Post-mortemLessonFounders and companiesFraud and forensicsDecision-making
A board that accepts a narrative has stopped doing diligence
The Inventor: Out for Blood in Silicon Valley · 2019
The idea
Theranos raised money and recruited a famous board without anyone outside the company having verified that the device worked. Investors and directors accepted the founder's account because it was compelling, consistent and told by someone they wanted to believe. The Inventor is useful for venture and growth interviews precisely because it is not a markets story: no model failed, no price moved. A group of experienced people substituted a narrative for evidence. The lesson for a diligence process is that a story, however coherent, is a claim, and a claim about a technology is tested by seeing the technology work.
A compelling story is a claim to test, and the test for a technology is watching it work.
When it works
Venture and growth diligence, and any investment where the case rests on a founder's account of something that cannot yet be seen.
When it may fail
Early-stage investing necessarily runs on belief about things that do not yet exist. The point is not to refuse the story but to know which parts of it have been checked.
How to use it
Write down the three claims the thesis depends on and, for each, what you have seen with your own eyes or heard from someone with no stake. A claim with nothing in that column is the diligence still to do.
Where it came from
Documentary The Inventor: Out for Blood in Silicon Valley · 2019
What the source says. A diligence failure rather than a markets one: what happens when a board accepts a founder narrative in place of evidence.
Connected ideas
Supports
Secrecy presented as protecting the technology is the warning signProtecting a secret and refusing to demonstrate a result are different things; a company that cannot tell them apart may have no result.
Says something similar
A short seller does fieldwork because the filings are the thing in doubtWhen the filings are what is in doubt, the evidence has to come from outside them.
Says something similar
Ask about what people already did, never about what they would doEvidence about demand comes from what people have already done and paid for, not from what they say they would do.
Concepts
Put it to work on L3VLUP
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