The recent WSJ article about how Theranos, a well-funded and highly valued blood testing startup, has certainly gotten the press whipped up. Everybody likes a scandal, I guess.
I have no idea if the allegations are true, but the situation reminds me of another company I’ve been following with curiosity: uBeam. This small company promises a technology whereby your cell phone can be charged wirelessly, by ultrasound. Like Theranos, it has a telegenic founder and solid funding from top-tier VC (including Andreesen Horowitz and Marissa Mayer).
Thing is, this company is making promises that I’m strongly inclined to bet against. What they’ve demonstrated so far is nothing like what there product needs to do to be useful. Though it is in theory possible to charge a phone by ultrasound, the physics make it seem rather impractical. It requires rather high sound levels and, to avoid massive inefficiency, very tight audio beam forming. It also needs to work through pants pockets, purses, etc, which is not easy for ultrasound. And of course, it needs to be safe around humans and animals. When asked for more information to support the concept, the CEO usually goes on the attack, making fun of people who didn’t think X: { flight, moon landing, electric cars} was possible. All of which makes me wonder about the geniuses in Silicon Valley who make these investments. Every engineer I have spoken to about this company immediately smells BS, yet they’ve gotten top-flight capital.
Which makes me wonder. Are people like me too small-minded to appreciate grand ideas? Or is Silicon Valley easily duped? Or, is accepting a certain amount of fraud part of the business model?
Maybe they know most of these types of folks are hucksters, but for $10M a pop, it’s worth it to fund them on the off chance one changes the world.
I dunno.
It might be easy for even the most dubious enterprises to raise money from the Big Names, because their risk tolerance is high. If you have a billion dollars, you can afford to lose $10M on the off chance that you have invested in the next big thing. Of course, if you don’t have $10M to lose, the whole thing is beyond comprehension (especially if it looks like a really stupid idea).
I think the Big Names have a high risk tolerance and also expectation of high returns, and there is a general belief (with some theory to go with) that higher risk means higher returns, even including the losers. (NB: my own personal investment and career choices have not born this out). Basically, they are expecting to lose money on a bunch and hit it big, very, very big on a few, and they’ve done their job. Still, I don’t see why they would not do the simplest bit of diligence on some of these groaners.
It does explain why nobody wanted to invest in my last company, promising moderate risk and moderate returns.