Carlos Watson and the dangers of Silicon Valley hype
(a cautionary tale)
This week, we’re talking:
Drawing the line between bold investment marketing and fraud 🤑 🤥
Google antitrust ruling and what it means for tech 👨⚖️⚙️
X suing ad industry group for alleged antitrust violation 🪧🚫🙅🏽♀️
Generative AI had a tough week — is it a blip or a bust? 🫧💥
How VP Harris landed on Tim Walz 🥥🌴 🤝 🧢👨
ClownStrike is clearly a parody — why does CrowdStrike have time to go after them? 🤡 ⚡
My Take:
The past few weeks have been jam-packed with news. From Biden stepping away to Kamala stepping up, the Olympics, wildfires, and conflicts at home and abroad; you’d be forgiven if you missed a conviction coming out of New York for a once-entrepreneur named Carlos Watson. In fact, you’d be forgiven if you didn’t know who Carlos Watson was in the first place.
Watson is the former CEO and co-founder of Ozy Media, a digital media company that raised $70 million in funding from a long roster of big-wig investors on the promise of creating a fresh spin on the news. Ozy boasted huge readership and colossal earnings, driving many in media to question how an outlet could be so successful when nobody had ever heard of it.
Last month, that discrepancy resulted in a conviction. On July 16, Watson was found guilty of defrauding investors by engaging in deceptive practices, including falsifying financial figures and impersonating a YouTube executive.
It’s an absurd story — perhaps even entertaining if you weren’t one of the people who threw their cash into this dumpster fire — but in Silicon Valley, this theme is not unique to Carlos Watson or to Ozy. There is a real question here that demands an answer: where is the line between bold investment marketing and blatant fraud?
Investment marketing rewards audacious vision — but a lie is still a lie.
First, a mea culpa: I'm not a great investment marketer. I wouldn’t say I’m terrible – probably a B, maybe a B+ on a good day.
There are some incredibly talented investment marketers out there: Carlos Watson. Elizabeth Holmes. Adam Neumann.
This isn’t to say that investment marketing is exclusively the domain of the fraudulent. I know many excellent investment marketers who know the difference between a bold vision and a blatant lie. But part of the problem lies with the audience – which is to say, venture culture is complicit here, too.
Venture capitalists aren’t universally excellent at discerning fact from fiction. Some are easily snowed. In an industry marked by social proofing and trend-following, you don’t need to snow everybody, you just need to snow one VC and turn them into a dogged evangelist.
In this way, venture rewards people who take liberties, and some founders use this to their advantage.
Fast-moving tech capitalism can be corrosive. Entrepreneurs get lost in the game, they get lost in their own reality distortion field. In that way, the Carlos Watsons of the world are a cautionary tale for young, up-and-coming entrepreneurs.
But there should be no mass absolution for those who play fast and loose with the facts.
Other people might have gotten away with it — but fraud is still fraud.
I know a lot of very smart, very fair-minded people who think that Elizabeth Holmes was very badly treated. I understand their reasoning. Certainly, there are people who've gotten away with more. There are people who have done far worse who have served much less time.
Our justice system is imperfect. Anybody who is paying the least bit of attention knows how flawed it is.
Still, I don’t think the argument should be that the Holmes or Watsons of the world shouldn’t face consequences. The argument has to be that financial fraud must be more consistently punished. For every Carlos Watson or Elizabeth Holmes who does a little bit of time, there are about 50,000 bankers who stole from American taxpayers during the Great Recession and didn’t see a single day of jail time. That doesn’t make Watson or Holmes a victim of the system, it only underscores the victimhood of everybody defrauded.
You can evoke a vision worth investing in by making liberal use of the “declarative present tense.”
What’s a young entrepreneur to do? How do you thread this needle?
You can’t wait for your product to be finished to go after your early customers and investors. The problem a lot of entrepreneurs have is how to show up in those conversations. You walk in sort of mealy-mouthed about the whole thing and say, “Hey, well, you know, I'm kind of thinking we're kind of going to sort of have a thing, and it's going to be kind of interesting and kind of cool, but just wait for it, and sorry, we don't have it yet.”
That's weak cheese. It never works. The solution? You show up in those conversations and you make liberal use of what I call the declarative, present tense. You evoke a future, you describe what’s possible, you describe your product and how it adds value. You show up confidently and tell your customer how you’re going to make their lives better, easier, cooler.
You paint a picture not yet fully actualized. You evoke a future you’re determined to make real.
We lean forward in Tech. But people like Carlos Watson and Elizabeth Holmes didn’t lean forward. They just lied with no premise or possibility of ever actually being able to deliver.
You can’t get lost in the Gatsby-ness of it all.
I met Elizabeth Holmes once, very early in her career. She had yet to adopt the strange speech affect or the poor man’s Steve Jobs turtle neck. She was young and bright and full of possibility — she wasn’t faking any of that.
She wasn’t the first to fall into the Great Gatsby-like gluttony of Silicon Valley. She won’t be the last.
The message for young entrepreneurs is simple: You don’t have to be a liar or an asshole to succeed in these trenches. You don’t have to let the promise of money or fame or validation corrupt your sense of self or the way you show up in the world.
Elizabeth Holmes, Carlos Watson and their ilk got confused by the bright lights, drank their own kool-aid, defrauded countless people and threw away very promising careers. If you’re smart, you’ll learn from their cautionary tale and make responsible use of the declarative, present tense.
Stories to watch:
How the Google Antitrust Ruling May Influence Tech Competition via NYTimes 👨⚖️⚙️
All of those cases hinge on the 19th-century Sherman Antitrust Act, which makes it illegal for a monopoly to engage in corporate conduct to thwart competition. But that law, designed for companies like Standard Oil, faces the continuing challenge of being applied in a different industrial environment to the new technology of its day. And both agencies have sought to test the old law by applying new legal arguments when it comes to the tech giants… The Google ruling is significant because “it applies to big tech platforms the notion that while you can be dominant, you can’t abuse that dominance,” said Bill Baer, a former top antitrust official in the Justice Department.
X sues major brands, ad industry group for antitrust via Axios 🪧🚫🙅🏽♀️
A copy of the lawsuit obtained by Axios alleges GARM triggered "a massive advertiser boycott" when it conveyed to its members concerns about compliance from Twitter, now X, with its standards, after Musk acquired the platform in 2022… The lawsuit is part of a broader effort by X to litigate its way through advertising challenges.
The Generative-AI Revolution May Be a Bubble via The Atlantic 🫧💥
For the past two years, the biggest tech firms have been spending historic amounts of money to develop generative-AI products and spread them across the web. The build-out may demand a trillion dollars or more of investment across the economy this decade—more than the Apollo missions or the interstate-highway system. Wall Street is finally starting to wonder if such extravagant spending will turn a profit.
What I’m Reading:
How Kamala Harris Trusted Her Gut and Picked Tim Walz via NYTimes 🥥🌴 🤝 🧢👨
Around 10 a.m. on Tuesday, Mr. Walz, dressed in khakis and wearing a camouflage baseball hat, took a call from Ms. Harris — he had missed her initial call because it came from a blocked number, one person familiar with the call said — and she asked if he would be her running mate. “Let’s do this together,” she said. Mr. Walz accepted. Seven hours later, and with only three months to go until the election, the new pair strode onstage together, waving to a crowd of thousands in Philadelphia. “We’ve got 91 days,” Mr. Walz said. “My God, that’s easy. We’ll sleep when we’re dead.”
Parody site ClownStrike refused to bow to CrowdStrike’s bogus DMCA takedown via arsTECHNICA 🤡 ⚡
Doesn't CrowdStrike have more important things to do right now than try to take down a parody site?" Senk immediately felt the takedown was bogus. His site was obviously parody, which he felt should have made his use of the CrowdStrike logos—altered or not—fair use. He immediately responded to Cloudflare to contest the notice, but Cloudflare did not respond to or even acknowledge receipt of his counter notice. Instead, Cloudflare sent a second email warning Senk of the alleged infringement, but once again, Cloudflare failed to respond to his counter notice.