by Scott Edward Walker on October 19th, 2021

Dear Founders: Below are a few thoughts regarding Theranos/Elizabeth Holmes (in no particular order).

1)  Founders should be heartened that there is a lot of “dumb” money out there.  Obviously, the goal is to raise funds from “A” investors who can add value; however, if that’s not working, try plan B – i.e., family offices, etc.  Indeed, Theranos raised funds from the Walton family ($150MM), Rupert Murdoch ($125MM), Betsy DeVos and her family ($100MM), the Cox family ($100MM), and Carlos Slim ($30MM), among others. 

2)  Putting aside the potential legal liability (and ethical issues), lying to investors makes little sense from a business perspective because not only do you risk alienating investors, but also you risk destroying your reputation (which is likely your most valuable, long-term asset).

3)  Certain founders (like Elizabeth Holmes and Adam Neumann) are able to utilize an extraordinary level of charisma to mask deception and/or to trump the relevant data.  Most founders, however, do not possess that level of charisma.

4)  There is a big difference between selling your vision to investors and intentionally deceiving them.  For example, advising potential investors that “there’s lots of interest in the round“ is quite different than “I received a term sheet” (when you did not).

5)  In my experience, there are relatively few super-smart investors; most successful investors are just good at playing the game.

6)  One of the most overlooked traits in successful founders is integrity.

7)  Most experienced investors/dealmakers understand the importance of conducting adequate due diligence.  Founders must understand this as well in connection with hiring, fundraising and partnering.  Always ask: “who is that guy on the other side of the table?”

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