Mar 30, 2010
Hubris: An Investment Gone Bad
Fortune recounts the story of Terralliance, an oil exploration firm with high profile investors like Kleiner-Perkins and Goldman Sachs, that claimed to have found an algorithm that enabled it to accurately forecast where oil could be found. A taste:
Kleiner Perkins thought it was on the threshold of its first mega-win since Google’s (GOOG, Fortune 500) IPO in 2004. Goldman Sachs, which had been betting shrewdly on plummeting housing prices, envisioned another killing. Passport Capital, a young San Francisco hedge fund, anticipated burnishing its reputation for energy investments. John Fredriksen, a Norwegian supertanker mogul who had lent Terralliance $50 million only months earlier, stood to score a quick hit.
All told, the investors had sunk nearly half-a-billion dollars into Terralliance, an astounding sum given the audacity of the company’s aspirations — and the paucity of its accomplishments.
Why experienced investors pumped so much capital into such a risky venture is just one mystery in the tale of Terralliance, a saga that has not been comprehensively told despite the high profiles of the players involved.
“Despite the high profiles of the players involved”? Or because of?
In either case, this appears to be a story about how easily people can believe a convincingly told story with a little bit of anecdotal support, even when—or maybe especially when—it seems too good to be true. The whole thing is short, interesting, and worth a read.