I've invested in startups, talked to hundreds of CEOs, and worked with dozens of venture capitalists--and I've never seen anyone do what Elon Musk did to Peter Thiel.

Before getting into that, here's how CEOs are supposed to work with venture capitalists. The VCs and the CEO come to terms on how much the VC will invest and what percentage ownership the VC will get for their cash.

The VC usually gets a board seat and gets certain rights -- including the right to ask the CEO to move on if the company is not meeting its numbers along with a guaranteed share of the proceeds if the company is not a huge success and gets sold for less than the amount invested.

Another thing that usually goes without saying is that the CEO spends the money she gets from the VC on the company in which the VC thinks he is investing.

Then there is the reality of what happened between Elon Musk and Peter Thiel. They were pals at PayPal and have both become fabulously wealthy. But Thiel has gotten there more from investing while Musk has done more in the way of starting and running companies -- in a less than conventional fashion.

So it came as no surprise to me to learn that Musk -- who is CEO of Tesla, SpaceX, and the Boring Company, his tunnel-digging venture -- decided to use cash that Thiel invested in SpaceX to pay for a test tunnel that the Boring Company drilled in Hawthorne, California on the grounds of SpaceX, according to the Wall Street Journal.

Musk's actions were extremely unethical

Boring Company was spun out of SpaceX and Musk got 90 percent of its equity. And SpaceX's board -- which includes Peter Thiel, whose Founder's Fund invested in SpaceX, did not authorize Musk to channel the SpaceX funds to dig the Boring Company's tunnel.

It's not exactly clear what happened next, but the Journal reports that SpaceX received about 6 percent of Boring stock, "based on the value of land, time and other resources contributed since creation of the company," according to a SpaceX spokesman

This is not the first time that Musk has diverted resources from one company he led to another. As the Journal reported, "Early in Tesla's history, he personally borrowed $20 million from SpaceX to help fund the electric-car company."

There there was the SolarCity situation. In 2015 and 2016 regulatory filings revealed that SpaceX purchased more than $250 million worth of bonds from the solar-panel installation firm SolarCity of which he was chairman. In 2016, Tesla acquired the money-losing SolarCity.

He clearly doesn't care about the rules -- and that's very bad

I have mixed feelings about this situation. As an investor, this kind of behavior strikes me as completely unacceptable and should disqualify Musk from any role that involves spending other peoples' money. I am not a lawyer, but it sounds like the unauthorized diversion of money from SpaceX to Boring Company is wrong -- and certainly appalling corporate governance.

On the other hand, Musk is a uniquely talented and creative entrepreneur who has proven that he can turn big ideas into real products on a scale that is nearly unmatched when it comes to capturing peoples' imaginations.

Unfortunately, part of his great story-telling skill is Musk's ability to break rules and weasel his way out of being held accountable. One need look no further than the SEC's attempt to rein in Musk at Tesla by taking away his Chairman title after he tweeted that he had funding secured for a going private transaction earlier this year.

Will any of Musk's venture ever become self-sustaining? I don't know, but he evidently has not lost his ability to talk money out of deep-pocketed people to cover the cash shortfalls.

Published on: Dec 18, 2018
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.