The conviction of Theranos founder Elizabeth Holmes splits Silicon Valley

In some ways, Elizabeth Holmes resembles a typical Silicon Valley entrepreneur: she hyped a secret product, gave a speech to Ted, and adopted Steve Jobs’ signature turtleneck sweater.

But in other respects, she did business outside of Silicon Valley’s normal channels, relying on a wide range of wealthy investors to push the valuation of her blood testing startup Theranos to a peak of 9 billion U.S. dollars, and then a staggering 2018 collapse.

Therefore, after a federal jury found that Holmes was guilty of defrauding investors on Monday, Silicon Valley investors and other industry observers still disagree on how to interpret the importance of the verdict.

Tim Draper, a venture capitalist who provided early funding for Theranos and a family friend of Holmes, said the result made him “worry that American entrepreneurship is in danger.”

“I still believe in what she was trying to do,” Draper said. “If this kind of scrutiny happens to every entrepreneur who tries to make the world a better place, then we will have no cars, no smartphones, no antibiotics, no automation, and our world will not be so suitable for it.”

But Benchmark venture capitalist Bill Gurley, known for backing Uber, puts forward a view that has become common among tech investors since Theranos collapsed: This startup has little to do with the culture of Silicon Valley .

He said that the media “would not emphasize her scope of operations outside of the traditional Silicon Valley,” and then added: “I want fraud to be controlled.”

Other senior investors have also tried to draw a line between Holmes’ fraud and Silicon Valley’s normal practices.

“Every industry has terrible people and hyped businessmen,” Sequoia Capital’s long-term investor Michael Moritz pointed to fraudsters on Wall Street and elsewhere. “I am more optimistic about the valley. Those who were deceived by Holmes became victims because they did not ask for obvious questions.”

Nevertheless, the verdict made by the California jury still represents a landmark decision in Silicon Valley, where few startup company founders face such public legal liquidation.

The jury found Holmes guilty of four counts of defrauding investors in Theranos. Holmes may face decades of imprisonment, but she may get a more relaxed sentence and appeal.

Lawyers said these rulings may make startup founders and their lawyers more cautious about propaganda statements, while emphasizing that Holmes seems to be clearly out of bounds.

Covington & Burling partner and former federal prosecutor Amanda Kramer (Amanda Kramer) said that Holmes’ judgment tells startup founders that they should be careful not to “turn from enthusiastic optimism to fraudulent misrepresentation.” .

“This line is not difficult to see and stays on the right side,” Kramer said. But the norms of entrepreneurial culture “make it difficult to stay conservative on this issue” without appearing “not sure enough about your business,” she added.

Holmes left the court after a jury found her guilty of wire fraud and conspiracy to defraud investors © David Odisho/Getty Images

In the early days, Theranos relied on Holmes’ connections at Stanford University and raised funds from several well-known venture capitalists. Later, Holmes will attract investors like Australian media mogul Rupert Murdoch and Mexican mogul Carlos Slim, while allowing older politicians such as Henry Kissinger to fill her board.

In the end, the jury found that Holmes was guilty of conspiracy to defraud investors and commit wire fraud to three different shareholders, including the DeVos family and the hedge fund Partner Fund Management.

Brian Grossman, who oversees PFM’s investment, testified that his company conducted extensive due diligence on Theranos, and the company’s claims of cooperation with the military and ability to conduct a full range of blood tests deep impression.

The prosecutor emphasized during the trial that Theranos had never had a meaningful transaction with the military and its proprietary equipment could not perform all the tests that Holmes touted to investors.

But the jury also found Holmes not guilty on four counts of conspiracy to defraud Theranos patients. They are also deadlocked on three counts of wire fraud against investors, including Houston-based fund manager Alan Eisenman, who has testified against the company’s concealed communication.

Anne Kopf-Sill, a retired biotechnology executive who participated in the lawsuit, said she was surprised that the jury did not reach a consensus on all the allegations of fraudulent investors, “because the evidence is for everyone. similar”.

“I don’t think it has a broader meaning, because Theranos and Elizabeth Holmes are individual cases,” Kopf-Sill said, distinguishing between the founder’s decision to “lie about the present and past events” and the “future achievements.”

At the same time, since the indictment of Holmes, Silicon Valley has experienced a record boom, which has led venture capitalists to significantly accelerate the pace of investment. Although the future prospects are uncertain, it has greatly increased the valuation of some start-ups.

Lawyers who advise start-ups say that investors have even begun to skip background checks and other routine due diligence in order to win popular deals, and in some cases rely on the analysis of previous supporters.

Holmes is surrounded by former U.S. President Bill Clinton and Alibaba Executive Chairman Jack Ma

In 2015, Holmes attended the meeting accompanied by former US President Bill Clinton and Alibaba Executive Chairman Jack Ma © JP Yim/Getty Images

There may be more cases of fraud. In March of this year, federal prosecutors accused the founders of biotech startup Ubiome of conspiracy to commit securities and healthcare fraud, claiming that they “turn a blind eye to compliance and pursue a path that aims to maximize the company’s investment at all costs.” .

Lawyers for founders Zachary Apte and Jessica Richman did not immediately respond to requests for comment. Government lawyers claimed that the founder persuaded investors to donate more than US$76 million in two rounds of financing in 2016 and 2018, and he is currently avoiding prosecution in Germany.

Eric Goldman, a professor of law at Santa Clara University, said: “It is never possible to raise funds based on the claim that the product does not work.” “These types of fraudulent claims are not unique to Silicon Valley. Fraudsters all over the world are familiar with this method.”

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