Everything is a Scam
What it means for space and the future of innovation
Is It Just Me, Or?
Maybe I’m a little burned out. Maybe I’m teetering on the edge of mid-life, feeling a little older but not so much wiser as I’d hoped. And maybe I’m just plain wrong. But it struck me recently that just about every huge “innovation” that’s been touted in the news over the last twenty years has ended up just being a scam of one kind or another. Surely not everything, of course, as there have been major medical advances like stem cell therapy and breakthroughs w mRNA vaccines.And I realize scams aren’t some new invention, seeing as how scammers today are still called snake oil salesmen.
But something just feels different right now. Scams used to live in the periphery, like the robotexts warning me my Netflix is going to be deactivated, or the dumb phishing attempts that land in my inbox everyday purporting to be an employee desperate to change their direct deposit information, or even the InventHelp commercials I grew up seeing on TV during odd hours.
If I had to put my finger on it, I think that what’s changed now is that scams are just becoming accepted in a mainstream way. There’s the proliferation of insane multi-level marketing schemes; the ones which social media helped turn from Tupperware parties my mom got roped into occasionally to desperate all-caps posts from everyone I’ve ever known to buy their essential oil / leggings / makeup / etc.
And they’re going big time, too. Get rich quick schemes, which most could smell from a mile away, are now all over YouTube and marketed as #grindset. The Forbes “30 Under 30 list,” already a funny little vanity list not tied to reality, has gone big time with some impressive stats:
Raised $5.3 billion // indicted for fraud and scams for over $18.5 billion.
Hell of a track record.
It’s funny, and fun, to post about the Forbes-to-prison pipeline but it has garnered serious media attention as well. Beyond the Forbes list there are also plenty of examples of startups that raise big money and flame out, or which try to IPO despite all of their issues.
I’m not sure about the root cause. My kneejerk reaction would beto blame “hustle culture,” that most despised of beasts, but I think actually this market’s easy access to capital is what allowing the poison to flourish.
Bull Markets & Bull Shit
The longest American bull market in history was declared dead in 2020 as the pandemic took hold. Then, after a free fall, markets soared 75% over the next year. The last year, however, has looked shaky and most pundits are working us through a “vibecession” to a full-on recession.
Looks like the good times are over, for now. So, what did we produce with this unprecedented growth of wealth? A lot of crap, honestly! I get that not everything is a blockbuster idea, and I get that it’s impossible to tell what’s going to land or not land at the outset. That’s the fun of the journey. I’m all for the “biological” approach where we try lots of iteration / mutation and figure out what survives. My fear, though, here at the end of this long run is that we don’t have many examples of startup companies that have built bad ass, lasting technology. We mostly have flops and frauds.
We have social media companies that are used to subvert democracies around the world, games designed to keep us staring at our phone making microtransactions, a slew of SaaS companies that want me to rent everything in my life for $5 - $20 per month in perpetuity, and of course cryptocurrency which had a record $4 billion stolen just last year.
If we’d have produced worthy things with those investment dollars, polls like this, which shouldn’t make sense to anyone, wouldn’t exist:
Space ‘n SPACs
It wasn’t just software companies, either. We all know the story of Theranos at this point, which cost people their lives with its scams, but what about Nikola which turned lies into massive investment? Where is the line between hype and investor fraud?
That’s a question space companies, too, need to ask themselves. Our industry is famous for huge promises and lackluster results. We’re at the end of a two year period where just about everyone went public through reverse mergers, better known as SPACs (special purpose acquisition companies).
Well, they’re all tanking. Check out this chart from the excellenton March 2023 market performance:
Ooof. That’s brutal. How to explain the disparity? Well, it’s because generally these companies don’t make much money or deliver much value. Many of them raised venture capital rounds until they couldn’t anymore and, years-to-infinity away from real revenue sought new sources of capital. SPACs provided it by allowing them to skirt the highly expensive, deeply scrutinized process of navigating a traditional IPO.
Instead, the special purpose acquisition company does that part, which is painless because they’re simply an empty vessel with investment money. After the scrutiny passes, they find a target company and perform a reverse merger allow them to dump their shares on retail investors on the open market. Most of the big investors get out very early, while the bump is still hot, leaving employees and common investors holding the bag.
Because these companies often SPAC before having a real product or real revenue flowing, most are down around 60% or more before the first year of their trading concluded.
Hm, maybe those market regulations are there for a reason 🤔.
Ultimately, these companies fail. We recently lost Virgin Orbit, which folded not even two years after its SPAC. It was sold for parts. They were the first of the high profile space companies to fold this way, and I can promise you they won’t be the last.Many great technicians, engineers, and support staff lost their jobs, while executives met one last time to ensure they got golden parachutes.
What This Means for Innovation
I’m not a finance guy, and this isn’t a finance newsletter. The reason all of this matters is simply because innovation is important. I’m not sure if you’re aware, but we have a massive set of huge challenges in front of us from transitioning energy sources, to adapting food systems, to any other of a million sticky problems here in the 21st century. We must find clever, economical solutions to these issues, and the endless multitude that we haven’t run into yet.
My entire adult life has been dominated by software booms and busts, as well as “deep tech” companies that do nothing more than defraud users and investors. Perhaps even more than the problems we choose to solve, how we choose to solve them tells our story and determines our future.
If a viable path forward is to hustle your way through a few investment rounds, secure a founder’s exit by selling secondaries, and then let the company die, what are we even doing? What real value or lasting impact are we creating? And what are we telling our kids about what is both possible, and important in this world?
I’m hopeful that, now that the easy money is drying up, there will be a shift towards honest building. But I’m skeptical that happens. The structures for funding startups prioritize fast growth above all else, consequences be damned.
No matter what, we must find a different way to build. The challenges we face demand answers that last longer than a decade.
I’d love to hear what you think! Leave a comment below.
Though, if you live in the US you might not be able to afford to access them, which is scammy at best and inhumane at worst.
Proudly absent from this group is SpaceX which has delivered the Falcon 9, possibly the hardest working and most efficient rocket of all time, as well as returned astronauts to the ISS from American soil.