
How a Company Scammed Silicon Valley and How It Got Caught - raleighm
https://www.nytimes.com/2018/05/21/books/review/bad-blood-john-carreyrou.html
======
rdlecler1
I’d argue that it was largely dumb money that was scammed. Not Silicon Valley.
Those so-called marquee investors named in the article were not even VCs. In
fact you see a lot of this in enormous funding rounds. You didn’t see the
premier firms in there like Sequoia, Khosla, Founders Fund, a16z, Benchmark,
... DFJ was the only notable firm there and it looks like they came in early
with Draper seeding it when it was still idea-phase.

There are a million ways you could be screwed by an entrepreneur so due
diligence is really about finding the 3-5 questions that will make or break a
business. In the case of Theranos, the whole idea relied on an assumption that
you could massively reduce the amount of blood needed to do an analysis. So
that’s where your due diligence starts. But after 20 minutes of desk research
you’ll find that small blood samples intrinsically heterogenous for many
tests. VCs are trained and paid to ask the right questions. This was dumb
money plain and simple.

~~~
dsfyu404ed
>I’d argue that it was largely dumb money that was scammed. Not Silicon
Valley.

Bubbles have normal air in them. Economic bubbles include plenty of normal
economic activity that has not much to do with the fact that it's a bubble.

I would make the case that calling SV and "dumb VC money" one in the same is
perfectly appropriate in the context of an article written for a general
audience.

~~~
abritinthebay
> I would make the case that calling SV and "dumb VC money" one in the same is
> perfectly appropriate in the context of an article written for a general
> audience

Please do make that case, because its _much easier_ to make the case that it's
deliberately misleading to get clicks and make a headline than actually
informative or accurate.

The general audience is quite capable of understanding "dumb rich people" vs
"experienced venture capitalists".

~~~
mcguire
"How did they get scammed?"

"Because they're dumb rich people."

"How do you know they're dumb rich people?"

"Because they got scammed."

~~~
rdlecler1
No but thanks for putting words in my mouth. They were dumb because they
clearly didn’t even bother to do basic due diligence. The fact that there were
no other marquee VCs in on a $10b valuation should have raised some flags. It
did not. And they weren’t taking a $100k punt. These were investments of tens
of millions of dollars so you think that there would have been some basic
technical due diligence. This is what I call dumb money.

When a VC sees a huge valuation and the only other investors on the captable
beyond the Seed/A rounds are celebrities, pension funds, SWFs, family offices
and hedge funds they say: “we’re worried that this is the next theranos”

------
i_am_nomad
My company recently interviewed a Theranos veteran - this person was a
scientist working on a small part of the analytical pipeline. Apparently there
were many, many smart people working at Theranos (including the candidate) who
had no idea the company was a scam. This was in part due to intense secrecy
and very rigid information silos within the company.

There’s probably a lesson to be learned there, of course - one too many “need
to know basis” explanations and it’s time to start asking some hard questions.

~~~
SkyMarshal
By that metric Apple could be a scam.

~~~
drb91
The difference is that it is trivial to determine whether they’re selling
something that works, which would be the thing to hide in the event of fraud.

Or the fraud is purely financial, in which case it wouldn’t be obvious to an
engineer anyway because that level of siloing is normal.

------
melling
Interesting that the review is by Roger Lowenstein:

[https://en.m.wikipedia.org/wiki/Roger_Lowenstein](https://en.m.wikipedia.org/wiki/Roger_Lowenstein)

I just finished his book on Buffett, which I wish I’d read 20 years ago.

~~~
pavel_lishin
Why do you wish you'd read it 20 years ago?

~~~
garmaine
Probably so that he’d have enjoyed the gains of investing in Berkshire
Hathaway?

~~~
melling
I would still own Google, Amazon, and Apple today. I would have always kept
those stocks.

Find today’s equivalent then hold for 20 years.

~~~
chopin
But would these outweigh your losses to other (nowadays unknown) stock?

------
Nelkins
"There is a larger moral here: The people in the trenches know best."

It seems obvious, and yet it is a truth so many leaders fail to grasp. Keeping
a finger on the pulse of employee attitudes is a great way to nip issues in
the bud before they become systemic.

Although I guess that doesn't really help if the leader is the issue.

~~~
busterarm
The problem is that the grunt employees know where the bodies are buried.
There's usually a body or two buried somewhere -- if you kept the pulse of
grunt employees, you'd never invest in anything.

~~~
mmt
I'd expect that's only true for a particularly risk-averse investor.

If there's a metaphorical body buried in almost every company, then that's
just risk, and knowing what it is would actually be better for an investor
than not knowing.

Why would it be a dealbreaker?

~~~
busterarm
At Theranos at least, they could have been very literal bodies.

------
Mononokay
> Based on Carreyrou’s dogged reporting, not even Enron lied so freely.

The rest of the article was more or less just copying every other article
about the subject, but this line is just beautiful.

------
sonabinu
I think Murdoch did a great job by letting the editors decide what to publish.
There is something that company boards can learn from editors ;)

------
pkaye
Even that photo looks staged. All those technicians standing there looking at
machines like they are trying to monitor something.

~~~
danhorner
Those are all machining stations where CNC parts (likely for the instruments)
would be cut. The guy in the front has a boring day ahead of him, watching the
chip conveyor delivering waste material into the dumpster.

~~~
pkaye
So Theranos actually got CNC machines in-house? Most companies would outsource
it one of the dozens of CNC shops in the bay area (or elsewhere is large
enough volume.)

~~~
2YwaZHXV
They published a video of the manufacturing that showed those CNC machines,
injection molding, and robotic assembly.

It's a lot faster to iterate if you have in-house machining and molding; you
can get parts made or modified in <day vs weeks with an outside shop. You can
also work closer with the machinists to iron out challenges.

------
aje403
Slant article of a topic that has been slaughtered to death by people with
more industry knowledge than the author

~~~
lavrov
The article is a review of the book written by the journalist that first broke
the Theranos story (John Carreyrou).

~~~
aje403
Whoops! Slanted review

------
jrs95
VCs Hate Her: This CEO got hundreds of millions with this one weird trick!

------
bigdubs
> marquee investors including Robert Kraft, Betsy DeVos

Is this a joke? or was that intentional?

