A Brave New World or Quixotic Insanity: How VCs Distinguish Genius from Madness
Arm-chair psychiatrists love to tele-diagnose the luminaries of Silicon Valley. Mark Zuckerberg is commonly diagnosed with autism/Asperger’s. Larry Ellison is reportedly a narcissist, albeit a “narcissist visionary.” Vanity Fair has labeled Adam Neumann “egomaniacal” and “insane.” Not to be deterred by redundancy, Vanity Fair also quoted an unnamed acquaintance of Zuckerberg and Elon Musk diagnosing them both with “total and complete pathological sociopathy.” Ouch.
First, let’s put such diagnoses into perspective: they’re always cruel. Either they’re being expressed sincerely, in which case they mock these individuals’ real illnesses, or these labels are being expressed flippantly, in which case they mock the suffering of those who are really mentally ill.
Contesting these diagnoses on their own terms is not my aim. These men seem to have egos strong enough to resist such name-calling and fortunes large enough to console them. More importantly, our business is venture capital, not psychiatry. We diagnose different things differently for different purposes.
Instead, my aim is to explore and explain a seeming paradox: if these entrepreneurs are so dangerous, unpleasant, and mad, why do people like us seek them out? Why do we give them millions and billions to realize their visions if they are pathological and/or delusional?
The Method of Seeking out Madness
That VCs prioritize the team, the people, in choosing investments is a cliche. The people we’re looking for are geniuses, people “possessing extraordinary intelligence or skill; especially somebody who has demonstrated this by a creative or original work in science, music, art etc.”
It’s easy to applaud the creativity and originality of genius without really thinking about what these words mean. To be original means to have an idea or talent that none of your 108 billion ancestors or contemporaries has had yet. To be creative means to make something that can still evoke surprise, wonder, and admiration even after 100,000 years or so of people making things.
Geniuses see things that aren’t there and never have been. They imagine worlds and things that, at the time of their imagining, are literally unheard of. Seeing things that have never been is more like a vision in the sense of “prophecy” than in the banal sense of “vision statement.” To the extent that visions indicate madness, there is some madness in all creativity.
But VCs seek a certain, particularly extravagant sort of genius. It’s not enough that they have visions of an alternative, never-experienced reality; genius entrepreneurs need the conviction to go out and make it real. When we find someone with a scalable, potentially profitable, but utterly mad idea and the even madder notion that they can and must realize it, we call a meeting. And we might even call capital.
Two Kinds of Madness
Everyone has had the experience of meeting someone brilliant and feeling intellectually and creatively small next to them. Everyone has also had the experience of encountering someone who’s desperately — perhaps dangerously — out of touch with reality. The former is rare and valuable; the latter is distressingly common and just plain distressing. So how can VCs tell the difference beyond gut instinct?
To avoid playing armchair psychiatrist myself, I’ll illustrate the difference with two more or less historical examples. The first is one of literature’s most famous madmen: Don Quixote. The second is the entrepreneur involved in one of the most renowned and momentous VC bets in history: Christopher Columbus. (The Spanish connection is purely coincidental.)
Don Quixote is often popularly represented as a sympathetic, if misguided, would-be hero, whose hallucinations don’t detract from the virtue of fighting for truth and love. The reality, if you actually read the book, is that Don Quixote was a nightmare. He assaults unarmed peasants for touching his armor, he frees men known to be dangerous criminals, he tries to release lions from a cage — while innocent people are standing terrified nearby — and slay them for glory (but they’re too docile), and he utterly objectifies a woman who has no interest in him.
Don Quixote is like the modern basement dweller who collects swords and guns and threatens to fight anyone who compliments his Instagram crush, except that he actually hurts people.
The popular perception of Columbus, on the other hand, is either as a villain who stole a continent or simply the guy who sailed the ocean blue in a rhyme. While Columbus rightly faces harsh historical judgment now, in his own time and context he was a visionary entrepreneur. Columbus was a merchant, but he was curious and taught himself a fair amount of astronomy, geography, and history. He also possessed a mad vision: to reach China by sailing west, which most of his contemporaries agreed was well beyond the technology of the time.
VCs meet Quixotes and Columbusses every day. Sometimes it’s not obvious in the first meeting whether an entrepreneur’s madness is constructive or corrosive, but there are a few hints:
The Scope of the Vision
Don Quixote’ goal was to acquire maximum glory, which makes the narcissism diagnosis plausible prima facie. Even winning Dulcinea’s hand was more about him than her, which is obvious because he never really sought her opinion. Don Quixote was chasing a vision of himself only.
Besides making himself rich, Columbus sought to earn enough money to help the Pope finance the reconquest of Jerusalem. From our perspective, it’s obvious that this would entail disenfranchising millions in order to finance a war against millions of others. For him, though, in an age of unquestioning devotion to the Church, it meant saving millions of souls and completing a very good, very big project that the righteous had been working on for centuries.
Columbus was chasing an idea much bigger than himself.
Corollaries from the VC/tech world are easy to find. It sure seems like Elizabeth Holmes lied about her company’s technology with little apparent benefit beyond her own enrichment. Investors and, in her case, patients were nothing more than means to pump her company’s growth rate. She was chasing a vision of herself as a master CEO and astute businessperson, everyone else be damned.
The guys behind OpenWeb, by contrast, are pursuing a bigger, nobler goal. They’re trying to use technology to improve the quality of information available on the web and the level of discourse about it. It’s like they’re trying to revive the old cyberutopian visions of the web as a “global village” and to make it more like Arendt’s public sphere. That’s a big, noble vision.
Orientation towards the Past or the Future
Don Quixote was using outdated technology to reinvigorate the lost glory of chivalry. The idea was basically to make knight errantry great again. And like many projects that aim to make something supposedly lost great again, the memory of the thing that was lost was mostly fictional in the first place.
Columbus’s vision, by contrast, was firmly located in the future. He wanted to connect the world in a way that it had never been connected. He sought to make the shape of the world reflect the universality of his beliefs. Columbus was literally after a New World, not lost glory.
Orientation towards the past is harder to find in tech, but it’s not unheard of. For example, WeWork talks like a tech company, it looks like a tech company, but it’s probably better understood as a reboot of an old-school real-estate company. Similarly, Joel Osteen’s Lakewood Church looks a lot like a tech company, with a high-gloss website, a flashy e-commerce presence, multimedia channels, and a cross-platform app. But what he’s selling is basically an old-fashioned personality cult. (It’s arguably a pyramid personality cult, with Osteen building a personality cult based on his interpretation of Jesus’s personality. But dead heroes like Jesus, Steve Jobs, and Andy Kaufman often have hucksters managing their legacies, like Joel Osteen, Tim Cook, and Bob Zmuda.)
Perceiving a Gap in the Market
Don Quixote occasionally mentions how great it would be to become as powerful as the emperor. He fantasized about political power in feudal Europe, which was full of claimants fighting and murdering each other over tiny niches of rule. The market for would-be emperors was already saturated.
Columbus didn’t take on the incumbents; he charged headlong into the gap they had left open. Once the Ottomans captured Constantinople in 1453, ending Christian rule in Asia Minor, Western Europeans could no longer access the wealth and markets of East and Central Asia. By sailing around Africa, Diaz found a long, expensive, dangerous route to Asia. Columbus suspected that he could find a safer, shorter route to the west. The catch was just that it had never been done before. So he researched and pitched.
Columbus perceived a gap, researched how to own it, and did the work to realize a solution.
The tech world is also characterized by few true disruptors and many wannabes. For example, Uber really changed how transportation works. And now we have companies describing themselves as “the Uber of entertainment,” “the Uber of office space,” and “the Uber of healthcare” (don’t ask).
Perhaps the greatest indicator of a big disruption is when that phrase, “the [existing success story] of [some unrelated business],” doesn’t work. Nobody would claim to be the Amazon or Google of anything, because Amazon and Google are already almost everything.
Followers vs. Staff
Perhaps a little like Charles Manson, Don Quixote managed to attract a group of people who supported, advised, admired, and feared him. Some, like his housekeeper and Sancho Panza, he treated as inferiors, addressing them informally and insulting them regularly. Others, like Ferdinand and Don Diego, he treated as equals or even as his betters, often receiving some benefit from them. Some found him entertaining, others found him terrifying, but none of the relationships were really based on anything like mutual respect or mutual gain.
At least for his first voyage, we have a complete list of Columbus’s crew. Although Isabella offered amnesty to convicts who agreed to serve on the voyage, only four crew members were jailbirds. The other 81 were professional tradesmen on a fixed pay scale reflecting their positions.*
This is actually a really interesting area to watch right now in tech. Some founders get carried away with internal slogans, philosophies, and trying to make everyone in the company parrot their own worldview. And for all the talk about valuing lateral thinking and contrary points of view, many established Silicon Valley companies are having trouble precisely with internally dissenting voices, firing first and thinking later. Whistleblowing is a growing annoyance for many of them, but for most employees whistleblowing is a tactic of last resort. It’s what to do after their attempts at internal reform have failed and their criticism has fallen on deaf or hostile ears. Google was acting like Quixote, collecting sycophants rather than fostering and engaging with peers. Google wanted a Sancho Panza, and they got (very mildly) burned because of it. Similarly, Mailchimp’s employees certainly didn’t feel like worthy peers after the company’s founders, who had vowed never to sell, changed their minds and hit the employees right in the stock options.
External backing
Don Quixote was a small-time nobleman, and he financed his pointless adventures himself. He also reneged on promises to compensate his supporters, and he left a number of angry creditors in his wake. He was convinced that it was vulgar for a knight errant to have to pay for things, so basically the world owed him whatever he wanted.
Columbus hustled, pitched, and negotiated. He first sought financing from the king of Portugal, then turned to merchant city-states in the Mediterranean — first Genoa, then Venice — before returning to the Portuguese throne again, and finally securing funding from one of the most astute VCs, all-around toughest leaders, and visionary women of her age: Isabella I of Castile.
When a VC asks who’s already funding a project, it’s not because we can’t think for ourselves, as some have suggested. It’s because perhaps a colleague whose judgment we respect has already spent time and effort on the due diligence and found the venture to be sufficiently well managed, rational, and worthwhile (and we might not want to carry all the risk alone). External funding from a source known to be judicious and ambitious is a very good signal to other financiers.
An investment by Isabella’s short-sighted predecessor and half-brother, Henry IV, would be no indication of viability. But if someone like Isabella is willing to invest, the venture is probably worth examining even if the Venetians and Genoans have passed and the Portuguese king has said no — twice.
This is one reason why we like to make moves on the secondary market. Those who run secondary-market platforms, like Forge Global, don’t want to list just any junk, so they pre-filter the stocks they list. Such a curated list of promising stocks is very helpful to late-stage VCs like us. We wouldn’t rely exclusively on their judgement, but another informed opinion can’t hurt.
Every popular idea or practice begins in the avant garde, being pitched by someone who must be mad by the standards of their time. They must first convince a minority, and then that minority must convince the world. In the best business cases, VCs are that initial minority, and this is how we find our visionaries.
*Yes, Columbus also had slaves. Slavery is everywhere and always reprehensible, but they were still figuring that out in the 15th century, so Columbus didn’t consider his slaves as capable of being even followers. They were simply property to him (and yeah, that hurts to write). May we descendants always be wiser than our ancestors.
