The most surprising thing about this whole saga is the way two VCs openly spoke out against Theranos. Bill Maris from GVentures and Moritz from Sequoia. I can't remember the last time I saw a VC trash someone else's investment in public. So why now?
I'll speculate that there's something so distasteful about Theranos --the wild mismatch between valuation, amount raised, and deliverables-- that these two investors felt that it threatened the ecosystem itself. Like they needed to distance Sand Hill Rd from this stinker before it taints the other (still unproven) unicorns.
Or maybe it was something else, dunno. Anyone else notice it?
I suspect this is going to turn out to be a huge spectacle. One of the downsides of so much VC cash available is that it's also a lot easier to build up a very expansive sham company which doesn't have much at its core.
The VC game in Silicon Valley isn't about investment, it's about playing the lotto. You dump money into as many companies that have even a small degree of promise, you blow them up to the point where you can find out whether or not they have market traction, and then you collect your winnings from the tiny fraction that hit it big. Not only is it vastly disadvantageous to not have your fingers in as many pies as possible but the VCs with the most money are precisely the ones who have been playing this game already and hit it big with google, facebook, instagram, etc.
Investing in 9 sham companies that fold and 1 unicorn that pays out at 10:1 or 100:1 is more lucrative than investing in 10 companies with modest, but reliable RoI's. Peter Thiel's Facebook investment paid off at 2000:1, Accel's facebook investment paid off at 800:1, Andy Bechtolsheim's google investment paid off at 17000:1, Andreessen Horowitz made 300:1 off of instagram. If you've got a good enough pitch you can get as much money as you want.
This makes sense for small investments in companies with valuation < $10 MM but how does one just throw paychecks at valuation ~10B with no significant introspection?
Theranos' Series C rounds came in at under $30 mil across three different investors. That's chump change in the VC world, if that's the price of a lotto ticket, so be it. If you're a VC who's won the lotto before you likely have over a billion in capital. Pumping $30 mil into 15 ventures doesn't even use up half of it, and if any one of those end up making true on a huge valuation while the others just wander into the desert and die, you'll have made back your lotto expenditures and more.
I'll speculate that there's something so distasteful about Theranos --the wild mismatch between valuation, amount raised, and deliverables-- that these two investors felt that it threatened the ecosystem itself. Like they needed to distance Sand Hill Rd from this stinker before it taints the other (still unproven) unicorns.
Or maybe it was something else, dunno. Anyone else notice it?