No one wants to say it out loud, but is the latest tech bubble bursting? While the Web 1.0 demise was a result of too much money chasing too much youth and inexperience, this time around it’s different: It’s a result of a different kind of huckster class which has woven itself into the fabric of tech.

And many investors were complicit.

WeWorked It

Yes, he did, ‘he’ being Adam Neumann, the company’s charismatic founder/showman who somehow convinced investors that WeWork was a tech company, and not just another real estate play. Tech startups were drawn to the space, but being able to rent office space using an online system doesn’t make you a tech company. There was WeWork Labs, but it was something of an accelerator by any other name and which other accelerator considers itself a tech company?  WeWork’s rapid expansion into new spaces and more cities did grab attention, as they’d almost instantly be 90+% full, it would be announced. Although the play was to rent ten floors, build out three, fill them, and as for the floors that hadn’t been converted? Details! Kick the can down the road and stick to the plan to show hockey stick growth.

WeWork was a ‘tech’ company only insofar as, like many ‘tech’ founders before him – think the Web 1.0 batch who were going to ‘disintermediate’ every vertical on the planet, sans revenue model, thus creating the first tech nuclear winter – Neumann knew how to game the system. You can kick the can down the road for just so long, re those landlords wanted the rent for those other seven floors (times how many hundreds of buildings?). With planned IPOs come due diligence/scrutiny, and the numbers just didn’t add up. Especially given the company’s expansion  into other verticals – WeWork, WeGrow, WeLive.

WeBankrupt.

We Not Buying It

Then there’s Sam Bankman-Fried and the FTX/Alameda debacle. As we witnessed in the case of Adam Neumann, tech is a huge image play, and dollars to donuts, SBF got the message. Alameda Research CEO (and sometime SBF squeeze) “Caroline Ellison told jurors that Sam Bankman-Fried curated his image, especially his messy hair,” Yahoo!News reported. She also mentioned that it took him hours to get that unkempt look just right. ““Bankman-Fried also bought a Toyota Corolla to help curate his non-luxurious image, she said.”

That didn’t last as we witnessed with Bankman-Fried’s indulging in expensive cars, lavish real estate and a rock-star lifestyle as befitted his new-found wealth (Former FTX CEO Sam Bankman-Fried Reportedly Spent $2,500 On Food — A Day — in The Bahamas. He Also Owned $40 Million Penthouse.) Hey, if you’ve got it, flaunt it, but depending on how you got it in the first place, as for flaunting it, maybe not such a good idea, especially when you’re playing fast and loose with investors’ money, aka, other people’s money, and there’s a heads up to founders: investors expect payback and in SBF’s case, payback is a bitch. He was found guilty on all charges and like other crypto fraudsters before him, is facing a long prison term.

For the record, we don’t mean to minimize the damage SBF did to the crypto sector by focusing on his hair here, but, hey, he started it…

For fun, here’s the FTX pitch deck from May 2021, presumably used to raise their $1B Series B round and speaking of compliance/full disclosure, while it did mention that the company worked with “policy makers and regulators,” we wonder why he failed to disclose that he was contributing to the campaigns of policy makers, or that re regulators, SEC Chairman Gary Gensler was his godfather. Personally, we prefer to be honest/transparent when working on pitch decks for clients.

There were also some questionable practices going on between some of those funds who invested: FTX invested in those funds, which in turn invested in FTX. Those highly regarded firms are there on the cap table, and in Silicon Valley, optics are important.

As The New York Times reported, Investors Who Put $2 Billion Into FTX Face Scrutiny, Too. It’s not over yet for Bankman-Fried. “Bankman-Fried is scheduled to stand trial in March on charges of paying a $40 million bribe to Chinese officials and conspiring to make more than 300 illegal political donations in the U.S,” Reuters reported. Although we do wonder if – dare we say it? – collusion on the part of some well-known tech funds will come into play in that trial.

We Have a Suggestion…

‘Fiscal responsibility.’ There’s a term that doesn’t come up much in the tech sector, which has been personality-driven on both sides of the table for some time now, which has led to the perpetuation of the bad behavior – and rampant fraud – we’ve witnessed over the years. It seems that gravitas may well fast be becoming and should always have been the order of the day. Tech stocks, like many tech founders, have long been overheated and we’re long overdue for a market correction.

Why there wasn’t more scrutiny on Neumann, whose fast and loose accounting, what to speak of his misrepresentation of WeWork as a tech company, which led no doubt in large part to Softbank’s colossal loss on its $47B investment, we’ll never know. As for Bankman-Fried, who sported shorn locks for his courtroom appearance – which may account for his inability to remember much of what transpired with FTX/Alameda re the Samson Syndrome and all, his strength truly had been in his hair. Although truth be told, many of his investors were paid back or are in the process of recouping their funds. Not so with WeWork.

Still, fraud is fraud and FTX/Alameda Research was a clear case of misappropriation of funds. Could it be that we’re at least at the beginning of a time where at long last the waiter is coming around with the check? Bankman-Fried was all about appearances, which is in lockstep with Silicon Valley’s long-standing smoke-and-mirrors/fake it till you make it/optics uber alles philosophy. That’ll get you just so far, and there are those circumstances where the sh@t gets real, and you can no longer chalk it up to a bad hair day. Onward and forward.