The Silk Road, a story for investors

Supported by Greenhaven Road Capital, finding value off the beaten path.

In part one of our recap, we looked at the lessons for entrepreneurs from Nick Bilton’s book American Kingpin. In that post, we noted that Ross Ulbricht, aka Dread Pirate Roberts, understood his customers, created a platform business, did a lot of non-glamourous work, remixed ideas and experimented.

Today we’ll look at the law enforcement side of the book. These officers are inspiring, from department heroes to backwater nobodies. They embodied curiosity, just like successful investors.

Investors and law enforcement are both curious. Not a superficial curiosity but a deep one. In his book about curiosity, Brian Grazer wrote that curiosity takes interest and follow through. Here’s how one agent did that:

“But Jared assumed the task of finding khat with the same fanatical compulsion as someone assigned to capture the world’s most evil terrorists. He printed out hundreds of flight logs of people who had been caught with khat in the past, laid all the documents out on his living room floor as if he were Carrie Mathison on Homeland, and searched for similarities among known smugglers. He scrutinized every detail of each arrest until he found a pattern.”

The investigators in this book reminded me of investors in the real world.

It’s the curiosity to piece together a puzzle when you don’t have the box.

The best investigators settled in like an uncle who plops down on the couch with a plate of food to watch and talk football. Each had a deep understanding of their domain; mail order drugs, tax evasion, cutting edge technology.

“Jared began explaining what the Silk Road was and how it worked, and as he did, he placed envelopes from the mail tub on the table one by one, as if he were dealing a deck of cards at a casino.”

The agents were looking for clues using their pattern recognition. They built these skills by being on the ground and doing the work. It was a combination of agencies that found Ulbricht and at each agency was an individual with expertise. Jared figured out how things were sent in the mail. For example, early on no one knew Silk Road’s volume. Jared ran a test.

“Of the eighteen orders that Jared had placed on the Silk Road, one was lost en route, and the other sixteen arrived in his PO box unnoticed by anyone in the federal government. It didn’t bode well for the new war on drugs.”

Establishing the base rate was crucial for Jared to make the case to his superiors that this was something worth pursuing. Another agent – Gary Alford – did this:

“He started with the Gawker article, then clicked on dozens of other newer links, scouring the words and images, until he leaned back in his chair, staring at his computer as pages of articles about the drug-dealing site and Bitcoin and Tor flickered on the screen. He knew full well, as his supervisor had told him, that teams of law enforcement had been searching for the creator of the Silk Road for almost two years, and each road they had traveled down had gone nowhere. He also knew that he would have to find a new investigation technique if he wanted to have any chance of taking down the site and its creator.”

Alford was looking for “a parking ticket,” an allusion to the discovery of the Son of Sam, who was caught not because of crime scene evidence but parking tickets.

Each investigator took their expertise and mixed it with this new, confusing world. It was hard. Law enforcement had to understand it, but then also compile it for a trial:

“The jury’s eyes seemed to glaze over when the lawyers tried to explain how Bitcoin blockchains worked, why server encryption and CAPTCHAs and IP addresses were so important, and what happens when you run Ubuntu Linux on a Samsung 700Z.”

Investors need to convince their own stakeholders that something makes sense to do.

Soon after reading American Kingpin I read Traffic. Tom Vanderbilt’s book is about how human actions manifest behind the wheel and on the road. A small part of the book is about how technology can pick up data in different ways that people. For example, cars with adaptive cruise control use radar to judge distance. Radars in cars do this better than Neil at the wheel.

The safest driving brings humans and computers together. Each has their own data processing advantages. Investigators and investors do this too.


Thanks for reading.

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