Career investor and friend to the effective altruism movement.
Daedalus
Karma: 298
EA orgs should take financial stewardship and controls more seriously. More organizations should have financial professionals or there should be shared financial resources. Boards should have more financial experts even if they serve ex officio on finance/audit committees.
It seems like we’re splitting hairs. What I’m saying is that millions and millions of people are hearing about EA for the first time via articles like this: https://www.nytimes.com/2022/12/01/technology/sam-bankman-fried-crypto-artificial-intelligence.html?smid=nytcore-ios-share&referringSource=articleShare
Maybe this won’t matter for the marginal Berkley EA Club joiner, but I’m worried this will do some harm for donors and non-EAs that EA orgs have to work with in order to be successfull. EA orgs often/usually have to interact with the outside world, sometimes with fairly establishment/conservative organizations who have leaders who read the NYT and WSJ.
Maybe I’m raising this alarm because I experience this directly daily working in finance with a bunch of people who are on boards of foundations and nonprofits who now have a very negative view of EA. Maybe this is a niche concern and it doesn’t matter in the grand scheme of things.
Things that I think played particularly badly:
Not being totally direct on his parents’ real estate acquisitions. These are a bad look even if you buy the argument that the only way to find space in the Bahamas is to buy a few hundred million of extreme lux resort condos. I know a small handful of very wealthy people who would be able to immediately talk about how they have financed / held their RE assets.
Not being totally direct on his relationship to Alameda: the guy lived with principals of and founded/owned 90% of the firm which was also located in the Bahamas (and maybe dated the CEO?). I have no more intel than what’s available in the press but it just does not read as truthful as an outsider.
Drug use: who cares, but it has become a meme and I think he would have been better served to say: ‘yeah, I have a special patch-based scrip for ADHD meds I’ve used throughout my career—not sorry about that’.
My only update is that I think this community (based on the EA forum only) is under-rating the PR damage from all of this. For a lot of people SBF =~EA, and this interview does not appear to be playing well (source: twitter, group chats etc.). I’m not sure what to do about it but I thought I’d share that observation from outside the EA/LW bubble. A few other thoughts:
Unfortunately, I think SBF’s comments to Vox about ethics (“so the ethics stuff—mostly a front?”) have been misread to mean that his entire earning to give / EA worldview was somehow a cynical sham. While I think FTX’s downfall indeed involved some risky and unethical business dealings, I don’t think same is saying anything like this (obviously). In fact, he may have even EV’d himself into taking some of these risks in service of his earnest philanthropic goals (epistemic status: who knows).
Some people who really don’t like EA, and longtermism in particular, are using the FTX downfall as a sort of proof that EA exists to launder the reputations of the wealthy. While I think these arguments have little merit, they are getting a lot of play in left-leaning circles and I think have the potential to do damage, especially to people with limited exposure to EA who are “getable” in the sense that they care about similar things to EAs and may now be less likely to work on / support EA cause areas.
My non-EA group chats, mostly finance professionals, are tearing this apart. His claimed lack of knowledge of a number of key metrics and figures is not credible. The real estate question about his parents got an even more heat (I think justifiably so).
SBF Dealbook Thread
When FTX raised $420 million from an array of big-name investors in October last year, the cryptocurrency exchange said the money would help grow the business, improve user experience and allow it to engage more with regulators.
Left unmentioned was that nearly three-quarters of the money, $300 million, went instead to FTX founder Sam Bankman-Fried, who sold some of his personal stake in the company, according to FTX financial records reviewed by The Wall Street Journal and people familiar with the transaction.
Just drawing attending to the bankruptcy filing day one statement, which really is something else. This is just a brief intro filing and by no means comprehensive, but the sentiment is incredibly damning for SBF and his inner circle. Putting aside the Vox interview and questionable EV thinking re risk, it also appears that FTX was just badly run. If the plan was to run a high risk/reward strategy (even if you thought you might need to obfuscate activity in the future), you would not have such poor internal controls and governance. It all looks a lot more ham-fisted than I thought possible. I honestly don’t get it.
The bankruptcy filing is something else, including the statement (from the man who restructured Enron) ‘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. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.’
There are huge private equity firms that focus on buying venture secondaries. No one is talking about selling to individuals. There is also enormous demand for these, especially from firms unable to get into deals with primary capital. FTX raised far less than they could have in the 2019-2021 market to limit dilution, which is a totally reasonable strategy. The demand for exposure to FTX surely far outstripped the ‘supply’.
All I’m saying is that as a professional investor this is extremely common and uncomplicated, especially for hot venture companies. I have friends close friends who took tens of millions off the table in 21 through secondaries in far less exciting and earlier stage businesses. On if my neighbors works at StepStone and entirely focused on venture secondaries.
My broader actual point was this: I don’t blame Will or Nick or any of the FF people for this—this stuff is super niche financial markets minutia. My broader point/concern is around governance, financial controls, and funding strategy at EA orgs (looking in from the outside and reading a few case reports). If FF had a CFO they should/would have flagged the concentration risk and developed some proposals immediately. At the most basic level I just want you guys to hire some good finance people!
There is an established mechanism for doing this called selling shares into the secondary market. From Carta:
Between 2012 and 2021, the global market for venture secondary deals grew from $13 billion to $60 billion. This growth happened in part because the primary market for venture capital also grew: Over the same span, annual global venture investment rose from just over $50 billion to well north of $600 billion. This growth culminated in a record-setting 2021.
https://carta.com/blog/venture-capital-secondary-market/
I’m sorry this is not correct. Private companies have stock, it is just not publicly traded. I personally own stock in a number of private companies, as do funds I help manage. During or in between financing events, it is customary for existing holders of stock or options to sell on the secondary market, either to incoming investors or third parties. In 2020/2021, while the venture and tech markets were hot, these transactions were extremely common. Secondary shares are often sold at a discount to market, which over the past two years were very modest. The idea that it was impossible to generate liquidity is simply incorrect and a strategic CFO could have pointed that out.
That would be some 7D chess from a broken man trying to avoid some serious personal legal consequences. Noble if true but it’s not! Also would suggest additional hubris around the ability to predict how anything will play in the public, which I guess seems more possible? Anyway, I think this take is probably not right?
True
This is meaningfully worse that I thought his first interview would be. Both in terms of the format and his flippancy about his actions and the admissions about his apparently intentional deceit? “Saying the right things” has always felt over rated in EA—I have seen people lose a lot of trust by saying something potentially dangerous like “hey maybe we should do XYZ biotech research” given the State view on the thing. Anyway, this sucks and I’m really disappointed. Props to Kelsey for always being level headed and steady. Not an easy situation to balance your duties as a journalist, EA, and human being. Mad respect.
I am personally interested in this job for the next billionaire donor!
This is spot on. The Sequoia letter makes the correct point that FTX accounted for something like <1% of the fund vehicles used to invest in FTX. Most startups fail and while the manner matters—I’m sure they are having some tough LP conversations—this does not remotely represent an existential risk to their business. This will be forgotten in due time.
EA had unique insight into SBF the person outside of FTX pitch meetings. As others mentioned, EA also had a view from the Alameda breakup. I have no idea if that information would/could have been helpful, it is meaningfully distinct from the information VCs had (although, lol at not getting the balance sheet for an investment in a financial services company…).
One more point: the reputational damage to EA here is going to be orders of magnitude worse than for their investors. How have potential donors/employees/partners changed their view on Insight Venture Partners as a result of FTX? No one cares. Has this meaningfully hurt EA’s public reputation? Undoubtedly especially given recent fanfare around WWOTF. I am worried about this and am not sure what to do about it.
Who am I? EA aligned private equity investor / donor who has tried to become more involved in EA for almost a decade.
Ok. These incidents are all new to me but they’re all very bad.
Let’s separate two concepts: governance and controls. Governance is a whole bunch of structure and decision things including what boards of directors do. Controls are a whole bunch of policy and procedure things any and every organization should have to not have occasional very bad things happen. They include things like limits on account access, signatories, cash reserves and investment policies, independent auditors and, critically, audit expertise and the board level via an audit committee. Maybe we all know this but I wanted to separate them because:
I have been in a number of meetings where EA company/org leaders express concerns around establishing or expanding their boards because of “alignment issues” around potential members. I get it (kind of) - it’s hard to put a board together with the right expertise AND devotion to the cause the way you like to see it. I have heard similar sentiment around bringing in finance/accounting professionals. Anyway, a key point: if you are paranoid about mission drift and tight control by aligned founders, you can create an entire board infrastructure of non voting or ex officio members to serve on important committees like audit and governance etc. I have done this a few times at normie nonprofits: it’s a win for me because I get to contribute to something I care about without taking on the time commitment and liability associated with joining a board.
You all may know this stuff already, but I’ve been surprised how weak EA boards look from the outside: a handful of founders and the same 5-10 people from Oxford and adjacent circles… not ideal and frankly a huge red flag as a prospective donor/partner etc.!
Just adding here that it is very common for foundations to receive stock, including in private companies, so liquidity is not the issue here. This would have done little to mitigate things given the fraud however, it’s not inconceivable that had FF had a smart CFO they would have suggested selling secondary at some point to reduce these risks. In 2020/2021 this would have been extremely easy. I don’t know the details here beyond what’s in the popular press, but simply want to note that there were tactics that could have been used to meaningfully reduce these risks (again, they would have had to cash some portion out pre fraud and at they would be in the identical position now if they had the stock but had not liquidated it). Just putting my private equity hat on here—I am not a bankruptcy lawyer.
I’ve had a similar awful experience although with less direct negative feedback. Without going to to too much detail, I have deep domain expertise in a top EA cause area. While some of the EAs I’ve met working on this problem are brilliant, some are dangerously naive and overconfident to the point of likely causing immense harm over their careers. Unfortunately some of these people work for funders. I have tried to get excited about doing more in the EA community for years but just couldn’t overlook these seemingly obvious errors in judgement.
Side note: not everyone talks openly about their wealth and there are many people who could be medium-major donors who EA regularly burns through these bad professional interactions. There are a lot of people like me who are highly sympathetic to the EA worldview with ~tens of millions of net worth that could plausibly become EA donors or at least % pledgers. The hubris around these two highly volatile illiquid funding sources has been astonishing to witness as an outsider.
Only thing I can add here is Helena is a longtime joke in VC/finance circles for being an almost comical example of nepotism and ego. Haven’t seen their name come up for a few years but it was a kind of meme for a while. Their new public facing stuff looks better but it used to be hard to distinguish from parody (Yale rich kid and his buddies behaving as if they were members of some kind of World Congress Davos intelligentsia). I have no idea about their biosecurity work and it could be good / it could be the case everyone has grown up and started doing serious stuff, but it’s worth noting the history and reputation. As someone who thinks EA massively underrated PR/vibe/reputation I thought I’d bring this up. I have a lot of respect for ASB so I assume there’s more to the story.