Five Years of Lies
I could have said that I suffered through four-and-a-half years of lies from 1981 through 1986, but I just didn’t know about some of the first ones
Forty years ago, I received an unwanted education over a five-year period on lying and how it works. Similar things have been playing out in the public in recent years. Hopefully, what I learned then may help you now.
In 1981, fresh off getting an MBA, I wanted to get into venture capital. It wasn’t well-known then; we hadn’t studied it in school, although there were snippets about it in Businessweek, which came out as an inch-think ‘bible-of-business’ every week. After about six months of consultant projects later, I found myself in Southern California with a few contacts in the business and a little wiser. The guy that ‘got the job’ I was hoping for was a Stanford/Harvard guy with degrees in biology, chemistry, electrical engineering, and I think might have been a JD/MBA from those places.
I found my opportunity in Newport Beach. I met a man who was talking about setting up a Small Business Investment Company (SBIC), which is kind of like a venture fund. He had something of a deal flow due to some promotional efforts and he agreed to bring me on with the arrangement that I would get a piece of whatever was available by signing up the companies to help them raise money. Fortunately, some deals came together pretty quick, so we were up-and-running. It wasn’t a fund, but it was a foothold in that world.
This story isn’t directly about that story, but it is about a story embedded within it, one that ended up consuming it all. This story is about lies, most specifically a kind of lie that I probably kind-of knew existed, but didn’t really much pay attention to. The kind of lie that I knew about was more often or not a mistake, or even the result of confusion or panic caused by some temporary or unpredictable condition that took someone off guard. I had long understood that there was such a thing as a white lie, which might be considered a small thing — or at least about small thing — and that damage control could serve to limit its effects.
What I was about to learn about in 1981 and thereafter was an entirely different thing. This was a flat-out, purposive lie that everyone could immediately recognize as bonkers, as wrong, and as self-serving to the liar in question. The point was that there would be a buildup of smaller lies over time, compromising the people in question along the way, until the big one would drop and everyone involved would be forced the follow along with what it was.
So, I will tell the lie story and the other one will be pulled along.
After a few months of ‘doing deals’, I said to him, my boss/partner, that we needed to get into organizing the fund. He said various things like it would be nice, but he didn’t know how — nor did I. He said that progress was coming along with the SBIC. Also, he said their wasn’t any money to do it.
Fortunately, I found an invitation to sessions from the Practicing Law Institute in San Francisco on setting up a venture capital fund where the teachers of the course were the top five attorneys in that field — Richard Testa, Michael Halloran, George Bermant, Alan Barton, and Larry Sonsini. It wasn’t too expensive. I went up to it and met them all. I drank it all in. I still have the “Green Bible” from the meeting, “Capital Formation: Private and Public Financings”, edited by Larry Sonsini and published by PLI.
If was funny. If you asked an existing venture capitalist how it was done, you would get kind of a vague answer that brought up things like divine rights and inextricable complexities, irritations, annoyances, etc., but the attorneys would tell you everything you needed to know and then some — at least in a PLI educational setting.
I returned to Newport Beach with wind in my sails. I knew exactly what we needed to do and he was game. Well, he was game in his way, which is to say that I could occasionally get him to do this and that along the way, as he was doing a lot of things and it was a challenge keeping him on track.
We worked out a way to bring local entrepreneurs in as investors and supporters — people with successful technology companies or others with specific expertise. There would be ten of these. I organized a working group with the local Chamber of Commerce to get known around and to educate the general business public about capital formation in things other than restaurants and real estate — which is pretty much what happened at the time in Newport Beach.
We got some interest in Orange County, in our area, and my partner started doing swings down into San Diego, where one man in particular was interested. He had just sold a company he had founded to a major corporation and was looking for something to do. He came on as our third partner. I ended up moving down to San Diego and we set up an office there. We got enough founder units together to get on the road, mostly on the East Coast, raising the money for the fund itself. We talked to institutions like banks and insurance companies and other funds set up to invest in funds.
We were told the process would take two years. It did. We opened up two local slots for more money and kept it open for another six months — getting almost all of the money from Scandinavia.
Something started to happen, though. The more successful we got, the crazier reports we were getting from around the periphery. My Newport Beach partner was saying things to our proposed and existing partners that were confusing to them at best. They didn’t seem to be big things, but they were bonkers, nonetheless. I coined a phrase — I lie not — that you hear a lot nowadays:
He would lie when the truth was a better story.
I developed a theory. It was based on the idea of two poles of personality, two ideas of personal work ethic based on the concepts of simplicity and complexity. They were around one’s motives and one’s cognitive powers. It had to do with that business, as it was principally a thinking business, but it might have applications elsewhere.
It became clear to me over time that my Newport Beach partner didn’t really comprehend much of what we were doing. He wasn’t really a student of technologies and of sciences. When someone came in with a business plan, he couldn’t really engage with them on their plans early or late in the game. He didn’t study the plans, he glided along with the activity kind of ‘water-bugging’ his way through the decision process.
He once asked me to be his Wall Street Journal reader.
He kept a keen eye out to what others thought — especially our San Diego partner — and then would more or less fall in line with that. I guess it was a form of politicizing.
Where he seemed to be cognitively simple with regard to the kind of business we were in, he seemed to want to create complexity otherwise. In my little model, I came to call it complexity with regard to motives. His were all over the place. There was deep water there. We picked up signs of womanizing on the road — to the point of scheduling himself around it as we learned. I think that he knew that I knew, and on one occasion, he had me pick him up to take him to LAX, where he purposefully and demonstrably fawned over his wife, even asking me to take his luggage for him. There were always rumors of side deals that he was trying to work out on our dime.
I tried to nestle into the ‘sanctity’ of my relationship with my San Diego partner. Much of what my other partner wasn’t, this partner was. He was particularly masterful at describing what our prospective investments or portfolio companies did, why it mattered, why it would make a difference. He was an accountant, but he did his homework on the science behind the proposals and the portfolio companies and was able to paint pictures of these in just a few phrases that were routinely impressive.
He brought in very good staff — particularly an administrative assistant and a bookkeeper. They had worked for him before, so we were immediately up-to-speed. Although this did not really carry over to the Newport Beach — now Irvine — Partner, things worked out pretty well. …Except for the expense reports he would drop off. The bookkeeper found $117,000 unaccounted-for expenses that caused a stir.
He said that we somehow “…knew he needed it, so we should have assumed he was taking it.”
That didn’t seem to go over well with the San Diego partner — but, more about that later. There was some discussion about finding another partner, as it was also becoming more clear that shenanigans were stirring. One thing was funny. He had dinner up in Irvine with a fancy entrepreneur woman. (We got the bill). She had created some kind of fancy system to do something and had told him it was on a floppy disk. The next day, he was in the offices and blithely asked our assistant what a floppy disk was. I am pretty sure she did not tell him. It was like, “Dude, do you at least have a dictionary?”
There was a time when we were told to meet with a banker in London. It was just a meet-and-greet, but an important one, kind of kissing the ring. The San Diego partner was ill, so he couldn’t come, and the other partner was in Scotland. We couldn’t communicate — the Irvine partner tended to disappear for a day-or-two-at-a-time on the road. So, I got on a plane and showed up at the hotel in question the day before the meeting. He was furious upon furious — at how I could be soooo insensitive to him. I am certain I broke up a party.
The silly, crazy lies started to flow evermore — often followed up by a call by some party to me to find out what was the real answer. The Irvine partner came to me one day and told me that I needed to take my name off the reports and analysis that I created. It was somehow in his explanation creating a problem. I didn’t. I also created two computer systems, one using DBII on a CMP machine to support deal flow and another on the Macintosh to support and display the valuations of our portfolio companies. Of course, both partners and our outside partners loved them.
There was palpable concern about the obvious contributions to our success that I was making.
I developed a tête-à-tête with the San Diego partner. We commiserated about the lies and misbehavior of the other partner. I talked a lot with him about the need to be united and cohesive as partners. There is a lot to talk about in venture capital and we got along well in the process.
I learned that he liked Louis L’Amour books and the details of those stories, so I did a deep dive there. I took courage in the point that those stories are pretty upbeat — and the good guys tend to win.
Then, something of a bombshell. Our assistant informed me that when I was out-and-about, our executive assistant informed me that they were spending a majority of their time on the phone “comparing stories”. She looked at me in a certain way.
I didn’t have too much time to dwell on that before another bombshell dropped. After a partnership meeting in Irvine, we were riding home to San Diego in his “Rommel tank” Mercedes when he admonished me in a most unexpected way.
He said that I needed to stop saying we were in the business of building companies. He said, we weren’t. We were in the business of getting returns to our investors. He said that if we got our money out and the companies ceased to exist the next day, we had done our job.
All of this while we were driving by Camp Pendleton.
I responded by saying that we would be soon known for having bad products, which can’t help any business.
Although I didn’t say so at the time, it constituted a very big lie. In fact, it was a sign that our entire business mission — the stated one — was a lie.
As an aside, it is important to note that what he was saying is the essence of financial capitalism. It is a very big deal and grounds for great concern, as it unnecessarily fuels much policy and most corporate decisionmaking. It is the essence of the Lockean Heartland, which I consider elsewhere.
I also didn’t have to ruminate over that night’s activity for very long, as there were ongoing developments that they didn’t want me to know about. I found out from others that the investors were about to match their initial investments and my partners had decided that they didn’t want me in the deal.
My partner told me this story. He was really proud of it. He had fired a guy. I later learned that there was a long string of those. A finance guy from out-of-state made a career of picking them up and creating new companies with them in charge that they would package and send out as initial public offerings to small broker dealers across the country.
Back to the story, my San Diego partner then got a call after the firing from one of his daughters. She asked that her mom and dad meet her in the evening at a local restaurant for dinner. They went.
During the dinner, the guy who had been just fired walked up.
My partner said to his daughter, “I would you to meet so-and-so”. She pronounced rather that they had indeed met and they were there to announce their engagement.
OK.
I had never heard a story like that. Then was the kicker: My partner LOVED IT!! “Boy”, he said, “He really got me there.”
So, I saw into a culture, into a way of life, that I really hadn’t understood as really existed. Sure, there are lots of movies with that kind of thing, but this was so raw and stark because it was so real. Lies and plots, innuendo and deceit. It wasn’t just the guy who had been fired, it was the daughter, too, who had gotten a home run from the guy without her father ever knowing. This was how they lived. It was like pranking, but for real.
This partner was a more dangerous liar by far than the partner in Irvine. He was cognitively complex and complex as to his motives. That is a very dangerous stew, coupled with his pleasant demeanor. I didn’t even know the half of it at the time; friends in a position to know told me later. There was financial mismanagement, there were illegalities — some of which extended to the investor partners. They were working the edges and slipping money here and there. This partner did not lay out gratuitous lies like the other one. Each one was surgically structured to bring a profit. The last thing they needed, now that they had the money, was to have Mr. Clean around!
But, you know, by the rules that he laid out while we were whizzing past Camp Pendleton, it was all legal[ish]
He was very good at leverage. The $117,000 that the other partner had spent? That provided for an eternity of inside favors in one swoop. He loved it that the fraud had occurred because he could hold it over him and use the apparent rift to work me over. Yeah, right, Louis L’Amour, indeed!
We had the investors in town a lot toward the end of my tenure there. Momentum was building and they were going to bring in a new tranche of investment that I wasn’t to have a piece of. My San Diego partner suggested that I meet with his nephew, something of a computer guy, who “could perhaps help me with the computer systems.”
That didn’t happen. Not lying doesn’t necessarily translate into being inexorably stupid. Being in business with liars, as it turns out, is. There is no way that it ends well. That is the message I would like to get across.
Speaking of which, the San Diego partner fixed a date at which I had to be gone. I reminded him that I was a general partner and that we just needed to settle accounts and I would be on my way. I hired a $300/hour tax accountant from a La Jolla firm for that very purpose. Oh, no, that wouldn’t do. We ended up in several years of litigation — ugly, beyond expensive and educational in ways that I never asked for. If anyone would like input for a study of one Judge Greer, the one-time denizen of the San Diego legal regime in the 1980s, I could provide a humdinger of a story.
In the last months before my partition from the fund, guess who should show up and be all flirty and friendly but his other daughter. She asked me to help her find an apartment in my area. We teased about the Lakers, who she liked, and the Celtics, who I did.
Was she sincere? Who knows. She seemed sincere, but, again, she was a product of a culture in which you could never be sure.
It would have been a good career move, you might say. It would have been, “Goodby, Mr. Irvine” to be sure.
I elected to not find out.
EPILOGUE. I learned from friends that the outfit didn’t last for more than a couple of years thereafter. They got in over their heads — including misplacement of money into real estate, which was a big no-no. That froze out the Scandinavian partners. The 1989 crash in Japan took them down. They were depending on getting more money from there. They both died a couple of years ago. The Irvine partner got no obituary — there was just a notice on the mortuary site; the San Diego partner got a big website, set up by the family.