Chorus of charges for startup executives

April 19, 2023

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Frank’s Charlie Javice. Theranos’ Elizabeth Holmes. FTX’s Sam Bankman-Fried. In recent decades, it was rare for corporate leaders who engaged in apparent wrongdoing to face criminal charges. But prosecutors are no longer giving malfeasant startup founders a free pass, The New York Times reports. One reason is the financial downturn — per the Times, it’s easier to overlook unethical behavior when everyone is getting rich. Investors, too, are being less lenient with suspected fraudsters now that startup valuations are sky-high and successful lawsuits can be worth millions or more.

E.B. (Liza) BoydE.B. (Liza) Boyd• 3rd+• 3rd+Writer / Journalist / EditorWriter / Journalist / Editor

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The NYT has a story today called “The End of Faking It in Silicon Valley.” But they’re wrong.

It points to recent cases like Charlie Javice at Frank, SBF & FTX, and ofc Elizabeth Holmes (who’s headed to prison this month) as “evidence” that Silicon Valley is rethinking its practices of puffery.

Here’s the problem with the piece: It conflates “committing crimes” with garden-variety hype.

Silicon Valley couldn’t exist without founders painting bold pictures of amazing futures. Startups couldn’t get from zero to traction without their ability to make people believe in impossible things.

In the beginning, when there’s little tangible evidence with which to make their cases, founders have to persuade investors they can 100x their investments. They have to convince rockstar employees to abandon safe posts and join their crazy journey. They have to recruit experienced advisers to spend their limited time on them, rather than on the founder next door.

And as they get going, founders have to create a sense of unstoppable momentum. So yes, they show up at conferences and spout amazing tales about how incredibly they’re doing. They secure glowing media placements that lean into the upside and understate the downside.

All of this is critical for a startup to bridge the distance from nothing to something.

But dreams are not the same thing as lies.

The stories in the NYT article involve outright crimes: Lying to investors (Frank, Theranos). Improperly moving money around (FTX).

Of course, that’s a problem. And hopefully, future founders who might be tempted to play fast and loose with the truth–and with the law–will take note.

But does that mean this is the end of “faking it”? Absolutely not. The best founders will always sell beautiful dreams. None of us would have the amazing things they’ve created without it.