Opinion | Whose Money?

Joi Ito's entanglement with Jeffrey Epstein is the latest example of VCs shielding immoral LPs

“After giving the matter a great deal of thought over the past several days and weeks, I think that it is best that I resign as director of the media lab and as a professor and employee of the Institute, effective immediately.”

- Joi Ito

Joi Ito has an investment portfolio that would make many envious. Twitter. Path. Flickr. Hellosign.

All told, the former Director of MIT’s Media Lab has made over 50 investments, with 20 exits along the way. He’s invested as an angel, in addition to stewarding a number of different vehicles, including his recent fund, Neotony. He seems to have remained active over the past few years — one of his investments was announced a mere two weeks ago, on August 27th.

This past Saturday, Joi Ito resigned from his post at MIT, confronted by evidence that he directed rapist and child molester Jeffrey Epstein’s funds both to the Media Lab, and his own venture vehicles. Importantly, this occurred after Epstein’s 2008 guilty plea to charges of soliciting prostitution and “the procurement of minors for prostitution.” Worse, Ito appears to have actively disguised Epstein’s donations, taking great lengths to remove identifying information associated with his gifts.

It goes without saying, I hope, that Ito’s actions seem almost singularly craven and self-interested: to accept money and favors from an established child sex trafficker is hard to top. And yet, behavior of this ilk — the shielding of immoral backers — is all too common among some of the world’s most powerful venture capital firms.

Image result for masayoshi softbank saudi

It was nearly a year ago that Jamal Khashoggi was murdered at the Saudi consulate in Istanbul. In the days that followed, Silicon Valley appeared to go through a sort of reckoning: Softbank, with it’s $45B from the Public Investment Fund of Saudi Arabia (PIF) was chief among them, but plenty of others emerged in the aftermath as beneficiaries of bin Salman’s coffers. Sequoia Capital is said to have raised from KAUST’s endowment, a state-funded educational institution, while both Peter Thiel and Sam Altman had long groomed relationships with Saudi leadership. Thrive Capital, with its ties to Washington, seemed to pose a sort of double moral jeopardy: direct ties to Jared Kushner might have been unsavory enough for many, his bromance with bin Salman further muddied the water.

In response to this discussion, Fred Wilson wrote an excellent article in which he articulated a few examples of morally questionable backers, and shared his expectation that founders would increasingly seek to know the provenance of a fund’s capital. At the time that felt like a reasonable bet, but a year on, very little seems to have changed. Sequoia made over a dozen new investments, Sam Altman has hot new gig, Thiel’s Valar Ventures raised $500MM across two funds, and Thrive is sitting on a new $1B in AUM even as fresh concerns emerge regarding their links to the Kingdom and the Trump administration.

Image result for jared kushner

This frustrates me.

Not because I believe there should be a blanket boycott of these firms or the “cancelling” of certain individuals. These are complicated issues and deserve more than a reactionary, dogmatic response. Reasonable people can differ. I find myself frustrated because I do not think that any of these organizations have had to engage in real discussions about the sources of their capital and the consequences of those ties. Left in the dark, bad behavior goes unchecked.

There is a solution of course. It is the same one that Wilson posed a year ago: direct pressure from entrepreneurs.

Founders have leverage in this market, and just as they use that leverage to demand more from their firms — more help in recruiting, in promoting, in operating — they should use it to ask uncomfortable questions of investors. They may find that the people who truly own a stake in their company are far from bastions of morality or tolerance. In turn, forward-thinking funds should take the preemptive step of sharing a list of their LPs, or at the very least, disclosing pertinent anonymized information about their backers. (For an excellent example, see Notation’s Team Page.)

The attempt to shine a light into venture’s shadowy benefactors has dwindled in the year after Khashoggi’s death. But in the face of Joi Ito’s all-too-representative ethical failure, presented with yet another moral disappointment from the tech elite, let us rekindle the flame, and finally hold feet to the fire. At the very least, we must ask more questions.

—

🌟 Do you think someone in your network would be interested in this article, or The Generalist…generally? I’d be very grateful for any and all shares. If you’d like to tweet about this article (huge if so), click here.