Experiment and Scandal
We are living in a time of great experiments. They are not happening in the lab. They are happening in the real world. And they are being financed by real people. We are witnessing the de-institutionalization of experimentation. We are returning to a time when anyone can be an inventor and innovator. Some of this has happened because of the explosion of venture capital, both in the US and also around the world. Some of this has happened because entertainment and culture has embraced the world of experimentation and innovation (Shark Tank, Silicon Valley). Some of this has happened because the tools for innovation and experimentation have become mainstream and anyone can use them.
I am not thinking of one thing. I am thinking of many things. I am thinking of The DAO. I am thinking of Bitcoin and Ethereum. I am thinking of Oculus getting financed on Kickstarter. I am thinking of the launch of equity crowdfunding for everyone in the US last week. I am even thinking of things like Theranos.
All of these things are great experiments that will produce great benefit to society if they succeed. But by their nature experiments often fail. They need to fail. Or they would not be experiments.
And one of the challenges with the de-institutionalization of experimentation is that some of these failures will be spectacular. Combine that with the idea that these experiments are being funded by real people and the idea that the world of media/entertainment/culture has injected itself right in the middle of this brave new world and you have the recipe for scandal. And scandal will naturally result in efforts to put the genie back in the bottle (Sarbanes Oxley, Dodd Frank). And these regulatory efforts will naturally attempt to re-institutionalize experimentation.
I find myself wishing we could keep the dollars invested and hype down when we do these massively public experiments. But the dollar/hype cycle is a natural part of being human. Some dollars are invested. We get excited about this investment. We talk it up. More people find out about it and more dollars are invested. More of us get excited about this investment and we talk it up more. Rinse, repeat, rinse, repeat and you get unicorns and distributed autonomous funding mechanisms entrusted with hundreds of millions before anything has even been funded. Eventually some of that gets unwound and the tape is full of red.
Don’t get me wrong. I am all for distributed autonomous organizations and the innovation behind them and in front of them. There isn’t much out there that I am more excited about. But I am also very fearful that this could end badly. And even more fearful of what may be foisted on us by well meaning regulators when that happens.
So let’s celebrate this incredible phase of permissionless innovation we are in. And let’s all understand that we will have many failures. Some of them spectacular. Money will be lost. Possibly hundreds of millions or billions. Let’s expect that. Let’s build that into our mental models. So when that happens, we can suck it up, deal with it, and keep moving forward. Because an open permissionless world of innovation that everyone can participate in is utopia in so many ways. The good that will come of it will massively outweigh any bad. But bad there will be. I can assure you of that.
What if part of the decentralization of institution’s holds on experimenting is actually the bringing of real world experimentation into organisations like secondary schools, which often have sidestepped the kind of innovation that is happening in incubators, garages, and the public sphere? Isn’t that part of it, as well? A re-engineering or engineering of school to be a place that is less about school and more about real life acquisition of skills and testing theories as they become real things?
That would be amazing. And it is happening. Particularly in higher education where students often thing of their time there as a time to do a startup
Awesome that we agree. We are doing it in Hong Kong, in a secondary school, but rather than only for our students, we have begun the process of helping every community we can by turning our school into a kind of hub. This event is one of those spawned out of it, created by a 16 year old. It feeds into our “incubator” space that meets on weekends. It’s not really an incubator in the traditional sense, but more like a Doing Academy. We advocate for learning by doing things that make you interested in life: http://cistechconference.wi…
To have that sense of one’s intrinsic worth which constitutes self-respect is potentially to have everything [Joan Didion}https://www.youtube.com/wat…
It’s been our history here in the US. We figure out ways to move ahead, there are benefits and scams and then we do regs to control that phase. We then figure out ways to get around the regs but also the next wave. It’s in the DNA of the country to want to try new things.
our regs are too harsh now though. Government is really intruding on our individual liberty and micro managing our lives. This is a great article http://www.wsj.com/articles… and here is the money quote”The answer, in a word, is “liberty.” Liberated people, it turns out, are ingenious. Slaves, serfs, subordinated women, people frozen in a hierarchy of lords or bureaucrats are not. By certain accidents of European politics, having nothing to do with deep European virtue, more and more Europeans were liberated. From Luther’s reformation through the Dutch revolt against Spain after 1568 and England’s turmoil in the Civil War of the 1640s, down to the American and French revolutions, Europeans came to believe that common people should be liberated to have a go. You might call it: life, liberty and the pursuit of happiness.The Great Enrichment has restarted history. It will end poverty. For a good part of humankind, it already has. China and India, which have adopted some of economic liberalism, have exploded in growth. Brazil, Russia and South Africa, not to speak of the European Union—all of them fond of planning and protectionism and level playing fields—have stagnated.”
Do you see a bad side to startups not disclosing their funding rounds? Would “quiet” startups at be some disadvantage?
I would prefer startups not be required to disclose funding rounds and I would prefer that they don’t. It would put a governor on the “dollar/hype cycle” I wrote about
.Much of the discussion as to the revelation of funding lies at the feet of the now ancient discussion wherein VCs were reluctant to provide information back to LPs who were public fiduciaries, such as pension funds.This involves the public accountability of public funds (teacher’s pensions as an example) to the rightful owners of the funds — the beneficiaries, such as the teachers in my example.It would be fair to say that many VCs did not want their track records to be exposed — for reasons that anyone can speculate upon.The duty of full disclosure, arguably, starts with the source and nature of funds to be used.Many VCs decried the notion of transparency saying it would diminish their competitive advantages — notably not being to articulate how, if everyone were held to the same standard, that would happen.Of course with the passage of time, this has not materialized.When public funds are used — pension funds, as an example — the character of the dollar should not change. If a pension fund has to or feels compelled to reveal the health of their investments as a measure of the discharge of their fiduciary duty to their beneficiaries — then wherever those dollars go, the standard should be identical.Full, freakin’ disclosure.It is particularly galling when the protest comes from the VCs who do not share in the losses of their own decisions.Last point — transparency, full disclosure, sunlight is the best prescription for combating bad practices and corruption.The entire mutual fund industry operates on such a similar full disclosure basis including the fees to manage the funds themselves. Why not?JLMwww.themusingsofthebigredca…
UTIMCO has been publicly disclosing USV’s returns since they invested in USV in 2003. that’s fine with me. that is not what i was talking about. i am talking about the sensationalization of a fucking funding round that happens about every nanosecond these days
.If one starts at the beginning of the food chain — the teacher entrusting her hard earned pension to a pension fund manager who is really supposed to be acting in her interest — and follows it through to the ultimate investment, the standard should be the same — maximum disclosure.As to “fucking funding rounds” being sensationalized, that is a product of the industry itself.A VC has the ability to prevent that by inserting a confidentiality provision in a funding agreement. To the extent it’s not being done, there is certainly a place to start to make that change happen.I am ambivalent as to whether a company raising funds is served by publicly announcing its success, coming down on the side of announcing them to the extent it serves the company’s purposes.Companies are entitled to make mistakes. Many do.A company may fairly decide that the securing of funds is an imprimatur which validates their existence. Certainly an understandable sentiment.Difficult to find the harm — other than the perceived hype — in that. The second VCs say there deal is to be held confidential, it stops.JLMwww.themusingsofthebigredca…
“The good that will come of it will massively outweigh any bad.”I’m sure you will be proven correct.
I’m not sure innovation has been “permissionfull” (?) since… the end of the bigotry and social structure of the Middle Ages ? A later dollop of Capitalism initially reinforced the meritocracy side of the new economic order.I’m not sure current times, or even more precisely the US are particularly innovating (or rewarding) for those who aren’t VCs. Is there a measure of that somewhere ?
.This is a good starting point for a discussion as to what is going on “out there” but it is only a start. I take issue — not in the sense I disagree with them but in the sense they are not coldly honest enough — with some of the premises of the discussion.First, scandal — a disgraceful or discredited action which damages reputations and harms the public — is NEVER acceptable. It is always the result of a bit of evil overwhelming whatever tiny spark of good might have been there at the beginning.I believe the world is at an all time high in tolerating bad, even evil, outcomes. Witness the aplomb with which we view the horrific happenings in the Middle East. When did we lose our sensitivity to horror?Then, take a look at something like Theranos, which recently disavowed two years of testing. Theranos is a perfect example of people just not doing their due diligence. The black turtle-necked cute blonde sponsorship, the big name board, the mystery — seemingly, all puffery. A fraud.The company’s “product” has not only caused a scandal but has endangered millions of lives of those who relied upon their test results — the same test results the company has now disavowed — to make life and death medical decisions.That is not a “new” phenomenon. That is old fashioned criminal behavior.Allow me to lash that dead horse just a bit more — what were the funders and board members of that enterprise doing when their magic block box simply didn’t work? What was the quality of their due diligence? Where was their honor when their good name was borrowed by this company? Who were the idiots who valued this scam at $9B and what responsibility do they bear?An experiment, by its very nature, is a tentative test or trial of a product or procedure with an eye toward developing evidence which will support the implementation of some further action. One reasonably expects an honest experiment.If the world is to use this word — experiment — to discuss investments, then it needs to mark such experiments with lab rat simplicity. “This is not an investment, this is a freakin’ experiment and all the rats (including yours) may end up dead. Lab rats will be killed in this experiment.”The search for innovation should not provide a protection against fraud and accountability. I think I am a single man with an unguarded candle standing in a hurricane lecturing the wind.Consider this — the nation was flung into a huge recession by people — with mousse in their hair — who created toxic financial products. They then sold them on their 8th floors and shorted them on their 14th floors.AND NOBODY WENT TO JAIL.We cannot let the buzz words of innovation, experimentation to provide similar protection.This discussion is much larger than just venture capital. We developed a lot of companies in the US long before the invention of the Internet or the invention of the word “venture capital”.VCs do have an increasing fiduciary duty to underwrite and investigate because much of the money they invest continues to be pension funds of people who are entitled to not just competent, but sterling, stewardship of their life’s work.JLMwww.themusingsofthebigredca…
I wonder how the Donald Trump experiment will affect all of the world.
.For the Republican party, it is no longer an experiment. He is the nominee.I will spare you any further discussion as I am on my way to church and like to arrive with my mind clear and rested.JLMwww.themusingsofthebigredca…
Haha, well if they can’t have bread..Godspeed 🙂
Pranay, you have just attacked Pearl Harbour. 😉
.Rest easy, Brother Brass, there are special rules for Sundays.JLMwww.themusingsofthebigredca…
Please pray for me at the church brother Jeff, I need it.Have a great day friend.
LOL – scandal is a perjorative term depending on who you apply it to 🙂
I say you this, watch your chili bowl tonight, once Sunday truce is officially over.
I submit with the most humility – My point was less combative and more about acceptance of experiments that are publicly unacceptable until they are – only because politics is not regulated.Otherwise for sure the Republicans would not have let Donald Trump contest at all.Entry points are where the regulations sober the entrants. Not at exit points.
I read you perfectly, I have the same concerns plus what might be good for the US is not necessarily good for the rest of the World.
That would be an excellent name for his next reality show.
.Better than “President of the United States?”JLMwww.themusingsofthebigredca…
Of some, perhaps, but hopefully not of these United States.
.Word parsing noted. I think it may, in fact, be THESE States United DJT is seeking the Presidency of. Could be wrong but that’s what it looks like to me.JLMwww.themusingsofthebigredca…
To get a good idea, listen to his speeches, in each case the full speech. And, read what’s on his Web site.And, under no circumstances make any judgments about Trump from any other sources except maybe what appear to be credible people who describe their times with Trump.In particular, never take at all seriously anything about Trump from a newsie. E.g., the Megyn Kelly claim that Trump called women “fat pigs”, etc., is essentially 99 44/100% nonsense and the rest polluted water. Why? Do a Google search and find the original sources. I recently did that and saw not much to nothing wrong. What I saw were essentially some Trump standup comedy routines.
Hmm. Can *that* many people have the wrong impression? Or was he just grandstanding thru to the Nomination?
> Can *that* many people have the wrong impression?Yup. Trump has long, well before a year ago, had the media throw rotten eggs at him.For his presidential campaign, huge fractions of the media worked to distort what Trump said, distort to something silly.The motivation of the media? They are liberal and, thus, don’t like Trump? They want headlines to get eyeballs for ad revenue? They want to create a story theme so that they can have an easy time running similar little stories over and over with the credibility from there being so many stories from so many news outlets? Feel responsible for pounding on any candidate for POTUS? Got paid off via Trump opponents? Take your pick.E.g., the Trump comment on McCain? McCain had just insulted Trump, saying that in an Arizona rally Trump had “fired up the crazies”. Then Trump said that McCain is thought of as a war hero because he was captured: Indeed the interviewer Luntz had asserted that McCain was a war hero because he was captured. Trump was correct: Being captured is not sufficient to be a war hero. And in part Luntz was correct but apparently didn’t know it: McCain is a war hero because of his medals, and one of those was from some of what he did as a PoW. And, at the end, Trump said, “Maybe he is a war hero.”. The real exchange, with both video and transcript is readily available on-line.Well the media “disgusting” part is that the media consistently distorted and continues to do so to claim that Trump claimed that McCain is not a war hero. Wrong. Factually, literally wrong.The media went on this way to try to establish that Trump had no positions on the issues, was a xenophobe, was a racist, etc. Of course, the media didn’t give full quotes from primary sources with solid references.The media made a huge mess, and a lot of people believed the media distorted nonsense. That’s how.
I suspect also that Trump doesn’t admire McCain for staying with his men when he had a chance to leave but decided to stay. I can fully understand that but then again I wasn’t in his McCain’s shoes and I am sure there is a psychological aspect of that behavior. And I am sure that there are others that say “I would do the same thing” because it’s easy to say that as opposed to actually doing it they will never be in that position so they act all magnanimous. I can say from where I sit that I wouldn’t have done that I would have left and protected my own ass actually. I think. I will never be a war hero and think that the entire “hero” is partly (not with war but with other things) a creation of the media. Once again. They slap “hero” on people that should be called stupid because they will do something to risk their own lives not thinking of the lives of their family if the risk goes bad and they end up dead. All so they can be called hero or because they have been brainwashed into believe that is what someone who is good does.Don’t forget that McCain also thought Palin would be a good VP.
> I suspect also that Trump doesn’t admire McCain for staying with his men when he had a chance to leave but decided to stay.Maybe; maybe not; maybe Trump hasn’t even thought that long about McCain. I haven’t seen enough data to read Trump’s mind that specifically on that issue.Look at the dates of (A) Trump’s Arizona rally, (B) McCain’s remark that Trump, in his Arizona rally, had “fired up the crazies”, and (C) Trump’s interview in Iowa with Frank Luntz — all quite close together. So, my view is that Trump’s “I like people who weren’t captured” — call that being contemptuous of McCain — was, for everyone watching his campaign, an early case of his way of responding to criticism by “counter punching”.That little dust up with McCain was an early example of one of the main themes of Trump’s campaign: In the Arizona rally, Trump took one of his positions (in this case, stop illegal immigration from Mexico). Some of the GOPe (in this case McCain) didn’t like Trump’s position because it went against a solid position (in this case, a wink, wink consensus) of the GPOe (the GOPe wanted the immigrants to work but not vote, and the Dems wanted them to vote but not work). Then the GOPe pushed back against Trump (in this case, McCain’s”crazies”) and was contemptuous of Trump’s campaign. Similarly for deporting the illegals (e.g., Ike did that), negotiating new trade deals (some GOPe importers would have to look for new jobs), bringing back manufacturing jobs, companies, and industries, cutting back on the US policing the world (the people who liked Bush 41 and Bush 43 didn’t like that), etc.So, with that many Trump positions the GOPe didn’t like, Trump not in the GOPe as a taker but only as a donor, Trump’s general sense of anger at the old GOPe positions, and the fact that Trump could not be bought made it easy for the GOPe to have total, bitter contempt for Trump and, then, to belittle his campaign and chances. It was easy for the GOPe to form a gang where they all wanted the miscreant strung up — e.g., special issue of The National Review with 22 anti-Trump articles.I guess the GOPe forgot “A little revolution now and then is a good thing,” right?So, for months it was Trump making speeches that conflicted with several positions of the GOPe, the GOPe having contempt for Trump, Trump having found a very significantly large audience of potential VOTERS who liked his positions and, by the tens of thousands per rally, showed up hours in advance, then, soon started winning in the polls (at the first debate was already in the center of the stage and just stayed there for all the debates), winning significant pluralities in actual primary ELECTIONS, accumulating actual DELEGATES, winning elections by significant majorities (ballpark 60%), having over 1000 delegates pledged to Trump on the first ballot, then for the last 10 or so primary elections being the only one still running and, thus, essentially running out the rest of the table and being the nominee.Poor GOPe. Poor McCain.I can like some aspects of McCain: He drove a Corvette and was popular with the girls. Some chicks dig the uniform, e.g., the Navy dress whites? Right?And why didn’t he leave the Hanoi Hilton when North Viet Nam gave him a chance? Likely had a lot to do with his father’s position and the military history of his family. Courageous of him. And some of what he did as a POW earned him one of his medals. And IIRC there were other instances of McCain being courageous.And maybe one exchange went:Admiral, Sir, it’s about your son.Damn. What’d he do this time?Sir, The good news is that he didn’t actually sink the Forrestall …In the Senate? From all I could see, McCain was fully in line with the big stick first people in the GOPe and, there, never saw a potential war he didn’t want the US to fight. He was really big on the US throwing precious US blood and treasure at “absurd foreign adventures”. It was as if the US had saved the world in WWII and continued to save and run the world during the Cold War, and McCain wanted the US to keep doing that, noblesse oblige, right?And, Palin? She was down to earth, feisty, cute, and maybe to McCain sister-like and, against Obama, a source of diversity? And IIRC Palin didn’t actually say that she could see Russia from her house — that was just a line from a skit on Saturday Night Live.Gee, apparently the GOPe thought that for a democracy Trump did a dirty, filthy, rotten, sneaky, under handed, disrespectful (not welcome in the club house although Trump owns a lot of them) thing — Trump went to actual voters and got actual votes. Definitely sneaky, especially in a democracy!
It is all nonsense and a distraction. Women themselves, popular culture, advertising, and all of that is much more of a problem than some entertainer who made a comment at some point (or even if he does it now and even if he’s the President). The other thing that is funny is how they hold against him things he said on the Howard Stern show as proof of anything. That would be like holding against anyone who appears in a comedy setting something they say which often is written by a writer anyway. So in this case Trump was the author just like someone in the arts does art or any creative pursuit. I am surprised nobody asked him if he used the N word. Maybe all Presidential candidates should also take lie detector tests as well. Let’s not forget that Obama used cocaine which was illegal as well as pot which was illegal and got a pass on that very quickly.And the bruhaha over his tax rate is hilarious. As is the idea that effective tax rate and not gross dollars paid is what’s important. My effective tax rate is as low as I can legally make it. But I pay a boatload in taxes. Warren Buffett goading people on about what his fucking secretary pays in taxes vs. what he pays is absurd and only plays to moron ordinary people’s idea of “fairness”.Definition of “Schmuck”: Someone who pays rack rate on taxes and doesn’t take every legal angle with their “army of lawyers and accountants”.
This is a wondrous set of observations.And this sentence just kills me…”I am a single man with an unguarded candle standing in a hurricane lecturing the wind.”Could a metaphor conjure its imagery any more vividly?Not to mention the “mousse in the hair” thing, ha ha!Adding a little linguistic spice, aren’t we?Awesome, just plain awesome.
Yup. Can get some good stuff in Fred’s Place, and not all of it from the bartender!
You gave me a good dose of it yourself last time; and I appreciate you having made the effort.
Entrepreneurs have to realize there are two types of failure: One with honor, one without. An honest failure is honorable, one that is based on lies and deceit is not.At the end of every cycle there are lots of entrepreneurs that are willing to fail without honor. Let me give examples:When you promise a employee at a big corporation features and functionality you know you don’t have and you leave them high and dry and get them fired, that is without honor. I have watched this happen. My brother just had somebody try it on him at McDonalds (he heads up digital) they had a huge promises with powerpoint but when he asked to see it actually work they couldn’t back up their promises.The same for a consumer who has their privacy violated or data lost.The same for those iBanks that knew exactly what they were doing.We need to not accept those that fail without honor.
I agree; but founders have to play the raising money game in the media. However, if you are selling a technology that you know will have negative effect on people- then I think this is dishonourable. That is when it is necessary to cut losses…although that could be debated. Einstein wrote to Congress about the damaging effects of the atomic bomb- we still used it against Japan. We still tested its effects on unknowing US soliders at bikini beach whom nearly all ended up with cancer and never found any reprieve.The most we can do is to be aware of these injustices against humanity. Profit and political advantage shouldn’t trump the lives of innocent people.
.Amongst the spook world, the letter you reference is particularly well known. In fact, it was a letter drafted by Leo Szilard, in his native German and translated into English, and only then signed by Einstein. Einstein did NOT draft it.There is even more confusion as another gentleman, Alexander Sachs who had FDR’s ear, was instrumental in the letter actually crossing FDR’s desk.This letter is considered the genesis of FDR’s initiation of what became the Manhattan Program.The letter did not go to the US Congress but, rather, to FDR.The letter did not, in fact, warn of the damaging effects of atomic bombs, it suggested that the US needed to get in front of that technology in order to develop their own bombs.Einstein was famously libeled and defamed as having protested the use of atomic weapons when he, in fact, didn’t take any such stance.I enclose the letters themselves — the letter drafted by Szilard and signed by Einstein.You have tapped into an obscure bit of nothingness that I learned quite a few years ago and has come full circle.BTW, few folks know that it was Columbia University which really housed the first nuclear reactor in which Szilard, Fermi, and Pegram tickled the dragon’s tail for the first time.JLMwww.themusingsofthebigredca…
Yup the very first splitting of the uranium atom in the United States was at Columbia University (Pupin Hall / Pupin Lab ?)Edit: Pupin Hall, named after Michael (Mihajlo) Idvarsky Pupin, who came to the US as a 15 year old Serbian shepherd boy.http://user.astro.columbia….
.On a very dark night, you can still see the place glow.I was pointing to the irony of such a leftist joint being where the Bomb came from.We had a nuclear reactor at VMI in the 1960s. Some time after that, it was “discovered” and everyone went nuts. I do admit I never studied in the physics building.JLMwww.themusingsofthebigredca…
How fascinating indeed! Thanks for the information JLM
Sierra Choi:Testing it one thing. But promoting a technology that could effect humans that require accurate results could be life or death. Initially we view the push back as the traditional testers fighting to discredit a business that will upend their business. Then thought about the bashing of the woman because she is beautiful and successful. Then viewed the reports of Theranos not releasing the clinical results of tests, etc. and realized that they were not protecting anything that patents wouldn’t protect. That is when the reality hit. We have nothing invested in it so it is impartial how we viewed how this was playing out.
Very good point, and I agree with you. I think in the case of Theranos- it wasn’t that their test results were inaccurate, but that they had attempted to dodge FDA approval. This Washington Post article elucidates the problem very clearly here https://www.washingtonpost….”E-mail correspondence obtained by the Post reveals that an official evaluating Theranos’s signature blood-testing technology for the Department of Defense sounded the alarm in 2012 and launched a formal inquiry with the Food and Drug Administration about the company’s intent to distribute its tests without FDA clearance — a problem that has resurfaced this year, leading Theranos to temporarily stop offering almost all of its tests.””Theranos denies that it needed FDA approval in 2012, when the blood tests were simply under review for a military research project. But the tests are now commercially available, and in September, the FDA flagged a key component of Theranos’s blood collection technology as an unapproved medical device.”” a problem that has resurfaced this year, leading Theranos to temporarily stop offering almost all of its tests.”This is the same problem that Anne Wojcicki ran into with 23andMe. In my opinion, as a 3rd person observer, I think this is a political issue, not one with “false/misleading” technology.As I mentioned before the Wall St Journal’s coverage of Theranos was scientifically impossible- given how the technology works. Theranos test results showed a higher blood calcium concentration than traditional labs- this is inconsistent with blood dilution techniques. Blood dilution with heparin always shows a lower blood calcium level than the actual blood levels. Most likely the Theranos test results were the more accurate one since it is analysed in real time. However, blood levels can fluctuate at time during the day depending on what people consume, and may not stay consistent but a higher calcium level is inconsistent with blood dilution techniques which is what the Wall St Journal accused Theranos of.Let’s remember that Theranos is using nascent technology with previous proven antecedents. It’s not a problem that the one-drop test doesn’t work- it does. In fact, there are a lot of competitors utilising the one-drop blood assay analysis; however Theranos was the first to put it into a nanotainer for widespread consumer usage, a move that has royally pissed off the FDA and launched an all-out media and legal attack.This sort of move only hurts the U.S. population. 23andMe’s full genetic tests are only available in Canada and the EU, where it has EU approval, but because they also attempted to bypass FDA, we only have the limited ancestry testing in the U.S., and the FDA never approved the full genetic test. Doesn’t mean they don’t work- but the FDA has their own interests to protect. Nothing against the FDA- but it is pretty obvious they are going to make an example of Theranos.
We need to not accept those that fail without honor.Unfortunately “we” do now. And that is the problem. Old school business this was not the case. You fucked up and it went with you. Powerful motivator for many not to go down that road (some of course still did). Now everyone gets do overs. And in fact it’s practically the opposite. You know as well as I that Elizabeth of Theranos (as only one example) is in a better place even if she was pulling the wool over everyone (or if it was just an honest mistake) than if she had “never loved” (tried) in the first place. As long as no jail time the publicity from this is better than if she was an honest regular person in a black turtleneck trying to pitch an idea (or get a job). She will get the meeting before either of us will. Ditto for anyone who shoots for the moon and makes an honest big failure. Better off than if they had never tried they get some kind of “able to do the nasty” stamp of approval and branding. You see the buck doesn’t stop there at all.Anyway the “we” with all of this really is the media. The media hungry for a story (and in competition with other media) is what decides to give these people a 2nd chance. (Note that they don’t do that with murderers, rapists and most thieves with the exception perhaps of the mafia or some particularly noteworthy individuals). And of course people who are always on the hunt for a good train wreck.
It is scary that the media and the press has such power, which is actually good because they surface these type of things, but it has the dark side of judging people publicly and often unfairly.I am sorry for Elizabeth Holmes, I am in a state of denial right now.”Elizabeth of Theranos” sounds to me more like a Game of Thrones character.
The media does this:a) The storyb) More on the storyc) The follow up to clean up the mess from “a” when something goes wrong.d) Stories about “a” and how that happened in the first place (in other words at the very end you see “stories about stories and how everyone was fooled”.
Lawrence Brass:”I am in a state of denial right now”You said it aloud. Now except it. Go back to the fundamentals you use to evaluate any investment and see if it would fit your investment principals. Just amazed that the most seasoned business people are allowing beautiful (Samson and Delilah-Judges 16) to overrule their common sense. And then openly admit it. Everyone wants a Stanford Alumni to win with the storyline of being the ultimate disrupter.Our pocket had a interest in the tests verses the overpriced blood procedure that have been occurring for decades.Study by Washington Posthttps://www.washingtonpost….Theranos blood test menu: (What tests are still valid?)https://www.theranos.com/te…——–Theranos Wellness Center TM has partnered with Walgreens at select Arizona locations and we have used the service and now realize the results can’t be relied upon. Back to the traditional high price blood testers.
I still don’t buy that this was a machiavellian plan led by her, she started Theranos very young and I want to think that she had and may still have an honest dream to fulfil and that she is struggling for it. I like women that dare to enter in a world mainly ruled by men.As you may be, I am amazed by the fact that investors can invest huge amounts of money blindly and that any federal or state regulator did’t blew the whistle earlier.Now she has to face public scrutiny and a legal challenge of still unknown proportions. It seems that she is willing to fight for it. Will the board support her?She is now quite literally in a bloody mess.
Lawrence Brass:we were rooting for her until she went Special Ops with the scientific data and went on an all out war on anyone who would challenge or request test Theranos conducted. Now two years of stone walling and the tests that were relied upon to attack critics are thrown out. That just doesn’t fly in the real world. All the people at her disposal in the scientific world and she still is arrogant not to develop a stronger model for the tests is beyond malfeasance. I truly believe her concept can actually work but it would require years of actually R & D and the best Scientist in the Bio-medical field. The Military Generals on the board of Directors are not impressive. That does more harm to the credibility of the company. The are nothing but yes men. No actual board experience. This is like hiring Phil Jackson to be a on the job training General Manager/VP Of Basketball Operations. (Couldn’t resist-Jeanie Buss please hire Phil away from the Knicks. He is destroying the organization like Isiah Thomas did)
I have to interject here. Theranos disavowed 2 years of testing to avoid criminal prosecution of utilising a device that is not FDA approved.Theranos tech is solid- in fact, many other competitor companies reference their patents,If I had to take a blood test, I would readily take the Theranos one vs. the old tech laboratory blood test from WWII that we still use in our US hospitals today.The problem is the FDA is making an example out of Theranos, for attempting to avoid and bypass FDA approval and of course, it’s not going to be pretty. Look at what happened to 23andMe. Same thing.
No, this is without honor. It is not to be accepted. Lying so you can try and achieve your goals is not acceptable. Do it the right way.
If you come up with facts instead of Donald Trumpisms you might be more convincing. I don’t work for nor am I affiliated with Theranos. I am merely a passive observer in this train wreck between the FDA vs emerging Biotech startup.Bottom line: Theranos tech is rock solid. Ask the US military.
Ok, I really shouldn’t engage when you want to do an ad hominem attack, but I will.I have been building companies for 25 years. I have done many things right and probably more things wrong.Here is my rub. During each cycle and I’ve seen three, companies overhype their technology. It happens at the peak and kicks the rest of us in the ass during the trough. In the trough nobody believes anything because they’ve been burned at the peak.Is Theranos good within parameters?? Yes. Did they overhype?? Yes.Btw: I know a bit more than you think about this, I am good friends with the guy that came up with this technology more than 20 years ago and sold to Thermo Fischer: http://www.nanodrop.com/
That’s very interesting. I appreciate your comment, certainly there was no intention for an ad hominem attack. However, I prefer if you verify your subjective statements with fact.As far as nanodrop- the technology that uses one-drop nanotech, I believe has been around since the 1970s-early 1980s. I am really glad you referenced Thermo Fisher Scientific because so much of what we know about blood testing and blood type actually is derived from Germany in WWII. However, Theranos was the first to commercialise a nanotainer product to take blood tests.I don’t think it was hype since they were in stealth mode for nearly 10 years working with the US military. However, there are a lot of other startups that are hyped- but mainly in mobile and social media, not necessarily in biotech. But I see your point, perhaps the true innovators prefer to remain silent.
Let’s put aside the issue or fraud / incompetence. EH claims that the pain of the needle is the root clause of poor patient involvement in healthcare and / or that the democracizing of blood testing will save health care. The problem is neither is true. I’ve never once heard her talk about the biggest issue with any testing … False Positives. VCs have a lot to account for on this one.
EH claims that the pain of the needle is the root clause of poor patient involvementYeah I don’t get that “pain of the needle”. I am sure that is the case with some people but I think it is probably trumped by “fear of the outcome”.  Not sure you can separate the two.People go through all sorts of pain for pleasure. So it’s easy to believe people will avoid something as well for fear of results. And in fact that is the reason many people don’t visit doctors it’s fear of the results not fear of sitting or setting up an office visit. When my daughter was younger I got over that in the ER when she was throwing a fit by telling her “the more it hurts the bigger present you get!!! So now you want it to hurt right?”. She immediately sucked it in and took the needle and proclaimed “it hurt a lot”. So what I did was simply flip the reward system and change the behavior.
I suppose the publicity/marketing side has probably been related to getting the public to understand a complex technology. EH goes into detail regarding the issues and challenges of laboratory blood tests in her patents. Primarily the results can be unreliable as most laboratories dilute their samples and add heparin. Her nanovial overcomes a lot of the common challenges because the blood sample is analysed in real time. She has also spoken elsewhere that your blood sample can vary on an hourly basis based on what you consume, and that she could see differences in her own blood sample by the foods she ate that day. Her blood testing tech is very exact; hence the differences between her test results and traditional labs. The Wall St Journal made a big deal about the different test results- however if you read into Theranos patents, nowhere do they dilute blood samples. Certain problems can occur regarding calibration of 3rd party devices from Siemens, but I gather Theranos is attempting to avoid criminal prosecution for using non-FDA approved devices, which is why they would want to disavow all the test results from their Edison devices, although their blood test results are likely to be more accurate than traditional labs.
Not silent, not overhype. I don’t blame Elizabeth Holmes exclusively. You take tons of money there is a ton of pressure. She succumbed to that on her first rodeo. I don’t doubt for a second the fact she is a young attractive smart scientific woman it makes people more gleeful (I don’t know another word) on the way down, and that is sad.
Agree. But she is attractive in a subdued way, not a hot way. There is a difference. But yes the way she looks definitely played into what she was able to achieve. Maybe even was the reason in part that Draper took a chance on her or was the needed straw that broke the investing camel’s back. Of course investors also tend to fall for obsessive types (which she is). I think Fred was just pushing that the other day at the coin center conference “stick with it”. She displayed that and investors like that maniacal effort that flies in the face of reality. She talked a good game for sure and also managed to convince medical types as well as the old men on her board.
The biggest secret never discussed is that almost every female under 30 is attractive in some way. Ask anyone over 60 to show you their pictures of when they were 25 and you will see.
Well I have to say that to me it seems that girls are much more attractive then when I was growing up. Now there could be many reasons for this. One is that the ones that I see posting online would be more likely to do so if they are attractive. As far as the ones who are involved in startups, sure there is a bias (same with men) that more attractive people have more opportunities and that has always been the case.  As a kid and as a baby you get more attention when you are attractive as well. So that surely helps with what you are able to do later in life. Not that that’s insurmountable but no question it’s a bonus like having long fingers when playing piano or guitar (I have heard I don’t play those instruments).Back in the day a manager of mine hired a good looking “assistant” and would typically hire good looking people if he could. I actually preferred the opposite. I thought less attractive people would be more loyal since they would have a harder time getting a replacement job. As Andy said in Weeds “go for the defectives”.https://www.youtube.com/wat… I would rather have lunch with an attractive man rather than an unattractive one and I’m not gay or anything. It’s just who wouldn’t want a nice face on the other side of the table, all else equal?
LE, you are totally underestimating the power of a blue suit, orange powder and pseudo-wigs.
I think one of the problems is that she doesn’t like to give away specific details of her technology nor make it easier for people to understand. She is clearly someone who doesn’t enjoy public speaking and prefers to simply repeat things she has been coached to say by the Board of Directors. I don’t think she is under any more or less pressure than any other Founder. She kind of has the attitude- “the tech speaks for itself, why do I have to explain anything?” Just my opinion though!
Now that this thread is done, I’ll comment again. It is disheartening to see the number of sexist comments here. That does not mean however that she was right. I can see how it is easy to look at these and think she needs to be defended.But when you using competitors machines for 90% of your samples, and then have to correct your website I have a hard time believing you. http://www.wsj.com/articles…Yes working with scientists and engineers is hard. But usually by the time one gets ready to talk to the press about what you are saying is B.S. you really have written some checks that you can’t cash.
According to my knowledge of their tech based on their patents, they used their own nanotainer, which is the most important part of their technology but may have used 3rd party Siemens devices to relay the analysis to perhaps handle a high volume of blood assays. It doesn’t mean their nanotainer one-drop blood assay doesn’t work. Their Edison analysis device may have taken more time and perhaps could handle only one blood assay at a time. (This is my extrapolation) In addition, since the FDA flagged their Edison device as a non-FDA approved medical device in 2015, they would have a reason not to use it. However, the FDA did approve the nanotainer for one test only, but Theranos was attempting to sell all their range of tests via Walgreens and Safeway BEFORE FDA approval.
During each cycle and I’ve seen three, companies overhype their technology. It happens at the peak and kicks the rest of us in the ass during the trough.Also important to recognize is that many of these competitors use piles of money to “rope a dope”  (lawyers, Pr) with the regulators or the critics. Little guy (or littler guy) doesn’t have the resources to defend their position in that way. That is why the “littler guy” laughed at Uber at first. They ignored the monster that boatloads of money and good connected people (what Theranos was doing with their board apparently) can do that ordinary business people can’t. https://en.wikipedia.org/wi…
Theranos tech is rock solid. Ask the US military.Well since you criticized Phil Sugar for making statements then perhaps you should provide links to back up that “rock solid” statement.
.For some reason, your earlier comment does not have a “reply” line so I am really replying to what you said earlier.I want Theranos to be real. I also want the Easter Bunny to be real.The fact that they did not obtain FDA approval is the real problem. Where that leads is on them, no?In my thoughts, that occupies the same position as if the tech itself were fraudulent. Not suggesting it is or is not. The manner in which they have presented it to the public clearly is and the manner in which they have disavowed it is the proof.They have held forth their tech to be something it is not — approved by the FDA and therefore able to be relied upon with a level of trust that enables a medical professional to advise a patient on a life-death situation.It is a little disingenuous to suggest that they operate illegally — without FDA approval — but that they are otherwise just fine.This is at the core of all biomedical advances excepting administration. Why does anyone expect to get a pass on disrupting life v death because they are being, in their estimation, “disruptive.”Uber does much the same thing — they enter markets illegally and then try to negotiate a local regulatory agreement wherein they encapsulate favorable rules for their operations.Let me be clear — Uber breaks the law and then seeks to change the law to its benefit with no penalty for breaking the law.Austin by God Texas held a vote a couple of weeks ago — at Uber’s petition and with $10MM of lobbying/advertising — and was defeated in their desire to be able to conduct background investigations sans fingerprints.The City of ATX, by a vote of 55% to 45%, said “no bueno” and Uber took their ball and went home. They won no style points in the interim.Uber is, of course, not dealing with life v death while Theranos is.JLMwww.themusingsofthebigredca…
I agree that I find myself seeing the Theranos issue more seriously since it is people’s health but if you think about it driver background checks/car safety is quite serious as well and points to the risks of an Uber run amock
.You will get no disagreement from me. Of course, one also has to remember that there are a lot of CHLs in Texas.It is nuts to oppose driver background investigations and fingerprint based ones, in particular.JLMwww.themusingsofthebigredca…
.Love your blog. Well played.JLMwww.themusingsofthebigredca…
Thanks! Was inspired to blog in part by the community here.
.Don’t really get the “Donald Trumpisms” reference. Seems a bit off and a little intellectually sophomoric.I also cannot come up with much evidence the “Theranos tech is rock solid.”If so, why are they having such a hard time of things? Not just with the FDA but with others including former employees.I hold no brief against Theranos. I have a completely open mind on the issue of Theranos and want to fill the openings with facts.Serve us up some facts because what is out there is pointing to a train wreck, as you indicate.JLMwww.themusingsofthebigredca…
I always like to hear all of the facts but with Theranos and the black turtleneck one  I say where there is smoke there is fire and move on. Draper gave her her first legitimacy. I guess she was smart relative to his daughter so she got extra points (and she is). That’s a red flag right there.  Of course I wear pretty much the same thing everyday but. I vary the particular shirt but the dungarees are always the same. Like Jobs it’s for convenience and simplicity not to make a statement (which is what she was doing). And I’ve done this my entire life. I didn’t start because I heard about someone else doing it. From what I can tell before Jobs even did it. It just made sense. You know who else does the same annoying thing? Chris Sacca with that cowboy shirt that he wears as his trademark. Trying to hard looks contrived.
I was wrong about Chris Sacca. He doesn’t always wear “that annoying Cowboy shirt” but he is a tool no less:http://nypost.com/2016/05/2…“Do you know who I am?” Sacca thundered repeatedly, according to an eyewitness, a Broadway theater worker who requested anonymity. “He was getting really angry at the ticket scanner,” the tipster said, and speaking in “a really condescending way. “He said he was a ‘shark’ on ‘Shark Tank’ and warned it wouldn’t be good if they couldn’t get in.”…
they’re nice until they don’t need to be.
He wants fame since he already has fortune. Being tabloid fodder is a good way to go with that. Even the stupid shirt works to his advantage. And I know JLM likes pocket squares (I don’t) but that one he has looks like a parachute or an easter egg. I get that JLM likes these and that makes sense given his past. What doesn’t make sense is a guy like Sacca who wears cowboy shirts then going to the tailor to be fitted for a suit (it’s expensive look at the shine) and being told “you need a pocket square to finish you off” and actually following that directive. Yeah it’s jealousy on my part but I said it.
Allow me to lash that dead horse just a bit more — what were the funders and board members of that enterprise doing when their magic block box simply didn’t work? What was the quality of their due diligence?These are all high level over achiever type people that don’t work in the ditches and don’t even know enough to know what could happen. They don’t operate at the bit level like that. They aren’t aware even how a fraud like this could be done as such they wouldn’t know how to prevent it or even that it needed to be prevented. This is like running a casino but not ever working on the casino floor (or in a support role) you wouldn’t even know what to look for fraud wise.Here is an example of the unknown known. A few years ago I went with my wife to a friend’s house and they had vodka in the freezer. Now vodka shouldn’t freeze but this bottle did freeze solid. I had no clue why. I am not someone who drinks much, and I don’t have familiarity with alcoholics and what they do to cover up their tracks. When we left my wife told me “her husband has a drinking problem and he was probably diluting the alcohol with water and that’s why it froze”. It was like I learned something new that day that I never thought of. Later we would go to restaurants and when I would complain about the drinks the manager would tell me “oh I stood by and saw the bartender pour and you got a shot definitely”. I said “must have been diluted alcohol” (I learned also that bartenders steal liquor this way. Later the State actually nabbed restaurants for cheating customers on drinks.  After that there was no problem with the drinks. This was something similar: http://www.slate.com/blogs/…
.I wonder what is the greatest level of disagreement that one can describe in the English language? Whatever that is, my friend, allow me to deploy it with you.Big dogs, like these folk, employ people — little people — who can do the spade work. When I was doing hundreds of acquisitions, I had a 20+ page checklist with everything from a criminal background investigation to a credit report to a check of litigation.I personally did none of it but there were three independent sets of eyes on every individual line item. One from acquisitions. One from operations. One the CFO. They all had to sign the checklist. Only then did the Decision Memorandum (investment prospectus) get approved and sent to the Board. I made all of them sign it so if anything went wrong after the fact, nobody could say — “I never liked that deal in the first place.”Big dogs like that, unconstrained by resources, should conduct flawless due diligence. You should get a look at what a CIA dossier looks like when a 4-star general takes a four day trip to Saudi Arabia. I don’t know that much stuff about myself.No, these guys should be held to a higher standard because they ARE experienced and have unlimited resources. That is the equity of their brand.JLMwww.themusingsofthebigredca…
Well thanks for the kind disagreement. However my point stands simply because there were many of them that “didn’t employ the necessary resources” and I say that one of the reasons was they weren’t even aware of what to look for that things can even happen that they needed to protect against. Not seat of the pants is what I mean. Sure in a general way.My point is this. You are saying what they could and should do and I am saying what they won’t do because they don’t perceive the risk the same (gut level) as someone who was in the trenches. That just means you are better than they are. And perhaps they have been at the top so long  and depending on others they will let their guard down. I mean for God’s sake fucking George Schultz is 95 years old! You think a board seat like that is even awake most of the time? The obit for him has probably been “in the can” for the last 20 years. His value is a living rolodex not someone who did what you did in your 50’s (or 60’s whatever you get the point).https://en.wikipedia.org/wi…http://dictionary.cambridge…
.Wise men like George Schultz have underlings who freshen their coffee and do their spade work.My father, a month before his death at 97, was sharper than most people I know. He was handling his own financial affairs which he gave to my sister to handle because he said I was too risk comfortable.He told me — September 2015 — Trump will win the nomination because the country is so damn angry. This from a nursing home’s hospice care wing.You are trying to give some guys a pass who are not deserving of it.I get calls all the time from people looking for introductions and I am extremely cautious because I don’t want to have to dine out on something that fails.JLMwww.themusingsofthebigredca…
My father, a month before his death at 97, was sharper than most people I know.So was my dad for that matter and so is my mom (she was just “elected” treasurer in her building or something like that she is close to 90).I am definitely not giving them a pass I agree they fucked up. But the main purpose of having people with stunning credentials is not to do the things that you are saying you would have done. If that was the case they would get a guy like you w/o the rolodex (of that type).I get calls all the time from people looking for introductions and i am extremely cautious because I don’t want to have to dine out on somethin that failsAre they people that you “know”? Or just people that know of you?
Excellent.More outrage, all fully justified, than in my post.Sure she was stupid, nasty, dangerous, or all of those, but you have to understand, she was REALLY cute!Dressed up nicely, she could look like she was still early in middle school. And the girls in middle school didn’t look stupid, nasty, dangerous! Same for Marissa!Yes, maybe Theranos Girl actually did more harm than Bernie Madoff, the Wolf of Wall Street, Long Term Capital Management, etc., but we have to keep in mind — she was REALLY cute!
Gee, Wigner, Eugene Wigner: From Wikipedia,On July 12, 1939, Szilárd and Wigner drove in Wigner’s car to Peconic Bay on Long Island, where Einstein was staying.I have to remember Wigner because my ugrad math honors paper was on a topic also pursued by Wigner!
I agree with you in that I disagree with the premise. They aren’t scandals, they are just foolishness. And they aren’t great or grand, because they really don’t accomplish a fundamental change in society.A new energy source – grand experiment.A new food paradigm – grand experiment.A breakthrough on cancer or other major health concerns – grand experiments.The rest of the ideas are just efficiencies, which are helpful, but not fundamental enough to be grand.
You illustrate real comparative points of deep concern; who is responsible when innovation and experimentation doesn’t deliver on it’s promises and value to society? We still need real safeguards, the rule of fair play and honest stewardship.
.Therein lies a big portion of the problem — if you can just walk away from the wreckage (nobody from Wall Street got punished for derivatives) as if were only a financial game, then, you make the public pay for the losses and the private enterprise gets to keep the winnings.JLMwww.themusingsofthebigredca…
You’re right and wherever the superstars succeed the shucksters soon follow. The medical industry had this problem with Radon elixir water in the early 1900s. The media, the government and the public doesnt understand any of it, so its really up to the industry to take the initiative and weed out the frauds.
Great choice of words!For VCs, investments in experiments means a portfolio of companies, each having a low probability of high return. For most entrepreneurs, it is the only thing they do with no risk diversification of any kind. This ends up creating misalignment and bad behavior – both in terms of a) what entrepreneurs are willing to do to prove that the venture is succeeding and b) the level of due diligence that VCs do to validate what they are hearing from their portfolio companies.In our startup communities, a culture of spin is so prevalent that someone speaking the truth feels a natural disadvantage, and the dices are naturally loaded in favor of the ones who claim to be crushing it.The real solution is more education, more communication and more humility. About the nature of experiments, and the need to pursue and accept the truth at all times. Humans can be at their absolute best or worst depending on the incentives in place and the value system that surrounds them.I do not want to justify the behavior of the bad actors, but just pointing out that the system, incentives and the values also have a part to play. These need more focus and attention.
.Agreeing with you, slightly more than you agree with yourself.JLMwww.themusingsofthebigredca…
it is people like you that will put a stop to this. that’s for sure.
.Nah, candle in the wind and all.JLMwww.themusingsofthebigredca…
JLM:”Then, take a look at something like Theranos, which recently disavowed two years of testing. Theranos is a perfect example of people just not doing their due diligence. The black turtle-necked cute blonde sponsorship, the big name board, the mystery — seemingly, all puffery. A fraud.”there you go again with incredible insight on business.It just appears there has been no one with any weight even willing to discuss the obvious on Theranos.The following Board of Directors of Theranos should resign immediately!Sunny BalwaniRiley P. BechtelDavid BoiesFabrizio BonanniWilliam H. FoegeRichard M. KovacevichJames N. Mattis
What if there was a special class of company that, by its classification is an experimentation – like a “private beta” company incorporation – Just like a “B Corp” signifies social relevance, could a “Beta” Corp signify a Lab approach on a commercial level, attract investment, generate revenue but be regulated in the scale of experiments especially in healthcare?
I like this idea in principle – but what’s the incentive to reclassify? Remember how long Google had the Beta label on?
I guess it would only apply possibly to sectors that affect food, health, education and other basic real world sectors – Once you pass the FDA regs, You can go “commercial” and exit the “labs” registration..Kind of a training period but as a company to avoid regulatory snafus like Theranos
Also I was talking of situations where entire companies are experimenting – like uBeam, Theranos, Calico…. not just products inside a larger company that are less physically invasive
Ah, I see. I propose we call it the Moonshot Label. But my point still applies on how quickly a moonshot technology can encroach on what we’d consider semi-mainstream (especially in the consumer space). Interesting topic to ponder.
Yes, but the definition of what affects food, health, ed, etc is getting murky as well. For example: a health activity tracker like Fitbit or even Clue. They’re meant to be consumer apps and consumers can in turn make health decisions based on data collected and presented by these apps. Or in the case of education – what if the service you’re using suggests a personalized curriculum for your child, but their algorithm is revealed to be flawed?
Exactly!! Those are precisely the reasons you would not want the company to be registered “commercial” – Consequences of going commercial with untested product should be regulation and legal.
You know how you avoid regulatory snafus? For one you don’t prey on the ignorant shopping in Walgreens. Instead you set up designs and experiments and consent forms.
With every decentralization and disintermediation it becomes more difficult for non-industry experts to tell the innovators from the snake oil salesmen. Knowing what we know now is someone like Theranos the former or the latter? This is where the scandal, outrage, and attempt to regulate a new system based on the codicils of an old one come into play.
From artists to scientists … doing the impossible, experimenting, making mistakes etc is part and parcel of human ingenuity.
Consider fault tolerant systems, designed to exit gracefully instead of crashing. The R&D stage is where experimentation should take place, where failure is not a scandal. I guess the problem arises when unfinished experiments are rushed into capital markets or further rounds.What worries me is hype, uncontrolled social network multiplied hype is distorting and unreal, I guess there is where scandal originates.
I find the presumably inevitable “hype” part interesting. In some ways, hype is the exhaust/smog from innovation, it gradually intoxicates judgment. It creeps up on you and you don’t even realize that your visibility is decreasing.How does one embrace experimentation and invest at the edge of reason, without falling victim to hype intoxication? I suppose it is all about the filters…trying to explore a landscape without breathing it?
Some hype is necessary to push up valuations, to grow, but overdoing it or making it viral may produce the exact situation in that many companies are now, where private valuation is much higher than what public valuation may be. Who to blame?Excess is always bad and I think most players in the industry know what they are doing and the risks they are taking. Taking risk implies accepting failure .Diversification is a good way to explore.
join a VC firm that is grounded. like yours. or ours.
It’s funny that you suggest that we are in a period of de-institutionalizing experimentation, as I look at YCombinator, growth in venture capital, and the formalization of Google’s moonshot division in Alphabet, and the Invention Machine that is Amazon as the institutionalization of experimentation/innovation/invention.The old adage “First they ignore you, then they…” seems to be “First they fund you…” at the moment. I don’t think that’s bad but rather a reflection of the mature market we’re in.
Fair point but to innovate you don’t have to go through a YC or Alphabet or a research university lab. If anything it’s nice to see some attempt at a framework to increase the likelihood of success of each experiment.
At some point, the Ycombinators of the world will be disrupted too. Creative destruction is awesome.
At some pointI agree with that. The reason is YC (in particular YC) appeals to what I call “the newly hatched”. That particular group looks at the what is hot now (all they see is the last 4 years). Consequently it’s easy for something else to become the shiny ball that looks appealing, gets momentum and becomes the thing to do that is widely celebrated. To their credit YC recognizes this which is why they are branching off into different things. Ditto for google not wanting to become GM and rest on laurels. YC: Of course that also stretches their attention in many directions (Sam Altman head of everything). And PG is off playing the fiddle and writing essays which he needs others to proof.The other things is this. Right now entrepreneurship is red hot. That is a fairly recent phenomena that will pass. Not saying people won’t do entrepreneurship of course they will. But it won’t be anywhere near what it is now it will fall back to normal pre-hype levels. That will be good for investors. The newly hatched don’t know that because they haven’t been through these cycles. So to them it appears it’s hot and will always be that way. Just like John Doerr was the shit back in the mid to late 90’s but now you rarely hear about him.You know when I graduated from the business school way way back my girlfriends mother cringed when I told her I was going to start a business. To most people back then it was a ridiculous idea for someone coming out of a good school to try to start a business and not work for a corporation (or go to grad school, law school etc.). Now of course you would never get that reaction….
I think the public is enthralled enough with Tesla and SpaceX to help withstand some spectacular public flame outs.
Exactly. Without discovery, there is no learning. Without learning, we don’t advance. I’m cautiously optimistic about the DAO experiment (knowing many of its founders), and I want them to fail and succeed at the same time. It will be a long experiment, though.
Like all great innovations there will a rush of early adopters, followed by a wave of positive and negative outcomes which the market will digest, derive insights from and this will drive future market dynamics – which will result in either a dramatic throttling back of these deals or a rebalancing of valuations and terms. Capital lives and operates within an ecosystem that self regulates quite efficiently over time. Hopefully the uneducated public will not cause hyper swings that cause the time to stasis in the ecosystem to be decades vs a few years.
i was intending to take a week off, but i’ll park that for now.The DAO (so presumptuous and grandiose a use of the definite article i have not seen in quite some time) is going we do not know where. i’m so curious to know what percentage of DAO Tokens are under the control of venture capital firms. is this the new deal flow?as we accelerate forward at an ever increasing speed of change the twentieth century now seems more and more to have been a complete mind fuck of control and authoritarianism. i’m of an age where it is still a nature reflex to consider (if only momentarily) what institution it is i need the nod of approval from before setting out to make something happen. it’s a conditioning i’m very aware of and trying super hard to shake off.
I thought you had escaped in your bike the other day.
a stomach bug has the better of me at the moment.
Isn’t the dao the beginnings of a disruptive force to VC? The notion that the centralization of asset allocation leveraging a top tier education is really powerless to stop this whole concept moving to a vastly more powerful peer to peer model using platforms like dao?
Uber and Airbnb running up against government. Government making up fearful facts to scare people into not supporting innovation. Look at what happened in Austin. Now Austin city govt wants to create its own taxi innovation.Most of the time, I am not seeing government as a regulator, but a competitor. Big massive corporations are able to afford to lobby, write bills and regs that create a barrier to entry for upstarts.Entrenched local interests (taxis, restaurants, hotels, etc) work with local committeemen and aldermen to enact laws that restrict competition.Much of what the government does isn’t even based on actual unbiased science or good economics. It’s to curry favor, and distribute favor-all while lining the pockets of cronies or elected officials. Scientists and economists looking for their next grant fall in line and write a biased opinion to prop up or defend a decision.I am extremely happy to see the “de-institutionization” of research and development. Doing it with private dollars (and ZERO subsidies) is a good idea. We are on the cusp of some really amazing things right now. Micro manufacturing for example. As you and plenty of others have noted, everything is being unbundled. When that happens, it threatens behemoths and they run to the government for protection.
The government or rather the US military funds many research endeavors at top US universities- a lot of innovation that we could have access to now- we don’t because they are utilised for the military. I think Americans should all benefit from new innovation.
The military funds less than you think. I would say that there are also national security reasons why some technology should stay within the military. But, there are also great reasons to try and demilitarize it and turn it into civilian tech. Night vision might be a good example of that.Most of the innovation in medical science relies on SBIR grants, and collegiate educational institutions. Colleges have built the expensive labs that are necessary to do the research.
Your insights have always been very interesting. I agree with a lotof your points. However, Stanford receives this much from the govt:> Total federal R&D grant money: $656 million> Pct. R&D spending from government: 72.3%> 2012 endowment: $17.04 billionI don’t know if you have read this post from Nicolas Colin a few weeks ago- but the US military loves research universities https://salon.thefamily.co/…Food for thought.
Right, but the bulk of that isn’t “for military” is my point. Salon is hardly an unbiased source.
Salon is the medium, but Nicolas Colin has a very compelling point to consider…and the bulk was for the military (!)
.I miss Uber here in the ATX. However, your characterization fails to touch a few of the bases.Uber came to Austin and began to operate as a passenger car service without complying with any of the existing laws. They came without warning, disregarded the existing regulatory and legal scheme and operated with a certain arrogance.Thereafter, they attempted to dictate terms of surrender, which the City of Austin was ready to embrace. They got snagged on the subject of whether their drivers should be investigated using a fingerprinted background investigation or a paper trail (documents) only.They also wanted to be the arbiters of the background investigation. They wanted to investigate and certify their own drivers.The city wanted to have a background investigation conducted by the city and wanted it to start with a fingerprint check.Stop for a second — you know any industry or company that gets to investigate its own employees and then, figuratively, license them? Plumbers? Doctors?The City of Austin attempted to apply the same rules that applied to a taxi cab driver in the COA. Again, same as for taxi cab drivers.Uber got its bottom lip puffed out and gathered 65K signatures on a petition to put it to the vote of the citizenry. They then conducted a $10MM campaign — very misleading and dishonest IMHO — and simultaneously threatened to pull out if they lost.The COA voted 55% to 45% to require Uber to follow the same rules as for taxicab drivers. Uber took its ball and went home thereby stranding users and all of their drivers.Couple of relevant points:City loved Uber. I love Uber. City did not intend to let Uber be the fox in the henhouse.City never penalized Uber for operating illegally.Background investigations using fingerprints — surprise, surprise, surprise — identify risks which merit further investigation in about 8-12% of such investigations.Uber might have won the vote save for its misleading and arrogant $10MM support program. The program became the most important issue.Uber screwed their drivers. BTW, they said they had to run their own process because they were having difficulty getting enough drivers. Biggest complaint from drivers? Too many drivers.I say — adios, amigos, come back to the 11th largest city in the US when you grow up.JLMwww.themusingsofthebigredca…
(You should write for the local paper as an opinion columnist).I say — adios, amigos, come back to the 11th largest city in the US when you grow up.Do you think that will happen (crawl back when grown up) or do you think there will be some face saving deal made during puberty?Right now they will use the “pull out threat” to force others to their way smaller cities. How long they play that is hard to guess. But it’s dangerous as a threat (pull out) since politicians in other cities not seeing any particular revolt will also be emboldened and it could backfire on them.Not seeing the media campaign hard to see what they did wrong. My guess would be it was to slick in a political ad way which signals “we are lying” especially during a political season. Emphasis on “to slick” which means “watch while pocket is being picked”.
.They are in trouble in Austin, San Antonio, and Houston.They make a huge miscalculation as it relates to Texas — you are not going to push Texans around when you are from out of state. Not. Going. To. Happen.This is a surprise to whom?ATX is the home of SXSW and they can’t ignore that.I am certain, after a cooling off period, all will be forgiven and everybody will be holding hands and singing the same hymn.In the meantime, WTF is Uber thinking letting another service — of which there are seven currently — get a toe hold in the ATX. Uber has proven the market, raised the driver corps, and set out the regulatory framework. Duh!I am amazed at how brazen and arrogant Uber is, particularly the surge pricing.JLMwww.themusingsofthebigredca…
you are not going to push Texans around when you are from out of state. Well certainly they have at their disposal local Austin law firms to advise them. Even my kitten knows that. Is this perhaps a “seat of the pants” error similar to what we were arguing about in another comment?I am amazed at how brazen and arrogant Uber is, particularly the surge pricing.Well perhaps brash in the same way that Donald is, defying conventional wisdom which appears to be working. Besides even you are noting that they will just clean up the mess later:I am certain, after a cooling off period, all will be forgiven and everybody will be holding hands and singing the same hymn.
.They lost their mojo on the support campaign wherein they began to believe their own social media mojo. They did very well in their initial onslaught with the City Council and they began to feel their oats, snatching defeat from the jaws of victory.JLMwww.themusingsofthebigredca…
The other peculiar thing about this experiment is that everything is distributed & decentralized, including any “bad” stuff that might happen, therefore the bad parts will not bring the whole down; rather they will inform the rest of the ecosystem.
I am noodling on this idea because the blog triggered this thought, around the word experiment. Not complete but just some thoughts, and certainly not meant to be critical of the blog.If it is a true experiment it does not fail, data is collected and an explanation of it is thought out. Data, any data is useful. We fall down because many of these “experiments” are costly, and because of this expense we assign greater social value to them than is deserved. Empiricism is very difficult where variables are not tightly controlled, so equating many startups(businesses) as experiments gives them more “scientific” weight than they deserve.If the discussion about whether a particular product (innovation by startup speak) works or doesn’t is a more quantifiable case, where more classic experimental design can be applied.The broader issue of scandal is more about human factors than the experiments and needs to be separated when possible.Anyway my rambling two cents on a rainy Sunday
An experiment tests a hypothesis, and hopefully leads to validation. At what stage does an “experiment” evolve into something else? Validation is the Holy Grail, but if a company continues to raise capital and has little to show for it, via-a-vis the lack of a sound biz strat w/ tangible results (e.g, revenue growth and/or profit), then the words “pipe dream” may be more appropriate. Innovation is a worthy pursuit as long as all parties along for the ride understand and appreciate the costs and risks. Investors generally do, while many employees don’t, lured by the prospect of an exit and financial reward, without fully appreciating the risks and opportunity costs. The Surgeon General mandates a health warning on all cigarette packages sold. In some countries the wording is quite direct almost to the point of saying “this shit will kill you.” Many employees don’t have an appreciation for failure rates and unintended consequences. Today’s insane valuations aren’t sustainable and when the music stops for many, not all, there won’t be a chair. “Experiment” is a healthy word cause early stage that’s exactly what companies are. It’s not a sexy word, and it certainly doesn’t engender confidence, for either investors or employees, but it does provide a needed perspective and a healthier context than what exists today.
i think what u r wishing for is that human beings do not overreact. because its the overexposure, over-everything u dont agree with. i second that. i wish the whole world were measured and peaceful, moving slowly along to its final goal of everlasting happiness )
Sorry, Fred: IMHO the idea of progress via crowd funding of experimental projects won’t work and, indeed, will soon die.Here are the problems:People Haven’t Changed MuchWe need a small background point, that people haven’t changed much in, say, 10,000 years. We argue that they haven’t changed much in 40,000 years.Today look at a person A of Western European descent and one B of Japanese descent. Notice, say, just by some simple observations, that, in their biology and, hence, genetics, they are a lot alike.Well, some recent mitochondrial DNA analysis estimates that the most recent common ancestor was about 40,000 years ago. So, take a common ancestor, person C.Okay, to count the genetic changes from A to B, start with A, go backwards in time to C and then forwards in time to B. Since A and B are close, both are closer to C 40,000 years ago.Thus, humans haven’t changed much in 40,000 years and, hence, not much in 10,000 years. Done.So, guys, want to know what girls were like 10,000 or 40,000 years ago? Sure, much the same as now except with not much attention to clothes!DumbThe idea of Fred’s post has to do with crowd funding of hyped, experimental projects.So, think of some people 10,000 years ago in, say, what is now Western Europe. That was, maybe 2000 years after the most recent glaciers retreated.As we just saw, genetically those people were much the same as now and, thus were able to think much the same thing as in Fred’s post. So, they were able to have big ideas and invest a lot.Their ideas might have had to do with weapons, magic, medicine, making clothing, housing construction techniques, finding flint and glass, working in wood, stone, metals, religion, agriculture, domestic animals, etc. — big ideas. No doubt there was plenty of hype available. Then the investment was time and labor of, say, much of a tribe.Some of that investment worked great.But as we look back, we know that those people didn’t know enough to design promising experiments. In particular, now we know that nearly everything they could have thought to try was doomed to failure.That is, they were too dumb — just didn’t know enough — to get a very high rate of return (ROI) on their investments.They knew enough to do cave painting but not enough to convert iron and coal into steel, steel into steam engines, steam engines into electric power generators, etc.Knowledge and ROIThe main thing that separates us and the ROI we can get from those of the people 10,000 years ago is knowledge of how to design and pick projects to have relatively high ROI.E.g., right away we discard projects for anti-gravity, faster than light communications. communications data rates that violate Shannon’s results, easy solutions of nearly all large, practical cases of NP complete problems, miracle cures from the rare oil of the turtle, all night drum music, and various sacrifices.Still, as at AVC inhttp://www.avc.com/a_vc/201…and as at Kauffman inhttp://www.kauffman.org/new…the venture capital ROI is not very good compared with, say, a stock market index fund.So, with the crowd funding Fred described, we have to expect that on average the ROI will be lower than for venture capital, that is, less than stock market index funds.Sure, crowd funding can fund projects that can successfully complete modern versions of cave painting, but the average ROI there is tiny.The core problem is that crowd funding just doesn’t have enough good information to design and pick good projects, is too “dumb” too much like the people 10,000 years ago.The DeathAfter much crowd funding, some people will do the arithmetic to find the sample average ROI. From at least the theme of the law of large numbers in probability, that sample average will be a good and stable estimate of the expected ROI.We strongly suspect that the average ROI will be low and reported, and soon then crowd funding will be about as significant as tossing pennies into a fountain.More Promising AlternativeFor a more promising alternative to crowd funding, use more knowledge to design and pick experimental projects.From the work of NSF, NIH, DoE (Department of Energy, not Education!), and the DoD and back at least to early in WWII, we have many good examples of how to design and pick experimental projects with good chances of astoundingly powerful results. Yes, the projects are commonly for fundamental science, say, finding the 3 degree K background radiation, understanding genetics, the immune system, and cancer, high energy particle physics and nuclear fusion reactors, and US national security and are rarely for high financial ROI and exits to cash. Still, the lessons there for how to design, pick, and execute astounding projects with, apparently, probability of success much higher than for recent information technology venture capital is crucial to borrow from. People 10,000 years ago could not do that borrowing, but we can.Sure, the people 10,000 years ago were getting really poor experimental project ROI, but they had no better alternatives, e.g., no stock market index funds.Now we have a lot of such knowledge powerful for designing and picking projects that is being poorly and rarely used. Instead, we have too much hype for the next electronic fad for the social lives of teen girls.So, again, for a more promising alternative, i.e., in ROI, to crowd funding, use more of the knowledge that is available — and, really, that can be created — to design and pick experimental projects.SummaryIndeed, in research a common remark is, for successful research, it is crucial to have good — informed, experienced, insightful — project (conception, evaluation) selection.Or, we don’t have to be as dumb as some naughty grade school boy out back trying to make a moon rocket out of match heads. That is, we know a lot about what it takes to make a moon rocket, and we know that match heads have next to nothing to do with it. That grade school boy doesn’t know that, but plenty of other people do, and in quite solid terms.
The key benefits of institutional venture include diversification across a curated portfolio. Seems possible to replicate these basic risk management features in the “brave new world”. Maybe makes it a little less “brave” but perhaps more resilient.
The last paragraph is hard for me to grasp! I realize this is forward-thinking but on some level, it sounds very Sir Thomas More. The general assumption here is, all innovation is good innovation for society, I’m not certain that is true…
do you prefer to go backwards?
I don’t think that is a me question but more of a we question. Not everyone in society is participating and benefiting.
I think the low interest rate environment in the US and the Eurozone is causing many projects to become attractive regardles of the risks. This is not necessarily bad, as you say it is part of the game and we should be prepared for some big failures and some great disrupts too.
Great post.Experiments are mandatory for discovery and innovation. A large percentage of them will fail. But that is par for the course.However, scandals are not necessarily correlated to experiments. Enron, World-com and Tech Mahindra were no startups. Neither were the hedge funds and finance companies who indulged in questionable practices that led to the 2008 recession.Scandals are related to human nature, which is susceptible to engage in bad behavior when:a) the values and accepted practices in an industry ecosystem implicitly support stretching the truth and pushing the limits of ethical behavior (Armstrong and the doping scandal is a good example).b) Significant misalignment between expectations and reality among varied stakeholders increases downside risk for some participants and incentivizes bad behavior – that is typically intended as a stop-gap measure but usually leads to a vicious cycle with an ugly climax.For the startup and investing eco-system, both a) and b) are serious issues and need to be addressed.People do bad things because of pride, pressure, and to avoid failure and shame.Bringing these very human emotions and drivers into the open and letting founders and investors interact and engage as humans-first is a necessary step. Yes, these are taboo topics but good boards and management teams need to know how to deal with these.The reality is we all need to do more to help people connect at a deeper level and create boardroom and operating environments that are psychologically safe. Only then will the participants feel comfortable in pursuing, speaking and dealing with truth and reality as it is, not what they wish it to be.
In public research, those following in the steps of the early pioneers get to read their research in journal articles (publish or perish ) and for the ambitious ones, aspire to work with the pioneer or in their labs (as a young scientist I listened in awe to my one of my mentors who spoke of her experiences working in Watson & Crick’s lab in NY. I, like anyone else interested in that research, had access to her publications. We could read & learn about her experiences through her writing. But in today’s private tech markets much R&D is not public knowledge : we can’t learn from others successes or failures in the same way. We define it as competitive knowledge. To that end, we don’t advance anyone’s cause : we bury the secrets. I for one would advocate rewarding entrepreneurs who advance research writeups: not through press releases but through deep, insightful sharing of their experiments and methods . If we do that , we all win.
Key phrases: “I am also very fearful that this could end badly. And even more fearful of what may be foisted on us by well meaning regulators when that happens.” If we create a culture where experiments fail at a level that does not collapse economies or destroy livelihoods at a large scale then we can end badly better. Regulation up front can help prevent that from happening. The trick is how to keep the balance when regulating unknown unknowns. Maybe its a question of at least being aware of how quickly and systemically they can affect things. A big part of the problem is the need to scale quickly. As this becomes the overriding mantra caution, and sensible regulation, is thrown to the winds.
People keep talking of “money being lost.”No money is “lost”… It is being recycled in the economy. Jobs are being created, salaries paid, equipment bought and sold.And that’s not such a bad thing.
While I agree that there should be room for innovation…What is described here as “phase of permissionless innovation” is also the same mindset that led to the 2008 housing crisis. It all lives on the same broad spectrum – the notion of experimentation and exploitation. There is room for regulation to protect innocent people in mass experimentation.
We as a society have no choice. We are never granted permission, so we can only run end-round and ask for forgiveness.I am not worried about ‘non-accredited investors’ losing money. They are more used to financial risk than accredited ones. They live with real financial risk daily. Even then, most of The DAO is owned by relatively few wealthy accounts.I worry about the power that blockchains could provide governments.
Fair comment. The importance of investment bubbles to innovation is often overlooked. This is a great talk by another legendary venture capitalist, Bill Janeway, on ‘Productive Bubbles.http://businessofsoftware.o…
dumb question here – if the risk is distributed amongst a myriad of people and everyone holds a portfolio of small risks, doesn’t that reduce the risk to everybody involved? provided, of course, that there’s no correlation between all these risks.
Why do people believe in Conspiracy Theories?http://www.scientificameric…http://time.com/3997033/con…