Theranos verdict puts tech on the spot
Monday's Elizabeth Holmes verdicts became, instantly and inevitably, a Rorschach test for Silicon Valley's self-image.
What they're saying: Critics of tech's go-go startup culture saw the Theranos founder's conviction on four counts of conspiracy and fraud as evidence that the entire industry sits on a foundation of deception and hype. Others cited the outcome as healthy proof that even a business built on daring the impossible has a ceiling on hubris.
- "The verdict signaled the end of an era. In Silicon Valley, where the line between talk and achievement is often vague, there is finally a limit to faking it," tech journalist David Streitfeld wrote in the New York Times.
Why it matters: Tech's giant companies now make up a big chunk of the U.S. economy and operate in every facet of our lives. If the industry were really built on lies, we'd all be in trouble.
Yes, but: If Big Tech's services were frauds the way Theranos' blood tests were, the iPhone would still be vaporware, Google wouldn't provide search results and you'd never get your packages from Amazon.
- Also, Theranos' biotech category set it apart from the classic Silicon Valley startup model — and subjected it to tighter regulations.
The other side: "This verdict makes me concerned that the spirit of entrepreneurship in America is in jeopardy," venture investor Tim Draper, a Theranos backer, said in a statement.
- "If this scrutiny happened to every entrepreneur as they tried to make this world a better place, we would have no automobile, no smartphone, no antibiotics and no automation, and our world would be less for it," Draper said.
Our thought bubble: Holmes, who carbon-copied Steve Jobs' black-turtleneck look, also borrowed much more from Jobs — particularly the obsessive secrecy in which Apple has always shrouded product development.
- At Theranos, that stance helped hide the company's lack of progress toward actually delivering its medical breakthrough.
Of note: "Genius hatches something amazing in a garage" isn't the only Silicon Valley playbook.
- The tech industry, particularly its software wing, has also embraced a nimble style of product development that advises companies to "ship early and often" and share data widely to find and fix flaws fast.
- A more transparent Theranos would never have won the kind of adulatory coverage and FOMO-driven investments that Holmes did. But it would have been a lot less likely to end up as a trial-certified fraud.
Whether Holmes ends up serving a long prison sentence or not, don't expect too much introspection from tech's leaders in the wake of her convictions.
- Most tech entrepreneurs do not see anything resembling Holmes when they look in the mirror (and that's not only because most are not women).
- In a marketplace that favors confidence and speed, soul-searching and self-questioning have never been popular — and indeed are widely seen as liabilities.
The bottom line: As long as the startup world is full of way too much cash chasing way too few hot deals, the next Theranos will probably find funding.
- As Bloomberg's Matt Levine put it: "Theranos raised a lot of money from investors who did not do too much due diligence, because the world was awash in money and investors got careless; that is much, much, much, much more true now, and Theranos looks a little quaint."