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Theranos reveal venture capitalism8/12/2023 A far greater expansion of overall US VC investment has followed in recent years, upping the stakes in an already risky business. In 2014, during a boom time for VC, Theranos raised $633 million, according to a PitchBook estimate, at a $9 billion-plus valuation. "There's an element that all startups have-they're selling a proposition beyond reality," said Chris Sugden, managing partner at Edison Partners. Theranos underscores a nuance of the VC world: You can paint an unrealistic picture of the future all you want, but you can't lie about the past or present. But in an up-and-to-the-right market, everyone seems brilliant until they're proven foolish. It all adds up to ripe conditions for exploitation. Deals are getting bigger and moving faster as heightened competition winnows away time for due diligence. This shift is even quantifiable: The PitchBook VC Dealmaking Indicator has shown a marked trend toward founder-friendly dynamics since mid-2020. The odds of getting it wrong have increased lately as investors lose bargaining power. In 2015, Hamilton praised Holmes and even booked an appointment (later canceled), to have her own blood tested by Theranos. "Everyone gets it wrong, sometimes," Arlan Hamilton, founder and managing partner of Backstage Capital, tweeted this week. As vice president, Joe Biden hailed Theranos as "the laboratory of the future." Forbes put a 30-year-old Holmes on its cover. Tenured Bay Area tech investor Tim Draper was an early investor. The company's cap table included powerful political figures like Henry Kissinger, media titan Rupert Murdoch, and Walgreens. The remarkable thing about Holmes, a Stanford dropout who dressed like Steve Jobs, was how widely her deceptions were accepted. This article appeared as part of The Weekend Pitch newsletter. There's arguably never been a better time to be a huckster in VC. This week, the tech world reflected on another record-shattering year-$329.8 billion in US venture capital investment was raised in 2021, nearly double the previous year. The jury's decision comes during heady times for venture capital, which is an open invitation for the Holmeses of the world. Likewise, the saga was both a condemnation and vindication of the tech media, which first inflated Theranos' hype before dismantling it through investigative journalism. Meanwhile, Silicon Valley's defenders argue Theranos was never part of its club. Tech's critics see the trial as a reproach of the "fake it 'til you make it" startup culture. She was acquitted on all four counts of defrauding patients. On charges of deceiving investors, Holmes was convicted on four counts, and jurors were deadlocked on another three. That refreshingly simple fact wraps up years of misrepresentations and lies that caused a $9 billion valuation and around $1 billion of invested capital to vanish.
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