I just finished reading Bad Blood, the mindblowing story of the Theranos' downfall, and I couldn’t help but think this was a hyperbolic version of how many startups get going. It’s pretty common in the Valley to sell an idea before a tangible product, sometimes with minimal transparency into how far behind the physical product actually is compared to what they’re conveying to the public.
The glaring difference with Theranos is that it was really more of a healthcare company than a technology company, despite Elizabeth Holmes’ desperate dreams to emulate Steve Jobs. In a healthcare company, you have a lot less leeway with fooling the public of your capabilities—doing so could cause physical harm. This is why regulatory agencies like CMS and the FDA exist. Because of this, in Theranos’ case, they were caught and are now paying the price. But it begs the question, how many startups got going by fooling customers and investors but never had any repercussions because doing so didn’t hurt people? And if they did this, should repercussions be retroactively enforced or is it simply water under the bridge as long as they delivered on their promises eventually?
One argument is that founders have to sell big at first in order to get the money needed to go big. Early-stage VCs like founders that think big. The visionaries often get the most hype and usually the most money. I’d argue that the bigger you go, the less due diligence occurs. Like Jobs’ Reality Distortion Field, it’s easy to get caught up in the grandeur of a scrappy entrepreneur fixated on changing the world. A founder pitching a new social network for pet owners might need to show some more user data and market research to prove the value whereas a pitch for extending human life and health span by 50 years with a vaccine is a whole new space, concept, and technology—the only true way to get data and prove the idea is to throw money at it and give it a strongly executed shot. In these cases, the due diligence done is towards the founder. What have they already done? How obsessed and tunnel-vision-focused are they on this? Or, in this was especially true at Theranos, who has already invested/joined the board? If the founder comes off as an Elon who would stop at nothing to get all gas-fueled vehicles off the road, or a Bezos who believed all commerce would become e-commerce and couldn’t be convinced otherwise, then the money is more likely to flow.
Many people go 10% bigger (pet owner social network), few people go 1000% bigger (longevity vaccine). Less competition + obsessive vision + solid execution + badass team + money = the next SpaceX.