high-growth technology companies and currently an investor, board director, university lecturer, and author.