January 27, 2022

What Elizabeth Holmes and Theranos Reveal About Venture Capitalism

You can roam Silicon Valley and collect countless versions of this story.

But if you probe a little further, the real mechanics of venture capital emerge. In the case of Sequoia’s Stripe investment, the key was an early-warning system that flagged Mr. Collison as a hot prospect when he was only 21. Sequoia built this system carefully. It doled out capital to young technologists and invited them to make “angel” investments in promising members of their cohort, thus getting new prospects onto its radar. One year before his meeting with Mr. Moritz, Mr. Collison had raised $30,000 from two Sequoia-linked angels. This, much more than his cool bike, was the key to the Stripe-Sequoia partnership.

Spend time with other sophisticated V.C. shops, and their deliberate methods become clear. Accel, the partnership best known for backing Facebook, developed an approach known as “prepared mind.” You study a coming technology shift — for example, the migration of data from customer devices to the cloud. You figure out the implications: new hardware configurations, new software business models, new security vulnerabilities. Then, when you come across a start-up that is poised to surf the new wave profitably, you are primed to react quickly.

Human beings, as it happens, are wired to approach the world in the opposite fashion. We will gamble to avoid a loss, but are irrationally reluctant to reach for the upside. “Failures don’t matter,” the Kleiner Perkins leaders used to tell each other. “You can only lose one times your capital.”

Vinod Khosla, a former kingmaker at Kleiner Perkins who now runs his own venture capital outfit, once told me of his decision to bet on the meat-free burger company Impossible Foods, a start-up whose ambitions once seemed as over-the-top as that of Theranos. Patrick Brown, Impossible’s founder, had laid out a plan to eliminate the meat-industrial complex. It was an insanely messianic vision. If he fails, Mr. Khosla recalls thinking, “he’ll be mocked.”

Mr. Khosla put that worry aside, and made a bet on Impossible, reckoning that even if Mr. Brown had only a one in a hundred chance, it was a shot worth taking. Eleven years later, while the meat-industrial complex may not have been toppled, Impossible is worth $7 billion. Which is better, Mr. Khosla observed: to try and fail, or to fail to try?

Sebastian Mallaby is a senior fellow at the Council on Foreign Relations and the author of “The Power Law: Venture Capital and the Making of the New Future.”

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Article source: https://www.nytimes.com/2022/01/24/opinion/theranos-venture-capital.html

Tech Start-Ups Reach a New Peak of Froth

Astonishing data for 2021 tell the story. U.S. start-ups raised $330 billion, nearly double 2020’s record haul of $167 billion, according to PitchBook, which tracks private financing. More tech start-ups crossed the $1 billion valuation threshold than in the previous five years combined. The median amount of money raised for very young start-ups taking on their first major round of funding grew 30 percent, according to Crunchbase. And the value of start-up exits — a sale or public offering — spiked to $774 billion, nearly tripling the prior year’s returns, according to PitchBook.

The big-money headlines have carried into this year. Over a few days this month, three private start-ups hit eye-popping valuations: Miro, a digital whiteboard company, was valued at $17.75 billion; Checkout.com, a payments company, was valued at $40 billion; and OpenSea, a 90-person start-up that lets people buy and sell nonfungible tokens, known as NFTs, was valued at $13.3 billion.

Investors announced big hauls, too. Andreessen Horowitz, a venture capital firm, said it had raised $9 billion in new funds. Khosla Ventures and Kleiner Perkins, two other venture firms, each raised nearly $2 billion.

The good times have been so good that warnings of a pullback inevitably bubble up. Rising interest rates, expected later this year, and uncertainty over the Omicron variant of the coronavirus have deflated tech stock prices. Shares of start-ups that went public through special purpose acquisition vehicles last year have slumped. One of the first start-up initial public offerings expected this year was postponed by Justworks, a provider of human resources software, which cited market conditions. The price of Bitcoin has sunk nearly 40 percent since its peak in November.

But start-up investors said that had not yet affected funding for private companies. “I don’t know if I’ve ever seen a more competitive market,” said Ambar Bhattacharyya, an investor at Maverick Ventures.

Even if things slow down momentarily, investors said, the big picture looks the same. Past moments of outrageous deal making — from Facebook’s acquisitions of Instagram and WhatsApp to the soaring private market valuations of start-ups like Uber and WeWork — have prompted heated debates about a tech bubble for the last decade. Each time, Mr. Bahat said, he thought the frenzy would eventually return to normal.

Instead, he said, “every single time it’s become the new normal.”

Investors and founders have adopted a seize-the-day mentality, believing the pandemic created a once-in-a-lifetime opportunity to shake things up. Phil Libin, an entrepreneur and investor, said the pandemic had changed every aspect of society so much that start-ups were accomplishing five years of progress in one year.

Article source: https://www.nytimes.com/2022/01/19/technology/tech-startup-funding.html

What It Was Like on the Elizabeth Holmes Jury for 18 Weeks

“I knew she had started a company,” Ms. Stefanek said. “I knew that it had failed. I knew she liked to wear black turtlenecks. That was about it.”

Ms. Holmes’s trial began with opening statements on Sept. 8. That started a new routine for Ms. Stefanek: She often woke up at 5 a.m. to squeeze in some work and pack lunch for her 12-year-old daughter before driving from Mountain View, Calif., where she lives, to the San Jose courthouse.

During testimony, Ms. Stefanek said, she took 541 pages of notes. At times, she said, jurors struggled to stay awake. Other times, they were shocked to see star witnesses like James Mattis, the retired four-star Marine Corps general and former defense secretary, who had served on Theranos’s board.

“When he walked in the door, I kind of felt this rustle in the room and I couldn’t believe it,” Ms. Stefanek said. “I was actually more excited about him than I was about Elizabeth Holmes, just because I knew who he was before.”

Over time, the trial’s schedule became increasingly unpredictable. Judge Edward J. Davila of the Northern District of California, who presided over the case, tacked on extra court sessions and extended days in court, which initially were scheduled to end at 2 p.m., to 3 p.m. and then to 4 p.m.

That “made it hard for me to commit to things at work” and “made it more challenging to get some things done,” Ms. Stefanek said, adding that her manager at Apple was understanding.

After closing arguments concluded in December, the jury began deliberating a verdict. They had a method for discussions, Ms. Stefanek said, recapping each witness’s testimony on sheets of paper that were hung around the fifth-floor courtroom where they spent time when the trial was not in session. They also enlisted the courtroom deputy, Adriana Kratzmann, to make photocopies of one juror’s handmade worksheet that listed the criteria for a conviction on each count.

Article source: https://www.nytimes.com/2022/01/10/technology/elizabeth-holmes-trial-jurors.html

Sara Menker and Gro Intelligence Are Tackling Global Hunger

Even if you didn’t experience the famine personally you must have been deeply aware of it and affected by it.

A thousand percent. First of all, you have to remember we come from massive families. My mom has 24 siblings. And you grow up very much aware of it. I grew up in a country where fuel was rationed, where food, sugar, toilet paper was rationed no matter who you are. It didn’t matter if you lived in Addis or outside of Addis. When toilet paper shortages happened during Covid and everybody was running to stock up, I was like, “I don’t know why you’re stocking up. I have like 80 rolls of toilet paper.”

People were like, “Why do you have 80 rolls of toilet paper?” And I was like, “Is that not how one lives in life? In fear that things might run out?” But it is how we were raised, very much aware that you can’t take anything for granted, that anything can disappear. We had neighbors that disappeared.

How did you wind up coming to the United States for college?

I studied really, really hard. I wanted to get out. My parents sacrificed absolutely everything to send us to the best school in the country, and I knew every day that my obligation to them was to do well, because they gave up most of their income to make sure we went to that school.

Also, my dad was born in an Italian prison. My grandfather orchestrated the plot to kill General Graziani when Mussolini tried to colonize Ethiopia, and it ended up costing his life. They assassinated my grandfather when my grandmother was pregnant with my dad, and they took her as a prisoner of war to Italy, and she gave birth to my dad in an Italian prison. So I was raised in a pretty strong family, in that fighting for survival kind of way, and I just felt like I owed it to my family to do well in life.

When you joined Morgan Stanley did you figure you wanted to be in finance for the rest of your life, or were you saying, “I got to get out of here as fast as I can”?

I decided that the only job I would take in finance would be to work in commodities. It was the only section of finance that I felt was connected to the real world and all the things I cared about. One day I got up and I decided I was ready to trade. So I went to my boss and said, “Hey, you’re going to hire me to trade natural gas.” He was like, “I’m not hiring.” And I was like, “No, no, you’re going to hire me.” And he did, so I started trading gas, and then he got promoted, and I took over that business.

Article source: https://www.nytimes.com/2022/01/07/business/sara-menker-gro-intelligence.html

As Beijing Takes Control, Chinese Tech Companies Lose Jobs and Hope

The video platform that laid off Mr. Zhao, iQiyi, had an abysmal quarter, losing about $268 million. Its share prices fell by 85 percent from its high in 2021, reflecting investors’ concerns that the company, once aspiring to be China’s Netflix, will be short of shows that can attract more subscribers and advertisers.

“The biggest problem for our industry is severe shortage of content supply,” iQiyi’s chief executive, Gong Yu, told analysts in November. He blamed, in part, censors’ slow approval. IQiyi did not respond to requests for comment.

(Mr. Zhao confirmed the details in his social media account, but declined to comment further.)

Many film, TV and streaming projects have been canceled or killed over concerns of increasingly harsh and unpredictable censorship, said people in the industry.

Lilian Li, a writer in Beijing, said that Tencent and a studio working with iQiyi approached her last year about creating a streaming series based on one of her history novels. A few weeks later, both companies told her that they decided not to proceed because there was little hope of getting the censor’s approval for a history series. She said she received far fewer collaboration requests from content providers in 2021.

Chinese content creators always joke that they dance with shackles on, meaning they try to satisfy the censors while appealing to their audiences. By now it’s clear that no matter the creative concessions, there’s no guarantee that their projects can see the light of the day.

One of the most anticipated movies for the 2021 Christmas season had to change its name to “Fire on the Plain,” from “Moses on the Plain,” possibly because of its Christianity reference. Then four days before its release, the production team said it was postponed without giving an explanation.

Article source: https://www.nytimes.com/2022/01/05/business/china-tech-internet-crackdown-layoffs.html

Where to Find Italian Beef Outside Chicago

“I get a lot of: ‘I just moved to this city. Can you please open a Portillo’s here?,’” said Nick Scarpino, the chain’s vice president for marketing and off-premises dining.

Italian-beef fans are particular about the sandwich’s trifecta of critical components — moist, thinly sliced beef; a hearty roll; and the spicy relish known as giardiniera or sweet peppers that top it, or both. To keep the Italian-beef critics happy, many of these out-of-town restaurants order ingredients from Chicago-based companies associated with the sandwich, including Vienna Beef for the meat, Turano Baking Company for the bread and Marconi for the giardiniera.

“Some people try to make their own beef broth,” Mr. Boyle said. “They say, ‘I’m going to make this a special sandwich.’ But it’s a working man’s sandwich. It’s straightforward. We try to keep it the same traditional way that it was.”

Mazen Muna, the founder of the Dogg Haus, said that as long as you honor the classic Chicago model, you can make Italian beef anywhere. “I don’t think that it is difficult,” he said. “If a person is buying the correct products and not skimping on quality, geographic location doesn’t make a difference.”

Mr. Caudill, of Roy’s Chicago Dogs in California, believes that the only thing standing between the sandwich and national fame is customer comprehension beyond Cook County.

“It’s kind of funny,” he said. “I’m surprised more people are not doing it. Philly cheesesteak is popular everywhere, but Italian beef is kind of a learning curve.”

Article source: https://www.nytimes.com/2021/12/27/dining/italian-beef-restaurants.html

How Four Families Used the Child Tax Credit

Dec. 21, 2021

Since July, all but the most affluent families across the country have been receiving child tax credits as monthly cash payments — a first-of-its-kind policy jujitsu that converted a tax break, usually given out as a lump sum at the end of the financial year, into an additional income that expanded America’s safety net.

The program represented the first significant shift of American government support for families in decades. Since the 1990s, the child tax credit was available only to parents who were actively working or looking for work, making the United States an outlier among other developed countries where subsidies for children are common.

President Biden’s $1.9 trillion American Rescue Plan, in addition to refashioning the tax credit into monthly checks, expanded the total amount parents and other caregivers received and stripped it of any work-related conditions, making more money available to more households.

The initiative, which was initially set to run for six months, has now wound down with the last of the checks sent out on Dec. 15.

Democrats had hoped to make the tax credits permanent as part of Mr. Biden’s Build Back Better plan. But this week, the administration’s vast domestic agenda was effectively blocked, at least for now, by the centrist Senator Joe Manchin III, Democrat of West Virginia, who voted for the child tax credit expansion when it was first introduced but did not support its extension.

“I cannot vote to continue with this piece of legislation,” Mr. Manchin said on “Fox News Sunday,” citing concerns that the Build Back Better plan would add to the national debt and rising inflation.

The argument echoed that of his Republican colleagues — Senator Lindsey Graham, the senior Senate Budget Committee Republican from South Carolina, described the administration’s plan as an “inflation bomb” — who were united in their opposition to the Build Back Better legislation.

Experts have noted that since the payments of up to $300 per child started landing in bank accounts, alongside other Covid-related relief, child poverty dropped to record lows.

In an October report by the Census Bureau, around half of the roughly 300,000 recipients surveyed reported using the money on food — an indication that the tax credit was also helping to bring down hunger and food insufficiency. Many recipients also reported spending the funds on child care and school supplies.

Interviews with four families revealed other day-to-day expenses they used the funds for — from doctor’s appointments to car repairs — and the joys of a little breathing room for households that may otherwise live paycheck to paycheck.

Article source: https://www.nytimes.com/2021/12/21/well/family/child-tax-credit-families.html

The New Get-Rich-Faster Job in Silicon Valley: Crypto Start-Ups

Google also started offering additional stock grants to employees in parts of the company that seemed ripe for poaching, these people said. Google declined to comment.

Unlike Meta, which has embraced crypto, Google has been reluctant to jump into the movement. But Google employees saw crypto’s opportunities firsthand when Surojit Chatterjee, a vice president, left the company last year to become the chief product officer of Coinbase, one of the largest cryptocurrency exchanges.

When Coinbase went public in April, Mr. Chatterjee’s stake in the company soared to more than $600 million in value. He had worked there for just 14 months.

Such vast amounts of crypto wealth have created a fear of missing out, or FOMO, among many techies — especially those whose friends bought Bitcoin several years ago and now are hugely wealthy.

“Back in 2017 or so, people were mostly in it for the investment opportunity,” said Evan Cheng, co-founder and chief executive of Mysten Labs, a start-up focused on building blockchain infrastructure projects. “Now it’s people actually wanting to build stuff.”

Mr. Cheng, 50, left Facebook in September after six years there, most recently working on Novi, its crypto effort. Of Mysten Labs’ roughly 20 employees, most of whom are scattered across San Francisco, London, New York and elsewhere, roughly 80 percent come from tech companies like Facebook, Google and Netflix.

Article source: https://www.nytimes.com/2021/12/20/technology/silicon-valley-cryptocurrency-start-ups.html

How a World War II Bomber Pilot Became ‘the King of Artificial Trees’

Hobbs had one thing of interest, a girl named Frankie Marie Smith. She was only 17 and a beauty. Back in high school, Si Spiegel would never have thought he had a chance with a girl like that. But now he was a dashing lieutenant who flew a B-17.

Within weeks, they were married in Lovington, N.M. “Her father insisted we get married in an Evangelical church, the Church of God,” Mr. Spiegel said. When they parted, Frankie Marie gave him a photo he would carry during missions. Then he left New Mexico and went to meet his crew, a motley collection of “leftovers.”

“We had five Catholics, two Jews,” he said. “Catholics weren’t treated too well, either. We had a Mormon, too.” Mr. Spiegel said the only WASP was a ball-turret gunner who had gotten into trouble with the law in Chicago. “And a judge said, ‘You have two choices,’” he recalled. “‘You can go to jail or join the Army.’”

Mr. Spiegel has outlived all of his crew members but still holds their stories. His bombardier and first real friend in the service, Danny Shapiro, was later shot down on another plane and held as a prisoner of war for a year. Dale Tyler was the Mormon tail gunner from Utah who came from a family of 13. “Harold Bennett was my top turret gunner, from Massachusetts. Killed in a training accident on another plane. His chute never opened.”

They were assigned to the U.S. Eighth Air Force, and their base of operations would be in an English town called Eye, near the coast about 100 miles northeast of London.

Mr. Spiegel’s first flight in formation, at the age of 20, was a short mission over Belgium when the Germans were retreating. “We were bombing them to prevent blowing up a bridge,” he said. It was what airmen would call a “milk run” — a mission with little danger. “I thought, oh, this is great!”

Over the next year, Mr. Spiegel would carry out 35 missions, all of them in daylight, which conferred a strategic advantage but often resulted in significant casualties.

Article source: https://www.nytimes.com/2021/12/17/nyregion/bomber-pilot-christmas-trees.html

Elizabeth Holmes Trial: Closing Arguments Are Set to Begin

That same year, Ms. Holmes was indicted on fraud charges. Her trial began on Sept. 8 after numerous delays.

Prosecutors called 29 witnesses, outlining six main areas of Ms. Holmes’s alleged deception, including lies about the abilities of Theranos’s technology, its work with the military and its business performance.

Former Theranos employees testified that the start-up’s technology regularly failed quality-control tests, returned inaccurate results and could perform only a dozen tests, rather than the hundreds that Ms. Holmes claimed. Doctors and patients spoke about how they had made medical decisions based on Theranos tests that turned out to be wrong.

Prosecutors also showed a set of Theranos validation reports that bore the logos of pharmaceutical companies that had neither prepared nor signed off on the conclusions therein. They showed letters to investors in which Ms. Holmes falsely claimed Theranos had military contracts and emails from employees that said the company hid device failures and removed abnormal blood test results.

In testimony, investors and pharmaceutical executives said that Ms. Holmes’s claims had led them to invest millions of dollars in Theranos or sign contracts with her company.

“The government spent a lot of time putting in evidence about not just one particular alleged misrepresentation, but several,” Mr. Melendres said. “If you line up three, four, five, a half-dozen misstatements, it gets harder for the jury to pull together on anything other than that there was an intentional scheme.”

The defense called only three witnesses and relied on Ms. Holmes to carry their case. Last month, she took the stand to paint herself as a well-meaning entrepreneur who was naïve and relied too much on those around her. She said she had been emotionally and physically abused by Ramesh Balwani, Theranos’s former chief operating officer and her former boyfriend.

Article source: https://www.nytimes.com/2021/12/16/technology/closing-arguments-trial-elizabeth-holmes.html