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Why Silicon Valley Can’t Escape Elizabeth Holmes

SAN JOSE, Calif. — In 2016, start-up founders sang, “Theranos doesn’t represent, we are better,” in a holiday video created by the venture capital firm First Round Capital.

Over the next few years, several columnists wrote that Silicon Valley shouldn’t be blamed for Theranos.

Last month, Keith Rabois, a venture capitalist, said on Twitter that articles connecting Theranos with Silicon Valley culture contained “more fabrication than anything ever uttered by Trump.”

The technorati in Silicon Valley and beyond have long tried to separate themselves from Theranos, the blood testing start-up in Palo Alto, Calif., that was exposed for lying about its abilities. But the fraud trial of the company’s founder, Elizabeth Holmes, has shown that just as Bernard Madoff was a creature of Wall Street and Enron represented the get-rich-quick excesses of the 1990s, Theranos and its leader were very much products of Silicon Valley.

a jury found the entrepreneur guilty of four of 11 counts of fraud, starkly underlined her participation in Silicon Valley’s culture.

Ms. Holmes, 37, used the mentorship and credibility of tech industry big shots like Larry Ellison, a co-founder of Oracle, and Don Lucas, a Silicon Valley venture capitalist, to raise money from others. She lived in Atherton, Calif., amid Silicon Valley’s elite and was welcomed into their circles.

She also used the start-up playbook of hype, exclusivity and a “fear of missing out” to win over later investors. She embodied start-up hustle culture by optimizing her life for the maximum amount of work. She dismissed the “haters” and anything that interfered with her vision of a better world. She parroted mission-driven technobabble. She even dressed like Steve Jobs.

No industry wants to be judged only by its worst actors. And many venture capitalists who heard Ms. Holmes’s impossibly lofty claims didn’t fall for them. But if anyone in Silicon Valley was suspicious of her proclamations, none spoke publicly about it until after things went south.

said in a hearing in May before the trial began.

At its best, Silicon Valley is optimistic. At its worst, it is so naïve it believes its own hogwash. Throughout her trial, Ms. Holmes’s lawyers argued she was simply a wide-eyed believer. Any statements that weren’t entirely truthful, they said, were about the future. It was what investors wanted to hear, they said.

“They weren’t interested in today or tomorrow or next month,” Ms. Holmes testified. “They were interested in what kind of change we could make.”

Soon after Theranos got started in 2003, Ms. Holmes used her vision of the future to win over investors and advisers like Mr. Ellison and Mr. Lucas. Mr. Lucas, who was chairman of Theranos’s board until 2013, was involved with more than 20 investment vehicles that backed Theranos. Those included his son’s venture firm, Lucas Venture Group; another vehicle, PEER Venture Partners; and trusts and foundations associated with members of his family.

Bad Blood,” a book by John Carreyrou, a former Wall Street Journal reporter.

Brian Grossman, an investor at the heath care-focused hedge fund PFM Health Sciences, learned about Theranos through Thomas Laffont, a co-founder of Coatue Management, a prominent investment fund with a San Francisco presence. In an email that was part of the court filings, Mr. Laffont gushed that Theranos had “one of the most impressive boards I’ve ever seen” and said Mr. Grossman’s firm should let him know “ASAP” if it was interested in an introduction.

Coatue did not respond to a request for comment and PFM Health Sciences declined to comment.

embraced by many in the tech industry. “This is what happens when you work to change things,” she said in a TV interview. “First they think you’re crazy, then they fight you, and then all of a sudden you change the world.”

In the years since Theranos collapsed, more tech start-ups have followed its strategy of looking outside the small network of Sand Hill Road venture capital firms for funding. Start-ups are raising more money at higher valuations, and deal-making has accelerated. Mutual funds, hedge funds, family offices, private equity funds and megafunds like SoftBank’s Vision Fund have rushed to back them.

Mr. Salehizadeh said Silicon Valley’s shift to a focus on fund-raising over all else was one reason he had left to set up a private equity firm on the East Coast. The big money brought more glitz to tech start-ups, he said, but it had little basis in business fundamentals.

“You’re always left feeling like either you’re an idiot or you’re brilliant,” he said. “It’s a tough way to be an investor.”

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