“These kids don’t overthink, they don’t get bogged down into the way things always used to be done, they don’t want review cometees, bureaucracy: they want to get things done now”. This is said by a Walgreens executive in The Dropout (2022), the Hulu series that fictionalizes the story of Elizabeth Holmes. And in that assessment, made with admiration and optimism, lies the key to the resounding downfalls of Sam Bankman-Fried and Elizabeth Holmes. Two young promises who wanted to “get things done now”.
Silicon Valley is the hotbed of startups, where everyone wants to “change the world” and, while they’re at it, become billionaires. Nick Goldberg, an executive coaching specialist, says that “the fluid nature of tech startups, coupled with the inexperience of young entrepreneurs, increases the risk of making bad decisions.” In Silicon Valley there are no rules or best practices, it’s the Wild West and, as long as the money keeps rolling in, no one asks questions.
Until two of the most celebrated billionaires of this paradigm lost their entire fortune and now face years in jail. Let the questions begin.
Elizabeth Holmes: the false revolutionary
Elizabeth Holmes is 19 years old and a sophomore at Stanford University when she famously -or should I say infamously?- decides to drop out to start her own company, Theranos. Still a teenager, she convinces her parents to invest her college fund into her dream: creating a device that can detect hundreds of diseases with just a drop of blood. So far it all sounds very noble and admirable, right? But things get ugly when Holmes fails to get her device to work properly and, in order to keep her investors, starts falsifying results and manipulating data.
Somehow, the young woman manages to get some of the most powerful men in America to invest millions of dollars in a product that never works. But Holmes didn’t just play with the fortunes of old white men: her product failures meant that millions of people received false or grossly inaccurate results about their health, such as a false positive for HIV or a false diagnosis of cancer.
Meanwhile, Holmes was gracing the covers of every magazine as the “youngest self-made billionaire,” fooling everyone for more than a decade. In 2015, a Wall Street Journal article by John Carreyrou exposed wrongdoing at Theranos labs and the company began to receive scrutiny from all media outlets. In 2018, the U.S. Securities and Exchange Commission (SEC) ruled that Holmes had committed massive fraud and the company was shut down for good.
After a lengthy court case, in November of this year the judge in her case sentenced her to 11 years in prison, a sentence well below the maximum 20 years she could face. Holmes’ lawyers asked for a more lenient treatment of their client on account of her being “a well-meaning businesswoman”, now a mother with a second child on the way.
In that defense lies one of the keys to how this young woman with no college degree or experience managed to convince titans such as George Schultz, Rupert Murdoch or Henry Kissinger to invest in a supposed technological innovation without ever seeing reliable results. Holmes’ entire success was based on the construction of her character, on selling herself as “the new Steve Jobs”. A carefully orchestrated fiction: from her all-black attire to her artificially deep voice that made her sound like a pre-teen boy trying to get into a movie theater.
On the other hand, Holmes’ fame came hand in hand with the explosion of mainstream feminism: for the billionaire dinosaurs who invested in Theranos, supporting Holmes was a way to feel progressive without having to actually challenge the status quo. In fact, Holmes actively promoted this image of herself as a feminist icon, an “iron woman” capable of breaking the glass ceiling. However, the only thing Holmes achieved for women entrepreneurs is to delegitimize them. In the wake of the scandal, many find it impossible to get funding for their projects. Silicon Valley remains a hostile place for women.
Sam Bankfield-Fried: gambling on thin air
This crypto golden boy was literally born on the Stanford campus, the cradle of outsized ambition. In 2017, at the age of 25, he founded Alameda Research, a quantitative trading firm, and soon after, after attending a cryptocurrency conference, he created FTX, a cryptocurrency derivatives exchange. The company raised $400 million in its first round of funding and thus began a meteoric rise.
According to the Bloomberg Billionaires Index, Bankfield-Fried went on to amass a net worth of $25 billion. Until 2022, when FTX experienced a “solvency crisis”. The company went bankrupt overnight.
After the initial surprise, reports began to emerge from various sources saying that this was bound to happen. According to company employees, decisions were made by chat and no records were kept. Board meetings were never held, there was no accurate accounting, and there were no records of who worked at FTX.
In a Twitter thread, Bankfield-Fried himself admitted to making accounting mistakes. Even before the scandal, he had been surprisingly clear about what a fraud his company was, stating that his wealth was in “mostly illiquid” assets. In an interview where it was suggested that he was in the Ponzi business, Bankfield-Fried responded that it was a “quite reasonable” conclusion. (!)
The company was totally unregulated, without any financial checks and balances. One investor told Forbes that they only had access to FTX’s balance sheets as part of due diligence, which “seemed fine.”
Again, it seems that the need to believe in the exciting possibility of the new blinded everyone to the obvious: Bankfield-Fried was gambling on air.
The cost of skipping steps
“Fake it till you make it” should not be taken literally. If your device that is supposed to revolutionize the world of medicine doesn’t work yet, you better not put it on the market or accept millions of dollars from investors. If you have problems with accounting, don’t start an exchange.
New generations can revolutionize many things and change processes, but some are fundamental and cannot be bypassed. Science is slow, it requires trial and error. Dropping out of college to start a company does not automatically make you the new Steve Jobs. Designing a device that actually works might! And God knows it wouldn’t have hurt Elizabeth Holmes to stay in school and take subjects like “Biomedical Ethics”.
Financial institutions must be regulated to prevent collapses like the one that occurred at FTX. An arrogant attitude like that of Sam Bankfield-Fried, who said “Fuck the regulators. They make everything so much worse,” is not going to get us very far.
As Robert Leach, the federal prosecutor in the Holmes case, stated, we need to send “a message that curbs the hubris and hyperbole unleashed by the tech boom.” And discourage this mentality of immediate retribution and castles built on nothing. What is gained in the blink of an eye is lost just as fast.
- Edward Bernays: The art of manipulation - June 30, 2023
- 2023 Digital Marketing Trends - December 22, 2022
- Elizabeth Holmes, Sam Bankman-Fried and the enormous risk of the ‘new’ - December 13, 2022
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