✒ The verdicts — guilty on four counts of defrauding investors in Theranos — represented a landmark decision in Silicon Valley, where few start-up founders have faced such public legal reckonings.
The two sides of the debate:
On the one hand, “enthusiastic optimism” is the spirit of entrepreneurship, and “hype” is intrinsic to the Silicon Valley culture. As Tim Draper argued, “if this scrutiny happened to every entrepreneur as they tried to make this world a better place, we would have no automobile, no smartphone, no antibiotics, and no automation, and our world would be less for it.”
On the other hand, start-up founders should be careful to not cross the line from this enthusiastic optimism into “fraudulent misrepresentation”. Some would draw a line between Holmes’ fraud and normal practice in Silicon Valley, to argue that every industry has its share of terrible people and hype merchants, and to highlight how far outside traditional Silicon Valley Holmes operated.
After all, it is not that hard of a line to see and to stay on the right side of. It is difficult to be conservative while certain about a venture at the same time.
The irony is that ever since Holmes was indicted, Silicon Valley has seen a record boom, some start-up investors are even skipping background checks and other routine due diligence to win hot deals.
More fraud cases are likely to emerge down the road.