Holmes’ punishment sends a clear message that the startup ecosystem must be built on good faith • TechCrunch

Let’s start with that The assumption that a venture founder’s compact is almost entirely built on trust, especially early on. Of course, due diligence is important in the investment process, but lying about your skills can damage the founder-investor relationship – and in extreme cases, harm the larger global startup market.

Following Friday’s sentencing of Elizabeth Holmes for defrauding investors, I’ve seen people argue that she’s guilty of hooking up with the wrong people — the rich. The implication here is that Holmes’ wealthy investors deserve to lose their money. What she did helped weaken the entire Venture Compact, and that’s why she’s going to jail.

As TechCrunch’s Amanda Silberling wrote about the company on Friday:

Holmes founded Theranos in 2003 after dropping out of Stanford. She pitched investors and partners on a technology that would change the health care system — instead of drawing blood and waiting days for test results, her technology draws a small amount of blood and immediately runs dozens of tests. She soon became the CEO of a $10 billion company, but the technology didn’t work.

Holmes built a company by convincing investors that she could create something she knew was a lie.

The tech startup ecosystem exists in part because venture capitalists can risk some of their money on a single founder.

These investors can be very rich individuals. They can be athletes like Stephen Curry or Serena Williams, or entertainers like Kevin Hart or Ashton Kutcher. But they can also be larger entities such as venture capital firms, investment funds or pension funds investing on behalf of the not-so-wealthy.

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