“Bad Blood: Secrets and Lies in a Silicon Valley Startup” by John Carreyou

In the times that I have had to review and consider technology investments, I occurs to me that the difficulty is in distinguishing between nascent technology and scams. In one sense, world-disrupting technological investment is a form of delusion that a group of people armed with sufficient capital can radically change an existing industry or fix a wicked problem. This delusion, when it does not result in success, feels like a scam to the investors. In the other sense, we as a society, have addressed most of the ‘easy’ problems and if only wicked problems remain, financing people to try outlandish things might be the only way forward. Its a strange dichotomy that all startups might be scams (i.e. promising outlandish things or even lying to get resources) until they are definitely successful.

In Theranos’ case, they intended to develop blood testing equipment aiming to change how the health system was structured in addition to how we, as a society, test ourselves for a range of health indicators. Its hard not to think about the progression through Theranos’ equipment to Star Trek’s fabled tricorder. It was, in its early days, a form of option in a radically altered health system.

However the story of Theranos, the blood testing startup once valued at around $9bill and described in Bad Blood by John Carreyou, is positioned as a tale of greed, arrogance, manipulation and intimidation. This positioning is borne out by the large amount of evidence that the founder as well as her executives and board acted in seemingly unethical, and potentially illegal, ways particularly in the last years of its operation.

This narrative of evil startups helps the lazy part of my thinking because I struggle to be optimistic about technological investments. Of particular difficulty is that there is often a binary positioning that you are either with us or against us (disrupter or incumbent) with startups. I don’t operate well under weak ambiguity so I generally become anti-disrupter and believe that most startups are scams. So to counter this, I find it easier to think about startups as real options. Options provide an ability but not the obligation for a future action. Investing in a startup is a form of options trading that provides the ability but not the obligation to profit from future change. Putting money into Theranos and then trying to protect/grow this business is a rational act for those who see the option value of Theranos given its potential for change in the vast healthcare system.

This doesn’t excuse the bad behavior but what we are left from Theranos is the uneasy feeling that, although the company ended up going bankrupt and is now at the centre of criminal and civil proceedings, the incentive system and even mental models of options trading for startups make it so that reckless behavior is rational up until there was little doubt that the business most closely resembles a scam.

If you also feel uneasy about this as I do, I would recommend ‘Doing Capitalism in the Innovation Economy‘ by William Janeway.

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