The Wall Street Journal’s review this morning of the rise and fall of Brazilian (ex) Billionaire Eike Batista’s business empire contains excellent, timeless points about entrepreneurship, investing, and the madness of crowds. I really recommend reading all of it.
The bare facts – Batista dropped from a Forbes estimated $36 Billion net worth and business empire last year to somewhere between $1 Billion and zero net worth right now (I’m guessing the latter), amidst a dizzying series of fire sales, liquidations and bankruptcies. The article has enough details to match up his failure with established patterns from earlier spectacular, unexpected, and outrageous failures.
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The strategic role of incentives and greed
Batista loved using the phrase often heard on Wall Street – “Feed the ducks while they’re quacking†to urge his team to provide as many opportunities as possible for investors, journalists and PR people to engage with his empire, hyping it, investing in it, lending to it, pumping it up. You never know when investors, journalists, and PR people will lose interest, so do everything right now to satisfy their demand, regardless of whether it makes any business sense.
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Early backers and enablers made money
Credit Suisse made tens of millions. Ontario Teachers made tens of millions.
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Create the appearance of inside information
Batista founded his oil exploration company OGX and raised $500 million from Ontario Teachers by attracting top Brazilian oil exploration talent from state oil company Petrobras, and then marketing his “dream team†of oil insiders as uniquely poised to bid on the most attractive deep water oil fields being auctioned off by the Brazilian state. OGX had no operations and the deepwater fields were a risky play, but Batista had the best talent including Petrobras’ “Dr. Oil.â€Â The implication of all that well-connected talent of course is that Batista’s company would find the inside track to the good fields. What could go wrong? ps. They never really found oil.
