Editor’s letter

The story that the Silicon Valley investors who call themselves “venture capitalists” like to tell about themselves is that for decades they’ve been the engine of America’s economic vitality. Blessed, they say, are the financiers, for without their investments in Apple way back there would be no iPhone. Entrepreneurs who arrive in Silicon Valley are warned early on that while these investors are mouthing platitudes about innovation, they will also be rifling through your pockets. Most entrepreneurs try to keep them at arm’s length, valuing their money more than their advice. Silicon Valley’s investors usually have impressive technical degrees, but their stock-in-trade is ultimately not technological innovation but financial engineering. This is why Silicon Valley loves “crypto,” or digital currencies, so much. All the innovation was done for free; the only work left was taking in the profits. Those, of course, should come in what the crypto world liked to dismiss as “fiat” currency, also known as dollars.

That crypto edifice has started collapsing with the bankruptcy of a company called FTX and the humiliation of its wunderkind chieftain, Sam Bankman-Fried (see Best Columns: Business, p.34). Last week, Theranos founder Elizabeth Holmes was sentenced to 11 years in prison; many of the highest-profile Silicon Valley investors had quietly steered clear of the blood-testing company.

Not so with Bankman-Fried. He and his posse might have lived in a group house in the Bahamas, but he was a pure creature of Sand Hill Road, venture capital’s epicenter. The investors saw a man after their own hearts, and jumped into what now looks like every other Ponzi scheme (Bankman-Fried even promised depositors 12 percent returns, same as Bernie Madoff). As with just about every high-class con, Sam Bankman-Fried’s key selling point was “He’s so smart. He doesn’t need to rip anyone off.” Not coincidentally, that’s what Silicon Valley’s financial en- gineers would have you believe about them, too.