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The quantified measurement of truth is often impossible, which forces us to find proxies. Even then, proving the causal linkage between truth and proxy can be an extraordinary endeavor. Research biologists have spent decades exploring, detecting, and refining biomarkers to understand their accuracy and the attenuation of their usefulness. Economists and other social scientists have continuously debated whether surveys and aggregate statistical methods are adequate representations of the underlying complex phenomenon under their study.

It’s easy to walk this all the way back to the philosophy of perception: how do we know we see what we think we see? How do I know that what I see is what you see? Everything I observe is represented both to me, and then I must represent it to others. But rather than get too philosophical for beach-time August, I want to center today’s discussion on one outsized proxy: reputation.

Reputations are always a trailing indicator of truth. When people and organizations are rising, reputations obviously lag — the public has never heard of these new upstarts, and its opinion remains unformed. Reputations gallop to catch up, and for a brief moment perhaps, the true quality and the perceived quality intersect. Inevitably decline sets in, whether in an individual’s career or in an organization’s penchant for adding listless bureaucracy and complexity. The public reputation remains robust, but the underlying quality has etiolated. Perception has now overshot truth.

This week, we saw three prominent examples of reputations battered and under reconsideration, and all three forced us to ask: where does the reputation end and the truth begin?

The most notable story was the sudden $350 million mega-round into Adam Neumann’s new company Flow from a16z, which the firm self-reported was its largest check ever. Twitter, which has been astonishingly sleepy the past few weeks now that we are all waiting for the Elon Musk ownership trial to head to Delaware chancery court in October, was set ablaze with the usual vivacious memes, derision and commentary.

Pull back from the shock of the check size and Flow’s crypto origins as Flowcarbon though, and ask a much more prosaic question: what exactly is Adam Neumann’s reputation? In many ways, it is as fractal and enigmatic as the founder himself. There’s the popular version that’s depicted in shows like WeCrashed and in books like Reeves Wiedeman’s Billion Dollar Loser, of a fundraising adept with godlike persuasion who is simultaneously distracted, filled with wild-eyed lunacies, and ultimately incapable of meticulously operating a global real estate empire.

Then there’s the entrepreneur who built indeed a global real estate empire from scratch, who walked away with hundreds of millions of dollars, and who surfed the gushing floods of capital markets to bet a company on the future.

How much should a VC wager on an entrepreneur whose company once hit a valuation of $47 billion? And that even today is still worth $3.69 billion on the public markets? My guess is that the popular reputation and the underlying truth are actually quite divergent, and the typical investor undervalues the fallen entrepreneur. There’s potential alpha sitting right there on the table.

The second story sits on the other side of those cheap faux-Scandinavian WeWork tables. Masayoshi Son of SoftBank narrated the company’s latest quarterly results this week, and the numbers were grim. The conglomerate suffered its largest quarterly loss ever, about $24.5 billion, driven in large part by losses stemming from the SoftBank Vision Fund’s investments in companies like WeWork (the second largest loss among public companies in Fund 1, and the largest loss among public companies in Fund 2).

Let’s return to our question: how does Son’s investment acumen fit his reputation today? His 2000 investment in Alibaba remains indisputably one of the greatest bets ever made in technology venture capital. According to SoftBank’s investor deck, Alibaba hit a high of 59% of SoftBank’s net asset value back in September 2020 as the pandemic accelerated the Chinese ecommerce giant’s stock price. Now, as SoftBank increasingly sells its position for cash, this component of SoftBank’s narrative is coming to an end. The Vision Funds collectively represent 47% of SoftBank’s NAV today, and are scarily hemorrhaging value. What weight should be placed on Son’s investment in Alibaba compared to his recent performance in determining his enduring reputation?

Reputation serves as a proxy for truth. The truth is (and snickering aside), we don’t know how the Vision Funds are going to perform. Collectively, the funds have invested in 473 companies since their inception, per SoftBank. The vast majority of those investments remain young by almost any definition of a VC investment. Son has a reputation — but the truth hasn’t been written yet, and certainly not in stone.

That leads out of the world of startups and into the world of governance for our third story. The Centers for Disease Control and Prevention was an agency heralded as the global apex of public health response and research, and then along came Covid. Once again, reputations are a trailing indicator. The CDC didn’t go from excellent to terrible in March 2020. In truth, it was struggling for years and the public (and perhaps its own leadership) only discovered its perilous state amidst crisis.

To get a sense of how far back the mismatch between truth and reputation can go, we can take a retrospective look at AIDS in the 1980s. In And the Band Played On, Randy Shilts wrote a caustic contemporary account of the CDC and NIH’s response to the advent of HIV. While there are notable people who fight against bureaucratic inertia and at times outright hostility, the book documents the incredible chaos and lethargy on the part of American public health officials. The CDC’s Covid response fits right into that book’s narrative.

And even now, it continues. The past few months, the United States has been forced to confront a new epidemic, this time in the form of monkeypox. Once again, the chaos and lethargy has been on full display — even fuller display, in fact, given the number of health reporters that have cropped in recent years in the aftermath of Covid. America’s vaccine stocks are locked in Europe, aren’t ready for bottling, aren’t approved for distribution, and now the agency is trying to split each available dose into five to try to give every at-risk person just a morsel in the hopes of at least allaying public fears.

The agency’s head, Dr. Rochelle Walensky, wants to completely reshape the organization as it prepares to release what is expected to be a scathing report on its recent performance.

I’ve talked about state capacity a lot in “Dissonant loops” and “Uncertain risk”, and here is a huge challenge: does the government have the capacity to fully and unreservedly acknowledge the failure of a critical government agency and redesign and reform it from bottom to top to serve the function it is supposed to? In other words, can the truth of the agency be fixed, and not just its reputation? For ultimately, the quantified measurement of the CDC’s capabilities is impossible, and we are left with the same challenge as always: how do we separate the truth from reputation before it’s too late.

“Securities” by Lux Capital: (Week of Aug 15, 2022)