You Can’t Win Against Crazy
When I was a founding partner of a venture capital company that would up being very successful, I learned several important lessons. We had one company that failed early because the young, 23-year-old CEO started having a meltdown early on. He was a co-founder of his company and his partner was the reason we were in the investment in the first place. He got crosswise with that partner and used his larger equity position to force the partner out. That was bad enough, but shortly thereafter, he got a Jack Russel Terrier and named him after his departed partner. We all viewed that as somewhat psychotic, but we soldiered forward right up until this young CEO decided he needed a Hail Mary play so he took the last $800,000 of the company’s money and transferred it into an account at an Atlantic City casino and then proceeded in losing it all at the gaming tables. His excuse for the transfer was that the casino was supposedly a beta for testing the company’s product/service. Since the company was creating a system to help overcrowded venues better manage their customer waiting list, it was conceivable that the casino could have been what he claimed, but there was no evidence that this was anything other than him putting money onto the craps and roulette tables. We had the young CEO arrested for fraud and he failed miserably at trial to disprove his guilt, so he was incarcerated for one to three years.
While I’m sure that everything is debatable, I feel on safe ground declaring that guy to be at least a little bit crazy. In fact, fifteen years after he was released from jail, a convicted felon, he came to my attention again again as a criminal who tried to pul a very similar scam on another company to the tune of three million dollars, and among other things he claimed at trial, he said his prior company (the one which sat in stasis in a box in our archives) had been a roaring success for him. I think with hindsight, I was safe in thinking he was a little crazy back then and now I can say he has proven himself to be totally crazy.
One of the things I used to say to people about my venture capital experience was that I learned that my friend Frank’s comment about the arena was totally true and that the only thing that really mattered was the quality of the people you chose to back. I also used to say that bad people came in all shapes, sizes and ages. Specifically, I would quote the 23-year old that we had to send to jail, but also the 73-year-old who was much crazier still. That’s right, we funded one company that was trying to take an old product and digitize it in a very creative way. The other side of the young, high-energy CEO coin is the older, more-experienced CEO. This 73-year old qualified as extremely well-experienced in the specific domain we were trying to crack with our digitized product. But make no mistake, he was crazy as a loon.
We were running into issues with this guy’s company and progress toward his goals so we went about at first cajoling him to change things up and, when that failed to work, we started to strong arm him to make the changes we felt were necessary. He fought us every step of the way and went from being civil to belligerent. As a final step he started becoming non-responsive. He would not return emails or phone calls and actually went incommunicado. This led us to drive out to Long Island to meet with him. Much to our surprise the offices of the company were vacant. He had moved the company overnight and had literally gone on the lam with our multi-million-dollar investment. This might seem very nefarious and sneaky, but what it really was was stupid and ridiculous. We knew who the clients were and it was a simple matter to find out where he had moved the company to, which was less than a quarter mile away. The insanity that made him think that this tactic would work in getting us off his back was either severe or crazy like a fox.
Once it became clear that this guy had no intention of admitting the error of his ways and, in fact, was prepared to go to the next level of threatening us with all kinds of frivolous litigation as well as veiled threats of bodily harm, we sat back to consider our options. What was very clear was that we couldn’t work with this guy. What was equally clear was that we could have no confidence in his manner of operation as he rolled out his service to clients. It was quite a conundrum. Since we did not think there was much value in the company at this point, we began thinking like bankers and started calculating the potential liability to us in being affiliated with this crazy man. When people start acting crazy, you begin to realize that there are very real downsides in just being connected to someone who is crazy. So, we did what from the outside did not seem at all logical, we forfeited and forgave the investment. The advantage to recognizing this loss in a closed book =manner like this had the tax advantage of crystallizing the loss so we could pass it through our LLC to our investors. The big plus to us was the ability to wipe our hands clean of the mess that Mr. Crazy represented. We decided collectively and unanimously that we could not win against crazy.
I have never forgotten that lesson and, in fact, I have advised many people in the years since we waved goodbye to the crazy guy that they should seriously consider cutting their loses on bad situations, especially if there was a chance they were dealing with a crazy man situation. You would be surprised how often you can use this guiding principle in making key life decisions. I do not want to go into too much personal detail, but I would suggest that I have more than a few times chosen to cut ties with a person or situation rather than mud-wrestle with crazy. Wall Street’s version of this rule is the “Never wrestle with a pig” rule on the thinking that you get dirty and the pig likes it. Well, crazy people like getting crazy and watching dollar bills burn in front of their eyes. Of course, they usually realize that the dollar bills are usually mostly your dollar bills, but I’m not even sure that matters. Part of the craziness is that those people generally do not value money as much as they value their crazy thoughts and principles. They are often zealous and not particularly practical.
If you find yourself faced with crazy anywhere in your life, in marital relations, in politics, in business, in school….just remember my guiding principle. You can’t win against crazy, so just take the loss and move on. You will have a happier life for it.
Good advice!