Sour Grapes & Fake Unicorns

What do a luxury wine fraudster and maverick entrepreneur have in common?

During Christmas break last year, my family and I watched a riveting documentary on Netflix called Sour Grapes. It detailed the rise of Rudy Kurniawan, a rich Indonesian wine-collector focused on Burgundy, who spent millions of dollars on wine and sold them through, among others, renowned auction house Acker Merrall & Condit. Acker asserted that many of these wines had been authenticated by "some of Burgundy’s most discerning connoisseurs."

*SPOILER ALERT* Astute collectors and wine experts began discovering false vintages among the wines they'd purchased from Rudy. The FBI opened an investigation, eventually raided Kurniawan's house and uncovered a large-scale wine fraud operation, with fake vintages from renowned producers like Domaine Ponsot Clos Saint-Denis. Rudy had collected empty bottles, refilled them with cheaper wine and forged labels - duping collectors out of millions of dollars. He was taken to court, convicted and ultimately sentenced to 10 years in jail.

While the story itself was interesting, what I found most fascinating was how easily everyone in the upper echelon of the wine-collecting community was fooled by the charismatic fast-talker. To be fair, he did have a sensitive palate and had trained himself to taste wines correctly in order to gain entry into this exclusive club of luxury wine collectors (including movie producer Arthur Sarkissian). However, it is remarkable to me that once he was in the "club" and had established a certain reputation of being a generous, smooth-talking big-spending connoisseur, the other oenophiles just openly accepted him and didn't think to probe his claims too deeply...until it was too late.

I perceive this story as not so different from the dynamics between VCs and entrepreneurs here in Silicon Valley. As an entrepreneur, once you've attempted at least one venture (particularly one in a hot "buzzword' space like machine learning or blockchain), regardless of how it went, you will attract VC attention. And if you've had even a modestly successful track record, investors will be knocking on your door in their search for the next unicorn. While this approach has led to shining success stories like Amazon, AirBnb and Uber, it has also allowed a litany of scam artists and liars to take advantage of the ample capital and goodwill in the space.

This is not to say that the startup funding and growth model is broken, or that VCs should take a page from their PE brethren and only invest in sure bets. Doing that would severely cripple the astounding innovations we as a society are capable of achieving. But the Valley is in need of a more robust character evaluation process. It's not just quality of idea, breadth of experience and depth of grit that matter in entrepreneurs; their inherent moral compasses are also crucial in scaling and steering their businesses. By being more diligent in a ethical evaluation of the entrepreneurs they back, investors may miss out on a few good investments (good ideas with good execution by morally-poor founders) but will not be left in the lurch by a fraudster. Better to whine about sour grapes than be left with no wine at all.

Source: https://en.wikipedia.org/wiki/Sour_Grapes_(2016_film), https://www.entrepreneur.com/article/295304