Theranos founder Elizabeth Holmes on January 3, 2022 in San Jose, Calif. (AFP / Archives / Nick Otto)
The conviction this week in California of Theranos founder Elizabeth Holmes, convicted of defrauding her investors, is a wake-up call for Silicon Valley entrepreneurs who now know they risk jail if their promises too beautiful do not come true.
But the tech industry is brewing hundreds of billions of dollars in its race for a revolutionary new concept, and it is unlikely to change the way it does. For many experts, the mantra “fake it till you make it” still has a bright future ahead of it to woo investors.
“Any start-up builder who thinks their technology is not yet mature but that it will eventually be should feel very nervous,” said Aron Solomon, legal manager at Esquire Digital.
“I bet you that a lot of entrepreneurs followed the trial and said to themselves that they had probably done certain things that Elizabeth Holmes is criticized for,” he continues.
The fallen boss has been found guilty of several counts of fraud for lying to her investors: she promised to revolutionize the blood testing market with its machines capable, according to them, of detecting a host of diseases, from cancer to HIV, using a few drops of blood.
Investors, enthralled by Ms. Holmes’ argument and strength of conviction, had injected hundreds of millions of dollars into what promised to be the future Apple or Google.
Except that Theranos’ famous machines never really worked and the pot-aux-roses ended up being exposed by a Wall Street Journal investigation in 2015.
The three months of the trial organized in San José, in the heart of Silicon Valley, highlighted the sometimes very fine line between commercial nerve and outright lies in the world of “tech”.
For Mr. Solomon, those who launch start-ups need to make the eyes of their interlocutors shine if they are to gain their support, and willingly speak in the present about technologies that do not yet exist.
“You always pretend, you try to spruce up your product by constantly adding more,” he says.
Ms. Holmes also maintained during her trial that a new generation of blood testing machines was about to come to fruition and would have kept its promises.
The problem with this model arises when the promised success turns out to be a mirage, as in the case of Theranos, notes analyst Patrick Moorhead, specializing in new technologies.
“There’s a difference between having a bold vision and lying to investors. I think that’s what we’re seeing in this case,” he says.
– Capital risk –
In Silicon Valley, there are countless stories of bright young students who have become billionaires after leaving school to develop a good idea. The flagships of global capitalism, from Bill Gates ‘Microsoft to Jeff Bezos’ Amazon to Steve Jobs and his firm Apple, have all followed this path.
But for every Steve Jobs, hundreds of other aspiring billionaires see their bright ideas vanish into limbo.
Experts in “venture capital” listen all day long to the arguments of these entrepreneurs, in charge for them to find the nugget where to place his bet.
It is not surprising in these conditions that the bosses of start-ups exaggerate and embellish to obtain financing.
“Nothing is likely to change on this point,” predicts Wesley Chan, of investment firm Felicis Ventures. “Everyone considers Elizabeth Holmes to be the exception, not the norm, but in reality this type of behavior is much more common in our industry,” he says.
Paddy Cosgrave, founder and leader of the Web Summit tech show, disagrees. “With all these companies raising so much money, we have to assume that some will end up breaking the law,” he told AFP.
“But I don’t think it’s a question of culture. I don’t think the tech world is fundamentally rotten,” he insists.
Founder of the start-up Extended Reality Group, Kristin Carey expects the conviction of Elizabeth Holmes to prompt investors to ask for more guarantees from founders.
And according to her, that’s not necessarily a good thing: “If we had put on the grill some of the designers who are successful today, would they be there?”
© 2022 AFP
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