Why Elizabeth Holmes is going to prison

And not so many others

I've met Elizabeth Holmes and even texted with her some after making friends in 2018, long after her fraud was discovered. I approached her as I would anyone accused of such things in media, with neutrality and curiosity, because I don’t base my opinions on people on biased reporting from 3rd parties. I like to make my own opinions. I found her to be what many people did, brilliant and intellectually captivating. I could easily see why so many people put their faith in her. I will always genuinely believe she set out with good intentions and got lost along the way.

Interestingly, despite being someone who is staunchly against fraud in the valley, I find myself always a bit perplexed by Holmes and how she was treated. What she did is not exactly uncommon in the valley. Sociopathic CEOs are basically the rule, not the exception, as is the fake it until you make it attitude. And I've seen countless companies fail to ever succeed in their endeavors while misleading investors that they were on the path to success. Adam Neumann at WeWork comes to mind, and he's a free man who walked away with over a billion dollars. Quite directly, the fraud he committed and the lives he damaged was significantly worse and many more, respectively, yet he got away and actually made a lot of money. Yet he gets to party while Holmes goes to jail?

It bothers me. Because Silicon Valley is about taking risks and building the impossible. And many times it turns out those things don't work. Is that fraud? No. That's just failure. So where is the line? And why is one person's failure another person's fraud? Now, I'm not saying Holmes didn't commit fraud, she most certainly did, I'm just saying it's a lot more common and somewhat accepted than you might think.

I've boiled it down to two things that I think made Holmes different than every other CEO who could easily go to jail for exactly the same crimes. The third thing is she obviously took it a little (ok, maybe a lot) further than everyone else. Not many companies make it to a $9 billion valuation on pure fraud.

The first one and the reason she is going to jail was that she took money from different people. Most startups raise money from Venture Capital firms. They're harder to hoodwink. Almost all of them passed on Theranos because they could smell the bulllshit a mile away. Holmes instead raised money from extremely wealthy, famous, connected, and powerful individuals. Now, when a VC gets hoodwinked, they most certainly do not want it known as they want their stellar reputations kept intact. So they quietly sweep it under the rug. Notice how few VCs sue failed startups or the founders of them. They realize it's bad business practice. This is why Softbank, after losing tens of billions of dollars on WeWork still let Adam Neuman go on as a free man, even giving him a severance package. Quite simply, they didn't want the bad press and publicity to tarnish their image. However, when you take money from powerful individuals, they have an ego. And when they feel tricked, they get vengeful. See, they feel their reputation is tarnished by the fraud, so they need to protect their name by suing you into the ground and throwing you in prison. Hence, Holmes was treated completely differently than many founders who took similar risks or committed similar fraud and failed.

The second one that she was so celebrated in the media. I remember those years. You couldn't look at a magazine rack or go a week reading newspapers without seeing Elizabeth's face or seeing her give a talk on the front page of YouTube. She was everywhere, constantly. Honestly, it was suffocating. As a fellow CEO at the time building another successful startup, it was actually quite annoying to just one person getting so much attention. I kept wishing I could afford her PR firm, especially when every article for years was essentially a copy and paste job. And, I apologize if this is a bit blunt, but every article was basically bragging about how a woman was wildly succeeding in a man's world. Almost like, "Nananana, we can do it too!" It was very directly in your face. I recall a lot of discussions with other CEOs about how massively annoying all the media coverage of her was, as if she was the second coming. And of course, we didn't buy all the hype. It was a relatively boring product. She seemed like a media manufactured robot. And her valuation skyrocketed on all of the fawning coverage. And of course we all know Holmes ate it up. Who wouldn't?

Holmes has a unique view of this media coverage today, according to a recent piece in the NYT:

What does she think would have happened if she hadn’t garnered so much early attention as the second coming of Silicon Valley? Ms. Holmes does not blink: “We would’ve seen through our vision.” In other words, she thinks if she’d spent more time quietly working on her inventions and less time on a stage promoting the company, she would have revolutionized health care by now.

Ironic considering I have no doubt in my mind it was her that orchestrated her entire image and the media coverage in the first place. Again, my friends frequently discussed it since many of us had opportunities for media coverage but we'd frequently turn them down because, um, we were busy running actual companies. We always looked at her like she was insane to dedicate so much of her time to building her self image, as almost all of the media coverage was of her and not her company, rather than trying to build a successful company and product. What a waste. So maybe she's right in that aspect. But that's on her and her sociopathic ego.

So, all of this is to say, when she was exposed as a fraud, she was a household name in the US and everyone was already annoyed at how much media coverage she got for doing relatively little, so when she was exposed as a fraud, boy were they happy to see her fall from grace, cheering the whole way down. I don't think it really has much to do with her being a woman in fact apart from the fact that her being a woman and not a man was rubbed very directly in so many people's faces for so long and was a huge part of her story. The media set her up to be the perfect fall from grace as a woman precisely because they focused so much on that. Blame the media, not her gender. To be frank, I don't recall any other founder in history getting nearly as much coverage as Holmes, especially as much over the top praise and adoration, specifically because she was a woman. If Travis Kalanik had been on the cover of two magazines a week for 3 years, we would have been just as annoyed at him and cheered when he was kicked out of Uber, but even he got a tiny fraction of the media coverage that Holmes did because, again, he was, um, busy building an actual company.

Let's just all agree startup founders shouldn't celebrate until they cross the finish line, regardless of their gender.

All of this is to say, Holmes is being punished because she embarrassed the wrong people and she did so in a spectacularly more visible way than most founders that already annoyed people before she was exposed as a fraud. She kind of forced the hand of the DOJ. Of course they were going to take action.

I know some non-public details of the WeWork situation and I'd say he absolutely belongs in jail as well. It was also spectacularly public, but his investors didn't want egg on their faces and he wasn't made into a messiah by the media to anywhere near the same level.

In the end, it was Holmes's own ego that brought her down, as has happened time and time again throughout history, with both men and women. Personally, I'm conflicted about whether she deserves her sentence considering people like Neumann got away scott free committing, in my mind, significantly worse fraud, but it'd simply be impossible with the sheer visibility of Holmes's fall from grace to not take action. So I suppose she's getting what she deserves. The takeaway for entrepreneurs I guess would be, as always:

1. Don't take money from the wrong people

2. Don't make yourself visible unless you're telling the truth

That's all for today.