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Theranos trial puts investors in the spotlight

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The Weekend Pitch

September 12, 2021

Presented by Stout

Theranos founder Elizabeth Holmes (Ethan Swope/Getty Images)

Silicon Valley's go-go venture capital system has gone on trial in a packed, fifth-floor courtroom in downtown San Jose.

In federal court, lawyers for the US government have begun pressing fraud charges against Elizabeth Holmes, founder of Theranos, the failed blood-test startup that for many symbolizes the danger of funding bold dreams without proper due diligence and board oversight.

I'm Alexander Davis, and this is The Weekend Pitch. Contact me at alec.davis@pitchbook.com or @alecdavis.

Theranos trial puts Silicon Valley investors in the spotlight: Where are they now?

Opening arguments in the Holmes trial, which is expected to last at least a few months, suggest that much of the evidence will center on the risk investors agreed to take and whether Holmes fooled them into enabling a scandal of historic significance. Theranos dissolved in 2018, the same year Holmes and her former business and romantic partner Sunny Balwani were indicted.

Prosecutors say Holmes hoodwinked investors into funding her failing technology with an estimated $800 million-plus. Her lawyer responded in court that she didn't set out to deceive people—rather that she mistakenly believed the testing device would succeed, and that her "failure is not a crime."

Whether Holmes is guilty will be up to a jury of five women and seven men. Part of their deliberations will be about how transparent Holmes was in financial projections and on the struggles of its signature device, Edison. Balwani will be tried separately later on.

The list of potential witnesses in the Holmes case numbers more than 200 people, including famous Theranos backers like Henry Kissinger, Rupert Murdoch and James Mattis.

While Holmes is the current target of the prosecution, the trial figures to shine a light on the people who piled onto the Theranos cap table and cheered on Holmes. Their vantage points and their ability to understand the risks of their bets will be picked apart.

So where are those investors now? And what strategy or funding style have they deployed in the aftermath of the Theranos scandal?

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Quote/Unquote

(krisanapong detraphiphat/Getty Images)

"Over the last three years, there has been a change in investor focus away from 'Can we make money on this asset?' to 'Is this asset also creating social value in the world?'"

—Jason Lee, co-founder and CEO of DailyPay, a provider of on-demand cash services that lets workers access their wages in real time.

With its excessive interest rates and debt traps, traditional payday lending has been widely criticized as predatory. But in recent years, new fintech startups have arrived on the scene, challenging payday lenders with their earned wage access products and ESG agendas. In an effort to position themselves as socially responsible investors, many venture capitalists are taking the bait.

Deal Flow

SoftBank's Vision Funds have seen an increasing number of exits in recent quarters. The first vehicle, which is now nearly five years old and has a fund life of 12 to 14 years, is no exception. While that still leaves plenty of time for the firm to further cultivate its gains, it will also need to shift its focus to managing its portfolio of public companies.

PitchBook has created a proprietary index that assesses the post-IPO record of SoftBank's portfolio companies. The Vision Funds' US-listed public holdings have performed well on a market cap-weighted basis. However, a small number of its investments are responsible for driving that growth, including 10X Genomics, Guardant Health and Vir.

How are the Japanese conglomerate's other publicly traded companies faring? Find out in our recent analyst note.

Did you know ...

(Eoneren/Getty Images)

... That in 2016, when the term "femtech" was coined, global annual VC funding for such startups barely cracked $500 million?

Capital investment for femtech startups has now crossed the $1 billion mark for the first time, according to PitchBook data.

Several factors have propelled new growth opportunities in the space, including increased representation of women in the VC industry, rising awareness and acceptance of women's health issues, and continued success of the direct-to-consumer model.

Datapoints

From a favorable risk-reward spectrum to lucrative pre-IPO rounds, venture returns have become highly appealing to non-venture investors.

Private equity firms are participating in more than half of all US venture capital deals by value, up from 36.9% just two years ago, according to PitchBook data.

Growth-focused firms Insight Partners, General Atlantic and OrbiMed are among the most active leaders in the race to grab a piece of tomorrow's public companies.

To learn more about how the world of venture capital has become increasingly attractive to private equity, hedge funds and other nontraditional investors, check out these five charts.

Recommended reads

Though many restaurants have reopened with the easing of pandemic restrictions, many are still struggling to hire staff. Meet six people in the Bay Area who decided to quit the industry for good. [San Francisco Chronicle]

A look at how Pinterest is using new tech to fight racist algorithms. [Fast Company]

Eight leaders from firms like Bain Capital, Thoma Bravo and The Carlyle Group on what successful private equity shops have in common. [Institutional Investor]

Employers may view remote work as a way to save money by cutting pay, but some employees argue that their work has the same value no matter where they're doing it. [The Wall Street Journal]

As sports betting becomes increasingly legal in the US, more Americans are betting more money than ever. But it may be the local bookies who have the advantage this NFL season. [Forbes]

How one Australian startup is beating China in the race to make solar panels cheaper and more efficient. [Bloomberg]

This edition of The Weekend Pitch was written by Alexander Davis and Priyamvada Mathur. It was edited by Andrew Woodman, Angela Sams and Sam Steele.

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Your Weekend Briefing

View in browser|nytimes.com

September 12, 2021

By Remy Tumin

Welcome to the Weekend Briefing. We're covering the 20th anniversary of 9/11, phony diagnoses at nursing homes and a hidden image in a beloved work of art.

Mercedes Arias remembers her father, Joseph Amatuccio, during a commemoration ceremony on the 20th anniversary of the attacks.Dave Sanders for The New York Times

1. The nation paused to remember the Sept. 11 attacks.

On a brilliant, cloudless late-summer morning eerily reminiscent of the one two decades before, a memorial ceremony for those who died on Sept. 11, 2001, was underway at ground zero in Manhattan. The ceremony consisted mostly of the reading of the names, recited by relatives of the dead. Bruce Springsteen, strumming an acoustic guitar, performed "I'll See You in My Dreams." See updates from throughout the day here.

President Biden was in attendance with the first lady, Jill Biden, as were Bill and Hillary Clinton, and Barack and Michelle Obama. Donald Trump did not attend. He visited a police station near Trump Tower, where he delivered campaign-style remarks. Biden and former President George W. Bush spoke at the United Flight 93 memorial near Shanksville, Pa.

Late Saturday, the Biden administration released a 16-page document about connections the F.B.I. examined between the hijackers and the Saudi government. The document contained no major revelations about whether the kingdom played a role in the attacks.

Abroad, the war on terror grinds on, largely in the shadows and out of the headlines. In Kabul, several hundred women held a pro-Taliban demonstration, many wearing full-length burqas, a sharp rebuke of the U.S. and its allies.

The Department of Veterans Affairs issued a vaccine mandate for its 115,000 frontline health care workers seven weeks ago.Doug Mills/The New York Times

2. Agencies that required Covid-19 vaccines before President Biden's push have seen early success.

Since the Pentagon announced last month that active-duty military personnel would be required to be vaccinated, the percentage of military personnel who have had at least one shot has risen to 83 percent from 76 percent. No service members have taken legal action against the mandate.

The country's vaccination rate ranks last among the Group of 7 nations for the percentage of its population that has received at least one dose.

The F.D.A. again warned parents not to seek out shots for children under 12 yet. Some parents are desperately looking to get their young kids into clinical trials. Some vaccine holdouts are citing their personal faith for religious exemptions.

Gov. Gavin Newsom of California at a rally in San Leandro, Calif., this week.Jim Wilson/The New York Times

3. Ahead of California's recall vote on Tuesday, the state's governor has one message: It's me or the abyss.

Rather than run against his opponents or on his record, Gov. Gavin Newsom is running against Donald Trump. Polls suggest it's working: Newsom has a double-digit lead in recent polls. More than a third of active registered voters had cast their ballots by Saturday, a harbinger of the future of mail-in voting.

Working in Newsom's favor is his coronavirus pandemic response. California — which was quick to mandate masks in schools and require health workers to be vaccinated — has seen less drastic increases of cases than many Republican-led states during the Delta surge.

Rep. Richard E. Neal of Massachusetts is the top Democrat on the Ways and Means Committee.Tom Brenner for The New York Times

4. As Democrats push a $3.5 trillion social policy and climate bill, a top lawmaker is mum on how to pay for it.

Representative Richard E. Neal of Massachusetts is the top tax writer in the House and on the brink of leading his party in advancing a $3.5 trillion spending package that is at the core of President Biden's economic agenda.

But he routinely brushes off questions about his support for the kind of tax increases that Biden and other party leaders have proposed — leaving some liberal Democrats worried that one of their own leaders could thwart the scope of their economic ambitions.

Businesses are divided on precisely how to respond to the emerging social policy bill. But they are united in their defense of Trump-era tax cuts.

Yvonne Blakeney's husband, David, a dementia patient, was diagnosed with schizophrenia shortly after arriving at a nursing home.Sean Rayford for The New York Times

5. Phony diagnoses are hiding high rates of drugging at nursing homes.

The risks to patients treated with antipsychotics — which understaffed nursing homes have often used as "chemical straitjackets" — are so high that nursing homes must report to the government how many of their residents are on these potent medications.

But there is an important caveat: The government doesn't publicly divulge the use of antipsychotics given to residents with schizophrenia or two other conditions.

A Times investigation found a pattern of questionable schizophrenia diagnoses nationwide. The result: The government and the industry are obscuring the true rate of antipsychotic drug use on vulnerable residents. The share of residents with a schizophrenia diagnosis has increased to 11 percent from less than 7 percent since 2012. At least 21 percent of nursing home residents are on antipsychotic drugs.

For readers of The Morning, a limited-time offer.

Support the journalists who bring the truth to light. Subscribe now with this special rate on expert reporting.

Cheon Song-ja, 78; Hong Seok-soon, 77; and Na Jeong-soon, 85, on a taxi trip that would cost them pennies.Jean Chung for The New York Times

6. Nine-cent taxi rides in rural South Korea are a "godsend."

In 2013, Seocheon County faced a crisis. As its population declined, so did the number of bus passengers, which led to unprofitable routes being canceled, stranding those in remote hamlets who did not own cars.

The county's solution? The 100-won taxi. (Longer routes cost 1,500 won, or about $1.30.) Anyone whose hamlet is more than 2,300 feet from a bus stop can call one, and the county picks up the rest of the fare. The taxis carried nearly 40,000 passengers last year, which cost the county $147,000.

Since the 100-won taxi was introduced, people in remote villages have traveled outside twice as often, according to a government survey. More than 2.7 million passengers used similar taxi services in rural South Korea last year.

Golden Cosmos

7. Can TV get big again?

After "Game of Thrones," many said the age of the blockbuster series was dead. The question remains: Can any one program, in an age of bingeing, streaming and thousands of choices, bring together a mass audience?

This fall and later, several high-profile genre spectacles — such as sci-fi, fantasy and dystopian fiction — are betting on yes. Apple TV+ is premiering "Foundation," adapted from the Isaac Asimov novels; FX will unveil the ambitious and long-gestating "Y: The Last Man"; and HBO's "Thrones" prequel, "House of the Dragon," will follow Westeros's messiest platinum blondes, the Targaryen family. Our TV critic James Poniewozik looks ahead.

Also looking ahead are the artist Adam Pendleton, who is rethinking the museum, and the Metropolitan Opera, which is racing to reopen. And here's what to look forward to at the Met Gala on Monday.

Photograph by Anthony Cotsifas. Styled by Leilin Lopez-Toledo

8. Incense is a consolation.

Long ago, it was used to measure the passing of time, to banish disease and evil spirits. Now, after a year marked for many by the loss of smell, or at least a sense of stagnation, incense is precious once more.

Sales of incense rose during the Covid-19 pandemic. It offered a kind of escape, opening up increasingly claustrophobic spaces and rendering them, if only for a moment, beautifully unfamiliar. Here's an incense for every occasion.

For another ethereal sense, consider the flavors of flowers.

Gyeran bap, a South Korean pantry meal of fried eggs stirred into steamed white rice. Ryan Liebe for The New York Times. Food stylist: Maggie Ruggiero. Prop stylist: Sophia Pappas.

9. The great thing about egg rice is that it's hardly cooking.

If you can fry an egg, then you can make egg rice. It's filling but not too filling, perfect for the hunger pangs between work and dinner. Many cultures have some variation: tamago kake gohan (Japan), nasi telur ceplok (Indonesia), arroz a caballo (a Puerto Rican dish which translates to "rice on horseback"). Here's a recipe for gyeran bap (South Korea) to get you started.

For another pleasant way to deal with your blood sugar's ebbs and flows, try a three-minute break every half-hour.

A restoration of a Vermeer painting.Gemäldegalerie Alte Meister, Staatliche Kunstsammlungen Dresden

10. And finally, the world in depth.

A Vermeer restoration reveals a god of desire. Fall travel trends (like "trip stacking"). How a small town silenced a neo-Nazi hate campaign. The art and inspiration of Michael K. Williams, Colson Whitehead and Lindsey Buckingham. We've picked 11 great stories for you in The Weekender.

Our editors also suggest new music from Radiohead, Ed Sheeran and others; the best 9/11 movie; five action films to stream right now; and 12 new books.

Did you follow the news this week? Test your knowledge. And here's the front page of our Sunday paper, the Sunday Review from Opinion and today's Mini Crossword and Spelling Bee. If you're in the mood to play more, find all of our games here.

Marcus Payadue compiled photos for this briefing.

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