Faking it is over. That’s the feeling in Silicon Valley, along with some schadenfreude and a pinch of paranoia. The end of faking it in Silicon Valley:
Elizabeth Holmes, the founder of Theranos, arrives at the federal courthouse in San Jose, Calif., for a sentencing hearing on Nov. 18, 2022.
Taken together, the chorus of charges, convictions and sentences have created a feeling that the startup world’s fast and loose fakery actually has consequences. Despite this generation’s many high-profile scandals and downfalls , few startup founders, aside from Holmes, ever faced criminal charges for pushing the boundaries of business puffery as they disrupted us into the future.
The Justice Department has also been urging prosecutors to “be bold” in its pursuit of more business frauds, including at private startups. Thus, charges for founders of Frank, Ozy Media, Slync and HeadSpin and expectations of more to come. But as more startup frauds are revealed, these titans of industry are playing a different role in lawsuits, bankruptcy filings and court testimonies: the victim that got duped.
Startups have many of the conditions most associated with fraud, Dyck said. They tend to employ novel business models, their founders often have significant control and their backers do not always enforce strict oversight. It is a situation that’s ripe for bending the rules when a downturn hits. “It’s not surprising we’re seeing a lot of frauds being committed in the last 18 months are coming to light right now,” he said.
Outcome Health, which sold drug ads on screens in doctors’ offices, raised $488 million from investors including Goldman Sachs, the Google-affiliated fund CapitalG and the family of Gov. J.B. Pritzker of Illinois while making public claims of breakneck growth and profitability. In reality, the company had missed its revenue targets, was struggling to manage its debt load and was overbilling its customers.
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