> What just amazed me is how gullible all the investors were, and how they didn't do due diligence, hire outside experts, or anything. Weird.
The thing is, the primary goal of an investor is not to invest in companies that are honest and actually do what they claim. The goal is to invest in a company that reaches a valuation high enough to let them recoup their investment at a profit.
If that valuation happens through fraud, hype, destroying the environment, whatever, that doesn't really factor in. It probably is the case that successfully doing what the company claims has a positive correlation with higher valuation, but it's not strictly necessary.
The failure mode for the investors in Theranos is not that it was fraudulent. It's that the fraud was discovered before they could cash out. They didn't need to believe that Theranos was honest, they just needed to believe that other later investors would believe they were honest.
The thing is, the primary goal of an investor is not to invest in companies that are honest and actually do what they claim. The goal is to invest in a company that reaches a valuation high enough to let them recoup their investment at a profit.
If that valuation happens through fraud, hype, destroying the environment, whatever, that doesn't really factor in. It probably is the case that successfully doing what the company claims has a positive correlation with higher valuation, but it's not strictly necessary.
The failure mode for the investors in Theranos is not that it was fraudulent. It's that the fraud was discovered before they could cash out. They didn't need to believe that Theranos was honest, they just needed to believe that other later investors would believe they were honest.