Former Theranos CEO Elizabeth Holmes and her husband, Billy Evans
Photo: David Odisho/Bloomberg via Getty Images

Silicon Valley’s thin line between hype and fraud

Protocol Pipeline

Hello and welcome to Pipeline. Today is the 20th anniversary of 9/11 and I hope you take some time today to remember and honor those who lost their lives and the survivors of that terrible day in our nation's history.

This week: the metaverse's first victim, the interview any founder interested in comms should read, and why Silicon Valley is on trial in the Elizabeth Holmes case.


  • "I don't believe in Black Lives Matter," Venture capitalist Veronica Wu allegedly wrote in an email after her firm declared Juneteenth a holiday last year, adding that "they are the true racists." Wu stepped down this week from the board of apparel giant VF Corp, which owns brands like North Face and Vans.
  • Stop trying to make [substitute word for unicorn] happen. Axios' Dan Primack suggested that instead of unicorns, the industry starts referring to companies valued at over $12 billion as "Dragons." Maybe the nickname will take, but I've heard a million variations, from soonicorns to decacorns and other animals like cockroaches, zebras, camels and gazelles. I'm not optimistic Dan's suggestion will stick.
  • "The self-driving–car industry has been way overpromising and way underdelivering, and I played my part in that in the beginning in terms of getting things hyped up," Anthony Levandowski told the Information in his first post-pardon interview. He's pivoted his self-driving truck startup to self-driving dump trucks in mines.
  • The ultimate pre-seed funding: venture firms sponsoring Little League uniforms. Is this the next generation of scouts?
  • The September 11th story that shouldn't have been shared. After witnessing 9/11, Jon Oringer tweeted that he saw "destruction and disruption now as an opportunity" and went on to become a billionaire by building Shutterstock. It went viral for its callous capitalism, and he ended up deleting the thread (saved here).

Biz on Biz

The thin line between hype and fraud

There's a thing I like to call "startup math" that's a hallmark of any young company's pitch. Building a better email? Clearly that's a trillion-dollar opportunity with a total addressable market of anyone who has sent email. Taking a sample size of fellow YC founders who haven't churned in six weeks means that the startup will absolutely hit 50% of the market in the next few months, right? Startups like to evangelize an outsized vision of how big their company will grow. And VCs won't take meetings with founders who don't take big swings.

Startup math and selling a vision is part of being a founder, but where is the line between pitching a version of the future you don't deliver on versus outright fraud? That's what's being debated in a courtroom in San Jose as the trial of Elizabeth Holmes kicks off. The verdict is going to come down to whether Holmes had a clear intent to deceive (and lie and cheat and steal, as the prosecution says), or if Holmes was a naive founder who thought her startup was going to make it but made too many mistakes to overcome (as her defense contends).

The prosecution's position: Government lawyers hammered home the idea that Holmes was "out of time and out of money" and would defraud investors and the public to steal their money and keep her company alive.

  • The government argued that Holmes deceived investors and the public time and time again. The government's allegations range from false claims about nonexistent military contracts to an instance where a pregnant woman changed her medication after an inaccurate test told her she was no longer pregnant.
  • "This is a case about fraud, about lying and cheating to get money. It's a crime on Main Street and it's a crime in Silicon Valley," said Assistant U.S. Attorney Robert Leach in the prosecution's opening statement.

The defense's position: Holmes was a true believer in her company, a stereotypical Silicon Valley CEO who dedicated her life to her company. In fact, she never sold a single share of her stock. Instead, as a college dropout, she had surrounded herself with other people who had more experience. Her lawyers pointed the finger at the lab directors, Walgreens, Safeway, Sunny Balwani and even the advertising agency Theranos used as the ones who were accountable instead.

  • "Elizabeth Holmes worked herself to the bone for 15 years trying to make lab testing cheaper and more accessible. She poured her heart and her soul into that effort. Now in the end, Theranos failed. And Ms. Holmes walked away with nothing," said defense attorney Lance Wade at the start of the defense's opening remarks. "But failure is not a crime. Trying your hardest and coming up short is not a crime. And by the time this trial is over you will see that the villain that the government just presented is actually a living, breathing human being who did her very best each and every day."
  • It was clear to those watching the opening statements that the defense won round one.

Silicon Valley is on trial, whether it likes it or not. Yes, Elizabeth Holmes did not take venture capital from traditional Sand Hill Road firms. The main exception is the check she got from Tim Draper, who will never live that deal down. But Theranos didn't go through YC or raise a Series A from a16z.

  • Those investors, though, used to be her ardent defenders. After the initial WSJ piece broke, plenty of VCs rallied around Holmes and penned essays in Theranos' defense. Marc Andreessen was well known for comparing her to Steve Jobs and blocking critics of Theranos on Twitter. (He's blocked a virtual army of tech journalists now, myself included.)
  • Even if she didn't take a check from Silicon Valley, Holmes took the lessons it teaches founders of having a bold vision, of the power of technology to bring about societal change, of losing money on R&D until you have a breakthrough and can commercialize it — and she sold that Silicon Valley vision to anyone who would listen. In the case of investors, it was the East Coast elite. In the case of the press, it was more the likes of Fortune and Forbes than TechCrunch and VentureBeat.

One big question I have is how the trial will affect founders in the future. We've already seen how Holmes' actions have made it harder for other female CEOs. I've also heard from comms people that there was a shift in how the tech press covered startups after Theranos and now there's a higher standard for proof of business success (particularly for health care startups). What the outcome will mean for startups and venture capital (if anything) is something I'm thinking a lot about, and I'm curious what's on your mind too as I embark on covering this trial, so shoot me a note: I'll be making the trek down to San Jose every so often, and will start including some more of my reporter's notebook tidbits into Pipeline to keep you up to date on the case.

On my mind:

  • One of the weirdest parts of the line-up for the trial was the three women who dressed as Elizabeth Holmes and took prime seats behind her in the trial. And no, Holmes did not dress in her trademark black with hair pulled back — the look her imitators adopted. She arrived at the courthouse in a navy jacket and white top, her hair down, and holding hands with her mother.
  • The judge was the only person in the courtroom who mispronounced "Theranos" the whole time. The Honorable Edward Davila kept saying "thuh-RAH-noce" instead of "THAIR-uh-noce" to mild giggles in the overflow room.
  • If you're going to send weird flirtatious text messages like "you are breeze in the desert to me," try to avoid having them entered as court exhibits.

Due Diligence

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Inside Track

  • "Know the saying 'Fortune favors the bold'? On the App Charts during Covid-19, fortune favored the OLD," wroteEric Feng, formerly of Kleiner Perkins and Facebook. Still, it's not all bad news for new consumer startups: Older apps benefited most, but some new apps broke out, reversing a long-running trend for consumers to install fewer apps.
  • Looking for a list of investors? Start with Hustle Fund partner Elizabeth Yin's list of lists of investors.
  • Every founder who wants press needs to read this interview with former Google, Twitter and Vine comms manager Carolyn Penner on how founders should approach comms in today's media landscape.
  • It's that time of year when VCs are raising to close funds by the end of the year. Sapphire Ventures' Beezer Clarkson has tips on what to keep in mind when you're reaching out to LPs who had previously passed on your fund.

Need to Know

  • Instacart tried to merge with DoorDash and Uber. Both deal talks fell apart, even after Instacart replaced its CEO and tried again.
  • Apple isn't a monopolist, but it will have to allow apps to link out to other places for purchases. Epic was never going to win everything in the case, but it won at least one part of the case.
  • Coinbase vs. the SEC. Brian Armstrong said the SEC is bullying his crypto company and threatening to sue over its Lend program.
  • The metaverse claims its first victim. Epic Games is shutting down video chat app Houseparty to focus on shared experiences that are in a "more rich form than 2D video."
  • Y Combinator is bigger than ever. Its latest batch had 377 companies, but with the growing size comes tensions on whether it's still an elite startup club or just a diploma factory.
  • Chinese investors have lost out on India's tech boom. As cash into Indian tech startups soars, Chinese backers are cashing out.
  • Release radar: Jeff Bezos and Yuri Milner are reportedly backers of a new anti-aging company called Altos Labs, which wants to rejuvenate cells to prolong life.
  • On Protocol: The Power Index — our new way of ranking the most powerful companies by tech industry subsector from databases to RPA to observability.
  • Also on Protocol: You don't want to miss "Eight of Larry Ellison's wildest, off-base comments on enterprise tech."
  • Your weekend reading: In remembrance of 9/11, I'd recommend the Atlantic's story "What Bobby McIlvaine left behind" about a family's search for meaning and the complicated path of grief and conspiracy theories they went through in the last 20 years. It's one that will stay with you, like the story of "The Falling Man".


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