Dark Entrepreneurs

It is somewhat obvious that the tide has changed in the public perception of tech. But I am not quite sure it is totally attributable to the current market cycle, the imminent fear of an economic recession, or a Covid whiplash. If you squint hard enough, you can spot immutable, consistent personality traits that all most controversial founders share that are completely uncorrelated to market cycles. For some of these founders, much like in the invisible gorilla experiment, the best place to conceal secrets is often in plain sight.

Sam Bankman-Fried famously negotiated a $200 million deal with Sequoia Capital in gym shorts with unkempt hair. The deal occurred during a Zoom meeting while Bankman-Fried was simultaneously playing the video game “League of Legends”. In a 2013 letter to his Uber employees about an upcoming party in Miami, Travis Kalanick laid out rules for employees to have sex with each other. He ended that part of the letter with, "Yes, that means that Travis will be celibate on this trip. #CEOLife #FML." Being willing to ignore accepted standards of dress and behavior is the social capital of disruptors: Silicon Valley has always looked for contrarians — those who by definition don’t respect the way others do things. It is very much part of the job description. In the rarefied stratosphere of unicorns, "rules are for the obedience of fools and the guidance of wise men."

One of the things that appealed Don Valentine, the founder of the investment firm Sequoia, about Jobs was that “he did a number of weird things…on purpose just to shock people”. Though Jobs was never known to play Pac-Man during important meetings, he was a fruitarian. Adjust this for decades of inflation in progressivism, and you have enough standard deviations from the mean to fit with Silicon Valley’s prime directive – rejection of the status quo. This is the same reason why Mark Zuckerberg wears hoodies instead of suits, or why SBF plays videogames while pitching investors. When the goal is to shake things up, conforming is a liability.

To achieve economic progress, it's important to challenge the norm and disrupt established practices. Capitalist economies tend to grow faster and are better at reducing poverty than regulated economies. Joseph Schumpeter's principle of "creative destruction" is crucial to achieving this kind of growth, but it requires a specific type of leadership. In capitalism, disruptors are, like medicines, as necessary as bitter.

SBF-esque characters are then unique only insofar as they stand at the high end of the distribution of characteristics that define entrepreneurs. They are smart delinquents, creative misfits and witty mavericks. Bright, impulsive, edgy, colorful, and indifferent to authority. Socially skilled, though not transparent. Dazzling, but somewhat duplicitous. Detail-oriented, smart, analytical, risk-seeking, norm-defying, fun-loving, and driven to win. Importantly though, not motivated by money.

This kaleidoscope of nuances paints a picture of morally ambiguous problem solvers and embodiments of a necessary evil. Because of this ambiguity, some prominent tech founders thread a fine line between praise and disdain. Recent high-profile cases, such as the arrest of Frank's founder for falsifying active customer data and Elizabeth Holmes' 11-year prison sentence for defrauding investors, have created a sense of tide-shifting in the start-up world, revealing who was “swimming naked”. The resulting spectacular failures adjusted the focus on a common personality disorder known as the "Dark Triad" of personality traits: narcissism, Machiavellianism, and psychopathy.

The "Dark Triad" refers to a set of socially malevolent personality traits. Machiavellianism is characterized by an exploitative style, cynicism, and an "ends justify the means" attitude. Narcissism involves entitlement, superiority, and self-enhancing behaviors. Psychopathy includes shallow affect, impulsivity, risk-taking, and physical aggression. At the heart of the Dark Triad, there is callous manipulation, low honesty-humility, or low agreeableness.

In a 2016 study, researchers sent a survey to 466 business and MBA students asking them about their intentions to become entrepreneurs and their motives for entering entrepreneurial ventures. They also measured their standing on the Dark Triad traits – narcissism, psychopathy, and Machiavellianism  – which are associated with antisocial and counterproductive behaviors. Individuals high on narcissism tend to have a sense of grandiosity, overestimate their personal capabilities, and engage in self-serving behaviors. Those who score high on psychopathy lack empathy and remorse and engage in impulsive, selfish, and impulsive behavior. And Machiavellian individuals have a general disregard for ethics or morality: manipulating, deceiving, and exploiting others for their own gain.

Startups often create a playground for fraud, shady behavior, and rule twisting. Through innovative business models, imbalanced cap tables, and light investors’ oversight, there's plenty of room for things to get murky. When the going gets tough, rule-bending becomes tempting, making it a perfect hangout for Dark Triad founders. FTX was such a mess that it didn't even have a full list of its own employees. SBF told coworkers that FTX's sibling hedge fund, Alameda Research, was a nightmare to audit, and sometimes they'd just find $50 million in assets they'd forgotten about, as if that's even a thing.

When the ledger is drawn up on the tech revolutions of the last thirty years – the internet, smartphones, social media, and crypto—it's tough to feel too sorry for some of the losses these advancements caused, like department stores, CD players, and checkbooks. However, the most significant casualty might not be a specific industry or product, but something more challenging to replace culturally – the notion that being a tech leader means sticking to any level of common decency.

In the 1905 classic "The Protestant Ethic and the Spirit of Capitalism," German sociologist Max Weber claimed that in capitalist societies, business wasn't just about making money. Instead, amassing wealth was a moral mission, a way to justify one's time on Earth. That's why the "bourgeois businessman" of yesteryears, unlike rich nobles, always stayed "formally correct" and ensured their moral behavior was flawless, according to Weber.

Take 19th-century steel magnate Andrew Carnegie. As one of history's wealthiest people, Carnegie was known for his discipline, sobriety, and high-mindedness. In his posthumously published "Autobiography," he emphasized respectability, noting that he and his brother Tom couldn't help but become "respectable characters" because their mother despised anything low, deceitful, or gossipy. His recipe for good conduct was simple: obey the inner judge, fear nothing, and just do the right thing, always.

Decency is founded on the notion of visible equal treatment. Being decent is an outwardly-directed act, like giving someone your undivided attention during a conversation signals that you view them as an equal. However, tech thrives on disruption, which inherently offers limited consideration for others' methods. Decent behavior isn't just a moral issue but also a practical one. When a system appears to be failing—whether it's a stagnant corporation or a gridlocked government—it becomes tempting to seek a leader who will brazenly challenge that system. Elon Musk, Travis Kalanick, SBF, and Elizabeth Holmes all achieved remarkable success by promoting their opposition to the status quo through their contempt for social and political norms. From smoking blunts on podcasts to kitesurfing with naked models, the road to a multi-billion-dollar valuation is paved with provocative intentions. Trolling is no longer the battlefield of losers. It’s now the hallmark of kings.

The real conundrum here is why we keep falling for it, time and time again. Why do these characteristics only become obvious after the fact? After all, if you're working with, admiring, or investing in a psychopath, you should be well aware of it before committing more resources. Alfred Lin, an investor at Sequoia Capital, poured $150 million into FTX, only to reflect on the company's catastrophe later. He mentioned that it wasn't just the investment, but the year-and-a-half-long working relationship that he still didn't see clearly. "That's tough," he admits. No doubt.

It's a genuine issue and, like all straightforward dilemmas that are obvious only at first glance, not an easy nut to crack. Investors are increasingly turning to consultants to help spot the telltale signs of "Machiavellian narcissists" who are more likely to commit fraud. They want to strengthen the protocols for evaluating founders. But here's the thing: when markets are skyrocketing, no one really does thorough due diligence. I mean investors, media, and employees alike. No one asks questions when they're strapped to the fuselage of a rocket ship. If financial and operational due diligence is already minimal, you can imagine that a deeper psychological assessment of founder traits is entirely off the table, to put it mildly.

To move from being a run-of-the-mill fortune teller to a Madoff-like character, a person with Dark Triad tendencies must have the desire to deceive, the opportunity to do so, and the ability to justify it. Consider this: the type of individual who's confident enough to reinvent themselves can easily resemble the modern-day ideal of a self-made man, albeit with a stiff twist of dishonesty. They all seem to be Jay Gatsby or one of those rootless cowboys and salesmen of American mythology. Like Fitzgerald's protagonist, they are born from their idealized version of themselves, serving a "vulgar, meretricious beauty," and they remain faithful to this ideal until the bitter end.

There's an inherent American individualism in all of this — a cultural model that promotes individuality, hustling at all costs, and a Machiavellian mindset that justifies any means necessary. It's no surprise that in the tech war, Europe lost, and clumsily tried to reposition itself as the regulator, with accept all cookie buttons and data-sharing frameworks. You either die as Arsène Lupin, or live long enough to become Sherlock Holmes. Americans are some of the most trusting people in the world, quick to forgive a repentant sinner, willing to take you at your word, and eager to be liked.

Humans are naturally trusting creatures. We depend on each other to survive, so it's in our DNA to assume that others are generally decent. In most cases, this is a safe assumption. However, there's a small group of people who have figured out how to exploit this innate trust in others for their own gain.

In some ways, we are the real charlatans – and Machiavellian artists have it easy. We do most of the work for them, we want to believe in what they are telling us. What is perhaps most unnerving about these weaknesses is that each is, in a way, the flip side of our strengths. Our desire to trust, dream, hope, seek meaning, to believe in ourselves are all things that mostly serve us well in life. We wouldn’t want to get rid of them even if we could.

The Socratic dictum, “Know thyself,” is the best means of inoculation against this type of sophisticated cons: know your vanities, your emotional triggers, your deepest desires, your sympathies, and soft spots—everything an ill-intentioned “disruptor” will prey on. But there is no final safeguard. You cannot escape the need to believe. Short of making cynicism your overriding philosophy, the surest safety might be to understand the workings of these types of personalities the same way they understand you — their psychology, motivation, tricks, and games. To beat the house, you must learn to count the cards.