There’s a growing insistence that the Theranos fraud is evidence that Silicon Valley didn’t work – that’s not quite true, in fact it’s not true at all. The Silicon Valley ecosystem, rather than the place, worked just fine here. For the point about the company is that its funding came from well outside that carefully crafted ecosystem:
Silicon Valley should heed warnings from Theranos scandal
No, that’s not right at all:
Silicon Valley has always been less interested in what the world is like today than what it could be like one day. Reality is messy: there are regulations, disgruntled customers and the annoying distraction of having to make a profit. Most entrepreneurs prefer to live in the gleaming tomorrow,
where there are no caveats, only limitless opportunities. But spend too long in futureland, and one’s grasp on the real world can slip.
A cautionary example of this emerged last week when America’s Securities and Exchange Commission charged the biotech company Theranos with, in its own words, “massive fraud”.
Sure, as I’ve pointed out before, it was a massive fraud.
Aficionados of business scams and frauds will be savouring this from Elizabeth Holmes at Theranos for decades yet. The point being that she was, for a time at least, listed as a multi-billionaire, raised vast sums of venture capital and managed to do both while lying entirely about a product that simply didn’t work – or even exist.
Pretty good going if you remember to cash in and Louis Vuitton yourself out of there to somewhere without an extradition treaty.
But this isn’t a failure of Silicon Valley at all.
The point being that there’s not just the one “Silicon Valley.” It has all become a great deal more specialised than that. Sure, there’re funds that invest in computing. But under that they specialise in hardware, or consumer facing, or apps, or……and no one invests in “tech.” There’s a very definite subset of investors which deal with “biotech.” And the notable thing about Theranos is that it was a biotech company but none of the board, the money, the managers, came from that subsector. Which was exactly why the fraud worked of course.
Theranos was funded by those who thought they could do without the specialists in the VC sector. As it happens they couldn’t, could they? The whole thing is a story of people using the glitz and hype of Silicon Valley to raise funds while not subjecting themselves to the management strictures and examinations of Silicon Valley. It’s evidence of what happens in the absence of Silicon Valley, not its presence.