Some Thoughts on the Elizabeth Holmes Verdict

Elizabeth Holmes was convicted on 4 counts of fraud related to her role as founder & CEO of Theranos. Was she treated differently than male entrepreneurs? It is certainly true that there hasn’t been a high profile criminal case against a male entrepreneur in quite a while, at least not one that I can recall (although I am old enough to remember Bernard Ebbers’s conviction in the Worldcom case and Jeffrey Skilling’s conviction in the Enron case). But beyond that observation, I believe that it’s hard to draw strong conclusions about fairness from this verdict.

Let me start by acknowledging that entrepreneurs tend to exaggerate. It takes a high degree of optimism (“irrational exuberance”?) to start a company and so entrepreneurs will err on the side of saying that they are further along than they actually are. For example, when a customer asks about a feature in software, an entrepreneur might say it is about to ship, even though coding hasn’t really started. I see this all the time and most investors are pretty adapt at looking through it. Generally this doesn’t rise to the level of criminality.

There are, however, lines that can eventually be crossed. For example if a company reports revenues that it doesn’t have (Worldcom and Enron) or keeps raising ever more money with product claims that are manufactured (Theranos). I remember one call with someone who asked if USV was interested in investing in Theranos (I forget the exact year). (Read more...)