SBF & FTX: The Culture of Unicorns, Effective Altruism, and the Illusion of “Going Infinite”
I remember waking up to crazy news streams about FTX and Sam Bankman-Fried about a year ago around this time. In San Francisco where I live, the breaking news about unicorn startups plummeting reverberates even harder. Later that day I had a meeting with my client based in Korea. She asked what we were up to in the Valley these days and I said FTX was going down and this would be one of the biggest scandals in the history of startups. She asked again — “But why is this surprising? This isn’t the first time to see events like that, is it?”
I definitely felt deja vu. Most recently, Elizabeth Holmes of Theranos would be the closest example to SBF (“Sam Bankman-Fried”) of FTX. Elon Musk doesn’t quite fit into the category of “failure”, thanks to his massive success with Tesla and SpaceX but strangely he also exudes a similar vibe as SBF or Elizabeth Holmes with what he’s doing with X (formerly Twitter) now. But there must be so many smaller cases, beyond these well-known ones.
If you look at these three cases — SBF, Elizabeth Holmes, and Elon Musk, one common theme is that they all said or are saying they are solving humanity’s problems. For SBF, what motivated him was literally how many lives he could save with all the money he was going to make (aka “Effective Altruism”). For Elizabeth Holmes, it was that she was revolutionizing healthcare by letting people get diagnosed with a drop of blood. For Elon Musk, it is about saving the earth with Tesla and saving the future of humanity by bringing humankind to Mars through the SpaceX initiative.
Visions of founders are critical in startups. First, it provides legitimacy and intrinsic motivation. It’s so hard to create a new business from scratch that it can make them doubt multiple times a day why the heck they are doing what they are doing. Vision provides why and helps them stay grounded. Plus, in the study about startup founders mental health, those with strong intrinsic motivation (“Why” for the business) vs. extrinsic motivation (e.g. fame, money and power) are more resilient. Visions can fuel intrinsic motivation too.
Visions also play huge roles in attracting talents and raising funds from investors, eventually paving the way for startup successes. When the visions are in the realm of “doing good” for the world, it’s even better. No one can argue against or doubt them. Good intentions should be good through and through, right?
Sure, visions with good intentions for the world are important — but they aren’t to justify every course of the actions startups take. In the case of SBF, this was the main problem. When SBF first learned about Effective Altruism when he was an undergraduate at MIT, he immediately resonated with it. Effective Altruists are committed to donate their wealth to charities that maximize the impact of saving lives. Therefore, they choose careers that would maximize their wealth. Sounds great — who’s against it? But this was where the problem began. Can you justify any means to optimize for altruism, just because it’s for the good?
SBF left his successful career at Jane Street Capital, a High-Frequency trading firm, because he didn’t think he could maximize his wealth from his earning there (e.g. his salary in his 3rd year at Jane Street Capital was $1M and he was 25). Then he went on to found Alameda Research in 2017 and FTX in 2019. FTX raised funds from about 140 VCs, making it valued at $32B as of January, 2022. FTX fit the picture of “unicorn” in the startup world so well — the seemingly successful crypto exchange, a math wizard/socially awkward CEO who could make investors invest, even though he refused to have CFO or any governance in management, and a great vision/mission.
On the surface, SBF was clearly “maximizing” his wealth through FTX for the Effective Altruism to maximize the number of lives to save. Under the surface, now we all know what was going on, as the case unfolded in November, 2022. He has been using billions of funds from FTX clients to invest in his own VC portfolio and in Alameda Research without telling anyone. Even worse, FTX management didn’t know where they invested money nor which accounts they put this money in, after taking it out from FTX. Simply put, SBF’s actions can’t be justified as legal business practices, no matter how grand his intentions have been.
To the question of what she thought would have happened if she hadn’t garnered so much attention as the second coming of Silicon Valley in her close-up interview with New York Times right before serving her 11-year prison terms, Elizabeth Holmes answered “We would have seen through our vision” without a blink of an eye. Right after the FTX scandal broke out on Twitter in November 2022, SBF didn’t hide from the public — instead he went on to the public stages of many conferences to explain that there was nothing wrong with what FTX was doing and tried to convince the world that he could fix it. Elon Musk pounded on the risk of climate change and his intention to save the planet through Tesla; but Tesla factories constantly violate environmental regulations in many states.
What these people share is obvious — strong focus on their visions and the belief that “no one should stop us because we are doing good for humanity”. Such a declaration of strong visions buys the confidence of the public and investors. Even when their businesses might not be quite successful yet, such gusto simply mesmerizes the world and makes us believe it’s possible to go infinite without limits. Until they crash. When they crash, we awake to the illusion of unicorns going infinite over and over and over again.
When my client raised the question — “What’s new with this? Doesn’t this repeat again and again?” I felt the heavy fatigue deeply rooted in the current model of startup success, often dubbed as “unicorns”. I definitely don’t want to see another Elizabeth Holmes or SBF or Elon Musk again. We need a new model of startup success and it is possible.
It’s “Elephants”, Erica Wenger, GP of the VC Park Rangers, wrote in her amazing article about an alternative model to the Unicorns. She declares, “The Age of Unicorns is over. Enter: the Elephants.” She indicates the following qualities of “Elephant founders”:
- Travel in Herd: Elephant founders and startups are community-focused throughout their startup journey.
- Empathetic: Elephant founders actively listen to their members and customers. (It’s well known that elephants are one of the most compassionate animals in the world)
- Real, not Imaginary: Elephants are real, unlike unicorns.
- Support the Ecosystem: As Elephants contribute to supporting the ecosystem around them, Elephant founders contribute to the collective purposes around them.
- Longevity: Elephant founders and their startups are more sustainable and resilient, like elephants are some of the longest living mammals.
Erica Wenger proves that this model of Elephant founders and startups isn’t just a theory — and tells stories of many Elephant startups in operation already. They “attract” members rather than “acquire” customers with money. They are purpose-driven over growth, and use the purpose to guide every step of their journey. They don’t mind sharing their success as well as failures in public, and build their companies transparently in public.
It’s so inspiring to see this Elephant startups as an alternative success model to the unicorns. They are still a fraction of the entire startup ecosystem but they are here. We should support them as investors, customers, and general observers. This is important not only to stop some unicorns from wiping out money, hard works and trust in the society but also to create more sustainable environment for startups to do what they are set out to do in the first place — make something wonderful for the world.
