Lessons Learned From The Fyre Festival: The Four Slides That Should Have Inspired Doubt

Last month two intriguing documentaries came out on Netflix and Hulu breaking down the nightmare scenario that was the Fyre Festival. For me, one of the most exciting things about these docs was that they also focused on how the greatest boondoggle of all time was also neatly packaged to investors as a groundbreaking app technology. Back in 2013 when the pitch deck for Fyre was being sent around I received a copy, since I was working with a group of professional athlete angel investors. My first response to the deck? Pure garbage.

I was shocked when I heard the founder, Billy McFarland, was actually successful in his efforts to raise millions. I wondered how this could be possible. But sadly, this type of FOMO-driven investing happens frequently, particularly among startups targeting “influencers” for investment.

People get so excited about an idea or the “NEXT next new thing” that they forget the basic premise of running the numbers and making sure they are real. While even the smartest investors can be victims of fraud (Hello, Theranos!), there are some simple ways to protect yourself from getting financially involved in companies that seem too good to be true, and are. Basic due diligence will help to keep you out of questionable investments, but you have to perform it.

There were obvious signals during the fundraising process that should have made it clear almost instantly that this investment was risky. But it was smoke and mirrors that allowed McFarland to convert a dumpster fire of a deal into a giant pile of cash. So what were some of the biggest warning signs that went unheeded? Let’s take a look at just four of the 43 slides from the now infamous and widely shared pitch deck that should have kept investors away.

Fyre Media was founded to produce and market a technology platform that would connect celebrities with everyday folks (with some cash to burn) who would want to book them for a bar mitzvah or a big client event. So why did the vision vaguely reference the “five elements of the earth” and a plan for the founders to “traverse the globe” for the next five years on the investors’ dime? Excellent question. Also, any references to substantial “land purchases” should have raised concerns right away. Somehow this slide made it through the weak BS filters of the investor group. How is that possible? Perhaps they were temporarily blinded by the next slide.

Models… Celebrities… Bikini shots… Beautiful people. This was enough to distract investors with millions of dollars at stake from the obvious insanity of the “vision” presented on the previous slide. Whenever I am presented with an investment opportunity that seems to rely heavily on name dropping and celebrity influence, I start to question the validity of the business. A great startup business shouldn’t depend on celebrities alone to become successful. One that does is going to typically burn through a lot of cash in the process of getting them “on board.” As we discovered, Fyre spent $250,000 of its investors’ money on a single tweet from Kendall Jenner.

When the revenue slide is this vague, you know there’s a problem. Also, what on earth is “360 methodology?" I don’t see anything vaguely circular here. Can anyone even explain what this slide means? A revenue slide is meant to explain how the company will earn money. It’s clear that this was a slide created by a team with plenty of ideas on how to spend money, but not necessarily how to make money for their investors. If sponsorship was the key revenue stream, then someone should have explained what the sponsorships were for, who the sponsors were, and how much they were expected to pay. That’s a lot simpler than this crazy flow chart.

The ask was the very point where I burst out laughing and started looking for the trash bin icon. First, $25 million is an insane amount to raise in a first round from a company that has zero traction and a founder that already had a negative track record (Magnises’ colossal failure was already public information at the time). Second, why would you give someone millions of dollars to acquire “exclusive” managers? Or expand globally when you haven’t done anything of note locally? It’s a known guideline for a company to establish that they can do something well on a small scale before they attempt global expansion. Even Mark Zuckerberg started out just focusing on Harvard students. And we all know how that turned out.

The most flagrant folly was entrusting millions of dollars in the hands of a 20-something-year old bro with two failed startups under his belt. Oh, and then let's not forget Ja Rule. One of the most important things to think about during the diligence process is, “Why this founder? Why this team?” A reasonable investor asks this to ensure that management has the unique background and skills needed to execute an ambitious plan. What did investors see in these two and their team that gave them enough confidence to invest $25 million in an undertaking of such logistical complexity?

The Fyre Festival case will be studied for years as an example of how social media celebrity, impressions and some great Instagram photos caused stakeholders to refrain from due diligence, claim temporary insanity and throw millions of dollars down the drain. The investors weren't the only ones to incur massive financial loss, but also the ticketholders and many vendors that lost substantial amounts of money and spent wasted efforts on this failed venture. If we've learned anything from this debacle, we should be wary of jumping on the celebrity bandwagon and remember the importance of digging deep before investing in a deal with superficial beauty.

Erica Duignan has been investing in startups since 2006 and working with professional athletes on their startup investment portfolios since 2012. Along with her business partner, New Orleans Saints wide receiver and Super Bowl Champion Marques Colston, she runs 1000 Angels and teaches the Venture Playbook, a series of courses designed for professional athletes who want to develop their skills in Venture Investing and Entrepreneurship. She is also cofounder of Reign Ventures, a Seed Stage VC Fund.