Argh! The linked NPR article on that tweet had me yelling at my phone:
> It is unusual for tech executives to face criminal changes when their startups collapse under the weight of unrealized promises.
That's because it's not illegal to over promise about your future results. It is illegal to lie about simple facts regarding the present state of your business to attract funding.
I'm so sick of so many press outlets framing this as just "fake it til you make it" gone wrong, "a page from the Silicon Valley playbook", or that it's just an over hyped company take to extremes.
No, Theranos was outright, egregious fraud, and most startups that "collapse under the weight of unrealized promises" are not committing fraud.
100% agree. I wanted to scream at my computer everytime I read some bullshit article about how "Theranos was playing by the Silicon Valley 'fake it til you make it' ethos".
Bullshit. Theranos told investors clear falsehoods they knew to be false in order to get funding. Fast sold a vision they couldn't deliver on, and unless more info comes out I didn't see anything that said they committed fraud.
You keep saying Theranos. Are you of the opinion that we should treat all technical startup founders as probable criminals? I think where Theranos investors failed was when they confused media hype with due diligence. I'm perfectly ok to live in a society where imprudent investors get occasionally burned, if the hype can also put the spotlight on real, non-criminal founders that would have no chance otherwise.
This is far from getting funded, it's a technical concept and we have absolutely no ability or relevant information upon which to call it a fraud.
> No, Theranos was outright, egregious fraud, and most startups that "collapse under the weight of unrealized promises" are not committing fraud.
Most startups don't get the traction and publicity that Theranos got, however. I wouldn't be surprised if a lot of founders would go to similar lengths given the chance; they just happen to have someone apply some reality check on them before things get out of hand.
That is one of the reasons why venture capitalists not even affiliated to Theranos had suspiciously optimistic responses to the initial allegations last year:
The Theranos saga is incidentally one of the reasons I wrote the "You Can't Criticize Startups" rant on Monday. (to be fair, ignoring federal regulations is a different scope than mere criticism.)
There's a part of me that's happy that there's finally a nice example of technology fraud to point to that's a non-medical tech company. After Theranos, the takeaway has been "biotechs, especially diagnostic companies, especially anything involved with microfluidics, especially if founded by a white female engineer[0], are frauds." Theranos has been explained away as something that happens when Silicon Valley invests in biotech (which is just so stupid - Genentech was founded in the bay...), so instead of using it as an opportunity to rethink what is incentivized and how charisma is rewarded over capability, people instead decided that by adopting a bunch of flawed heuristics, they could avoid the issue forever. Well, here you go! Theranos 2: electric Boogaloo! Turns out Fraud is not industry specific! Who knew!?
[0]I know a founder fitting that description that was put through hell because of all the pattern matching. And in my own startup, there was a point where I just straight up stopped mentioning microfluidics because of all the nonstop pattern matching and the dumb questions that resulted. Its so frustrating.
Plenty of investors were straight up reaching for the conspiracy theory handbook. They did outright accuse the media of a smear campaign and suggested it was some greater corrupt conspiracy.
Silicon Valley has a very hard time accepting the possibility (nay, certainty) that there are some bad actors in our midst (even well-meaning bad actors). A very large portion of the scene seem to respond to accusation of malfeasance with hostility.
A certain amount of skepticism against claims of malfeasance, sure, but in Theranos' case there were a lot of comments not unlike Dave Morin's.
Dishearteningly true. This didn't have to happen; as I've said before on HN, Theranos seems, from the outside, to be such a blatantly, mustache-twirlingly evil entity that it's hard to understand how anyone could have thought it was a good investment, let alone a moral choice to support.
Not that Silicon Valley, for all its crowing about making the world a better place, ever cared about that sort of thing - but they could at least be more honest about what they actually want. Growth, always, growth without limitation, growth regardless of how it is achieved. That attitude is part of what enables this kind of misconduct, and it's what will allow this to keep happening, in other companies and industries, into the future.
The Theranos Deception, linked from the posted article[1], mentions Elizabeth Holmes is asking for even more money to continue to support the company. The fact that she can still do that, and indeed, might get it, is sickening.
Just because “exuberance and fraud” are bound to happen doesn’t mean they are a good thing. I also don’t buy the skippery slope between pitching your vision and lying about the facts. Theranos clearly crossed the line, demonstrating that the line is sometimes clear. An article arguing that the line is sometimes blurry, or that deception can be a good thing, should draw on different material.
If Silicon Valley as a whole is a bit scammy, it doesn’t serve us to defend it on that score or spin it into a positive.
I don’t know. That thinking might paper over a middling start-up with a mix of sincerity and hype but just a poor product or unsuccessful funding rounds.
Theranos, and other unicorn-scale hype, is a whole different thing. It doesn’t get this bad unless there is a seriously malevolent drive for the money, essentially saying that you deserve money just for an idea, just for being a made-up executive, regardless of all else, and you’re going to lie, cheat, intimidate, swindle, and unapologetically steamroll your way to the money no matter what.
It’s a technology narcissism problem.
Not mere overconfidence or being swept up in the hype while at least trying to genuinely build something even if it ends up not working.
I’ve seen very similar things at other science based/biotech startups. In particular, over-promising and misrepresenting the state of development. Quite often these companies are funded by traditional tech investors who don’t know how to do DD on science-based/biotech startups.
The difference with Theranos is that they messed with the FDA. They did consumer testing, and publicly raised their profile to the point where they couldn’t be ignored.
If they hadn’t started doing consumer testing with a device that essentially doesn’t work, I doubt we would have heard of them.
Most of the investors would be happy right-off the investment. Even with Theranos, I believe it’s only the smaller investors who are making a fuss now. Larger investors know the money is gone, and there’s not much point in suing.
The patients are indeed potentially hurt more than anybody in this fraud, and it makes it much more egregious than the more ordinary silicon-valley <fake it till you make it> fraud (& I've been angry about since before it was popular to hate on Theranos).
However, in ending with "the venture capitalists are just fine", the article also completely misses another class of people who are also hurt by these types of fraud -- all the other more worthy honest startups that went unfunded or under-funded when Theranos sucked $700 million out of the investment ecosystem.
All of the other bogus companies mentioned ( Hampton Creek; Zenefits; Lending Club; Skully; ScoreBig; Rothenberg Ventures; Faraday Future; Hyperloop One...), and many others not only suck the life out of the system, they destroy the ability of other honest startups to make it.
The VCs legitimately risk failure; it's the nature of VC.
But they aren't supposed to be risking fraud, which is perhaps why they don't catch it as much as they should in Due Diligence. Seems they need to do better Due Diligence, checking not only whether everything matches their expectations, but also whether it actually is what it is represented to be.
Theranos was doing shady shit and ripping off investors. That's illegal. Bad press didn't shut them down. Criminal investigations shut them down and the CEO is now actually in jail.
Confusing illegal activity with activity you disagree with is not doing the conversation (or society in general) a bit of good
Remember Theranos wasn't even big tech, and only had one major Silicon Valley investor in it; they were a fake big tech company attracting people who wanted to be SV but weren't. The usual VCs didn't even trust them!
That's a very convenient excuse: "I thought I was right". Doesn't make a scam any less so.
My bigger grudge with Theranos' founder and the likes is their hoax seriously hurts the startup industry culture. Some people get really confused, some start following in these footsteps, some even lose direction with so much mis-information flying around. The chest thumping hotshots suck up too much energy and resources from the ecosystem.
Also, as far as I can tell, the "criminal proceedings" were self-reported by Theranos as a request for documentation by the SEC.
The anger I'm sensing in this thread is one to a convicted defrauding case. Which it isn't yet. For now, Holmes is promising to overhaul the company to comply.
I'm willing to give her the benefit of the doubt and let things play out. If they run out of money, you're right, I'd be pissed. If they have a criminal conviction, I'll gladly join the chorus of anger.
Until then, these articles are just beating a dead horse.
These attempts to equate Holmes with other tech CEOs are bizarre.
Theranos was a fraudulent company, full stop. They weren’t even a Silicon Valley darling as many VCs famously passed on the company after some due diligence. Their primary investors were family offices like the Cox family, the Walton family, and Rupert Murdoch because they couldn’t get their fraud passed actual tech VCs, who were handing out investment money to everyone else with a decent idea at the time. Even their board and advisers were mostly composed of people with political and other backgrounds unrelated to blood testing or tech.
There is no equivalence between Theranos’ outright fraud and other tech CEOs being optimistic about the future of their tech companies. The way the media is trying to downplay their fraud and equate it with other, successful companies is bizarre.
It is a fine line. From practical experience: there is a class of inventors who have genuinely convinced themselves that their broken tech will work if only they get the bugs worked out, and this is always just over the horizon. They probably see themselves as doing you a favor by lying to you because you will reap the benefits after all, once the pay-day arrives.
I've seen lots of misery because of this, both with the inventors themselves, their families and employees. In one case a suicide.
It's very sad and one of the downsides of being in the business I'm in because I have come to recognize the signs of this particular ailment fairly quickly and it is a huge balancing act in both convincing my client not to invest while at the same time not pulling the rug out from under a quite possibly already unstable person.
Fraud can be intentional, or it can be the consequence of someone genuinely believing their own misguided version of reality, usually powered by some form of 'wouldn't it be great if' and associated lines of thinking.
Even so, Theranos - to me at least - seems to have crossed over into outright fraud from very early on in their lifetime. There were significant questions about the tech early on and without a good answer to those the project should have never moved as far as it did without some serious caveats about what they believed to be possible and total transparency about what had actually been achieved.
For a nice example of how gullible people are check out the Ilium thread on the homepage right now, it's a great example of how wishful thinking can cause investors to part with their money:
> It is unusual for tech executives to face criminal changes when their startups collapse under the weight of unrealized promises.
That's because it's not illegal to over promise about your future results. It is illegal to lie about simple facts regarding the present state of your business to attract funding.
I'm so sick of so many press outlets framing this as just "fake it til you make it" gone wrong, "a page from the Silicon Valley playbook", or that it's just an over hyped company take to extremes.
No, Theranos was outright, egregious fraud, and most startups that "collapse under the weight of unrealized promises" are not committing fraud.
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