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Will Silicon Valley finally change after the Elizabeth Holmes verdict?

January 4, 2022, 4:35 PM UTC

After a four-month-long trial, Elizabeth Holmes of the now-defunct blood testing startup Theranos has been found guilty of four counts of fraud. It’s a verdict that carries enormous weight in the venture capital industry: Startups and founders are rarely held to legal account for stepping out of line.

Holmes had pleaded not guilty in the case, but here’s where the jury ultimately landed:

  • Guilty of conspiracy to commit wire fraud against Theranos investors and guilty of three counts of wire fraud against Theranos investors
  • Not guilty of three counts of wire fraud against patients and a charge for conspiracy to commit wire fraud against patients
  • No verdict on three counts of wire fraud against Theranos investors

Theranos’ Chief Operating Officer, and Holmes’ ex-boyfriend, Ramesh Balwani—known as Sunny—will stand trial beginning in February. He has also pleaded not guilty.

What that means for Holmes

Holmes is facing up to 20 years in prison and a $3 million fine, though it’s unlikely she’ll be beyond bars for long, writes my colleague Nicole Goodkind. If Holmes chooses to appeal, she may not be going to prison for another 18 months, after which she would likely be sent to a low-security prison. Her celebrity status could significantly influence her experience there.

Has anything changed?

It’s hard to understate the impact of the Theranos indictment and trial. This has been an extraordinarily high-profile case: There were 275 funds, trusts, individuals, employees, and others that owned shares in Theranos, and the startup had garnered nearly $1 billion in funding. That cash poured in from the likes of venture capitalists Tim Draper, Donald Lucas, and Dixon Doll as well as investors Betsy DeVos, Rupert Murdoch, and the Walton family. It had a star-studded board, including former Secretary of Defense Bill Perry, former Secretary of State and National Security Adviser Henry Kissinger, retired U.S. Marine Corp Gen. James Mattis, and former Wells Fargo CEO and chairman Dick Kovacevich, among others. 

Some investors originally stood by Holmes even after Wall Street Journal reporter John Carreyrou’s investigation raised damning questions over test accuracy and revealed the company wasn’t using proprietary technology for most of its testing. Draper has publicly stood by Holmes much longer.

Here’s a dark line in a New York Times analysis this morning, written by Erin Griffith, a former Term Sheet Editor:

“No industry wants to be judged only by its worst actors. And many venture capitalists who heard Ms. Holmes’s impossibly lofty claims didn’t fall for them. But if anyone in Silicon Valley was suspicious of her proclamations, none spoke publicly about it until after things went south.”

While Holmes’ verdict may stand out as unusual and extreme, what lies at the heart of the case might not be: Charismatic founders who exaggerate, mislead, or outright lie about the data, alongside an embrace of a fake-it-till-you-make-it mentality that can have dire consequences, have long held their place in Silicon Valley.

You can point to a slew of former, and more recent examples, of founders stretching the truth, misleading investors, or worse: Hampton Creek, WeWork, and Ozy Media, to name a few.

One thing that really does set Theranos apart was its position in the healthcare industry. This wasn’t a beta software experiment—it was people’s medical results. It was diagnoses. 

Parting thoughts

Yesterday served as a stark reminder for Silicon Valley, but it’s also one for journalists: Our work can give a loud voice, and unwarranted authority. It’s not just investors who contributed to the rise of Theranos.

There can be a tough price when we don’t manage to unearth the questions we should be asking. It seems to often be the everyday person, and most vulnerable, who ultimately pay that price. 

Some words of wisdom from Mark DiSalvo, CEO of Semaphore, whose firm works to replace bad actor general partners who commit fraud:

‘’Diligence, diligence, diligence. Know that thieves come in all shapes and sizes and it is the character of people that is the core to every business judgment.’’

If you’re a venture capitalist and want to share your thoughts on the Theranos trial, send me a note.

Until tomorrow,

Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com

VENTURE DEALS

- Atmosphere, an Austin, Tex.-based streaming TV entertainment company, raised $80 million in Series C funding led by Sageview Capital and was joined by investors including Valor Equity Partners and S3 Ventures.

- Liquid Death, a Santa Monica, Calif.-based canned mountain water producer, raised $75 million in series C funding led by Science Ventures and was joined by investors including Live Nation, PowerPlant Partners, Access Capital, and Nomad Ventures

- Metaversal, a holding company that co-produces and invests in NFT projects and metaverse technology, raised $50 million in Series A funding co-led by CoinFund and Foxhaven Asset Management and was joined by investors including Collab+Currency, Dapper Labs, Digital Currency Group, Franklin Templeton, Galaxy Vision Hill, Narwhal Ventures, and others.

- Exotel, a Bengaluru, India-based virtual business phone management developer, raised $40 million in Series D funding led by Steadview Capital.

- Volumental, a Stockholm-based 3D scanning and data tool company that helps customers virtually fit shoes, raised $13 million in funding led by CNI and joined by investors including Backstage Invest and Abanico Invest.

- Amberstone Biosciences, a Laguna Hills, Calif.-based conditionally active immunotherapeutics company, raised $12 million in Series A funding led by Viva BioInnovator, Co-win Ventures, and Sinovation Ventures and was joined by investors including ChangRong Capital and Lifespan Investments.

- Ray Therapeutics, a San Diego, Calif.-based optogenetic gene therapies developer for patients with blinding diseases, raised $6 million in seed funding led by 4BIO Capital.

- Groyyo, a Mumbai, India-based B2B manufacturing and automation startup, raised $4.6 million in seed funding led by Alpha Wave Incubation.

- Foxglove, a San Francisco-based open-source robotics development platform, raised $3.7M in seed funding led by Amplify Partners and was joined by Boost VC, Pathbreaker Ventures, Kyle Vogt, Pieter Abbeel, and Fred Ehrsam.

- Labrador Systems, a Calabasas, Calif.-based assistive robots company, raised $3.1 million in seed funding co-led by Amazon’s Alexa Fund and iRobot Ventures and was joined by investors including SOSV and Grep VC.

PRIVATE EQUITY

- B2LiNK, backed by SKS Private Equity, agreed to acquire Picky, a mobile-first community for discovering skincare and beauty brands and products. Financial terms were not disclosed.

- Dessert Holdings, backed by Bain Capital, acquired Steven Charles, an Aurora, Colo.-based gourmet desserts supplying foodservice and retailer. Financial terms were not disclosed.

- Diversis Capital Management acquired a majority stake in SalesRabbit, a Lehi, Utah-based field sales enablement service. Financial terms were not disclosed.

- Fenix Parts, a Stellex Capital Management portfolio company, acquired All Foreign Used Auto Parts, a Columbus, Ohio-based full-service automotive recycling facility.

- Gryphon Investors acquired Repipe Specialists, a Burbank, Calif.-based lead generation, training and billings provider for repiping services plumbing companies. Financial terms were not disclosed.

- Littlejohn & Co. acquired Magnate Worldwide, a Portland, Or.-based supply chain management company. Financial terms were not disclosed.

- Vision Innovation Partners, backed by Centre Partners, acquired Advanced Eye Care, a Bel Air, Md.-based eye care practice and med spa. Financial terms were not disclosed.

EXITS

- Flutter Entertainment acquired Sisal, a Milan, Italy-based online gaming operator, from CVC Capital Partners for 1.62 billion pounds ($2.16 billion).

- Blackbaud acquired EVERFI for approximately $750 million in cash and stock. As part of the deal, TPG Rise exited its majority stake in the company.

- Apollo agreed to acquire Miller Homes, an Edinburgh, U.K.-based high-quality family homebuilder in regional markets, from Bridgepoint Group. Financial terms were not disclosed.

- Arcline Investment Management agreed to acquire CoreDux, an ultra-high purity flexible gas and fluid conveyance components and systems manufacturer, from Silverfleet Capital. Financial terms were not disclosed.

- BARBRI Global, a Francisco Partners portfolio company, acquired West Academic, a St. Paul, Minn.-based education material company for law students, from Levine Leichtman Capital Partners. Financial terms were not disclosed.

- Trilantic North America acquired Addison Group, a Chicago-based talent solutions and consulting company, from Odyssey Investment Partners. Financial terms were not disclosed. 

OTHER

- Honeywell agreed to acquire US Digital Designs, a Tempe, Ariz.-based communication and alerting system for fire stations, in an all-cash transaction. Financial terms were not disclosed.

IPOS 

- TPG Partners, a Fort Worth, Texas-based alternative asset manager and private equity firm, and its shareholders plan to raise up to $1.1 billion in an offering of 33.9 million shares (19.7% sold by insiders) priced between $28 and $31 per share. The company posted $2.1 billion in revenue in 2020 and reported net income of $1.4 billion.

- Justworks, a New York-based benefits, payroll, and HR software company, plans to raise up to $224 million in an offering of 7 million shares priced between $29 and $32 per share. The company reported $982.7 million in revenue in the year ending in May, and reported net income of $10.9 million. Thrive Capital, Bain Capital, Redpoint, and Index Ventures back the firm.

- Specialty Building Products, a Duluth, Ga.-based specialty building products distributor, filed for an IPO. The company posted $1.8 billion in net sales in the nine months ending in early Oct. 2021 and reported $91.1 million in net income.  

- Credo Technology Group Holding, a San Jose, Calif.-based connectivity solutions provider, filed for an IPO. The company posted total revenue of $58.7 million in the year ending in April 2021 and reported a net loss of $27.5 million. Celesta Capital backs the firm.

- Opti-Harvest, a Los Angeles-based agriculture technology and precision farming company, filed for an IPO. The company posted $40,000 in net sales in the nine months ending in Sep. 2021 and reported a $7 million net loss.

- Nexalin Technology, a Houston, Tex.-based neurostimulation product developer, filed for an IPO. The company posted $120,000 in revenue in the nine months ending in Sept. 2021 and reported a net loss of $5.5 million.

SPAC

- Novo Tellus Capital Partners, a Singapore-based blank check company, was granted approval to list on the local exchange, per Bloomberg. It’s the first SPAC to be given permission to do so.

F+Fs

- Adams Street Partners, a Chicago-based private markets investment firm, raised $832 million for a new fund.

- Cottonwood Technology Fund, a Santa Fe, N.M. and Netherlands-based venture capital firm, raised $75 million for its third fund.

PEOPLE

- Next Frontier Capital, a Bozeman, Mont.-based venture capital firm, promoted Kirsten Suddath to general partner.

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