Encore: Theranos | Are Venture Capitalists to Blame? | 4
35:08 Share

Hi, this is linsey gram, host of american scandal. Our back call ague has moved behind a payland. Recent episodes remain free, but older ones will require a wone plus subscription with wondering plus you get access to the full american, have add free, plus early access to new seasons and more join wondering plus in the wondering APP or on apple podcasts. A listener note, this episode originally aired in two thousand twenty one.

From a wander i'm lenzing gram and death is american scandal.

In the mid two thousand tens, threose grew into one of the most celebrated companies in silicon valley, founded by the Young entrepreneur Elizabeth mes. Theron OS promised a revolution in medicine. The company would offer inexpensive blood tests for a variety of health conditions.

These tests would only require a few drops of blood, and with their availability and stores like wall Greens, millions of americans would gain easy access to vital information about their health. IT was a grand vision, but there eros would never make good on this promise. The wall street journal published a syrian expose, revealing problems with the company's technology and leadership.

The article would ultimately destroy their us and lead to criminal charges against eliza th homes. There are also became a national sensation, exposing a dark side of silicon valley where companies often abide by a fake or till you make IT mentality. It's a strategy that can help court investors, but it's also had some to wonder whether the tech industry needs to fundamentally change.

My guess today is Charles do hic, an investigative journalist in the best selling author of the power of habit, which explores how we can change our lives by changing our habits. He is also the author of smarter, faster, Better. As a reporter, do higg was part of a teen that want a polite surprise in two thousand and thirteen for a series that looked at the global problems with the tech industry before becoming a reporter to hig worked in private activity.

In our conversation, we look at how venture capitalists often work to create monopoly, even when the companies themselves might be troubled. And we'll discuss whether these powerful investors are ultimately responsible for failures. Are companies like theron's. Our conversation .

is next american scandal .

is sponsored by auto val. I've bet you heard that IT takes ten thousand hours of practice to become an expert, right? Who came up with that? Welcome, glad.

Well, in his book tipping point, it's an idea that become something of exim and brought criticism to glad welfare, oversimplifying complex social concepts. So what does he do? He writes a snarky follow up, revenge of the tipping point over stories, super spread ers and the rise of social engineering. Too bad the auto title itself is in ten thousand hours long, because there's more to imagine when you listen as an auto member, you choose one title amount to keep from their entire candle. New members can try out table free for thirty days, visit audible documents, flash A S or text A S to five hundred, five hundred.

American scandal sponsored by t mobile five g home internet with new home internet plus from team mobile, you can get internet right where you want IT, so you can boost your connection to places that hasn't reached before and transform your home, turn your backyard into a movie theater, turn your basement and do home office for a limited time. Get a free great to team mobile home internet plus while supplies last, home internet plus starts at just fifty box a month with auto pay and any voice line check availability at t 点 com flash home， and get internet right where you want IT. During congestion, customers on this plan may notice speeds lower than other customers and further reduction of using greater than one point two terribles per month due the data prioritization. After twenty dollar bill credit plus five dollars per month out pay debit or bank account required regulatory fees included for qualifying accounts, thirty five dollar connection charge applies.

Charles doing, welcome to american scandal.

Thanks for having me.

We've all heard about venture capitalists and how their money has helped fund the growth of tech giants like uber, facebook and quite a few others. But let's start with the basics. What is venture capital and how does that work?

So venture capital is any time that a group of pretty rich people, for the most part, get together and they hand some cash to a Young company and say, we're going to take a stake in your own company, we're going to take some of your stock, been working to give you the money that you need to grow and to become the firm that you want to be.

Now what interesting by venture capital is IT hasn't actually been around them, right? There's always been investors of companies. But as an organized activity, IT really started basically back in the one thousand nine hundred forty ties when a professor at harvard business school discovered that some of his colleagues over at mi t had this idea for A A new kind of medical technology. And so he got together some of his friends and he said, look, will give you some money and some advice because you're all scientists and we're smart business people will give you some advice and give us mistake in the company. And if you do well, will all get rich.

So that's how it's perhaps different from any other financing like dad or or alone.

exactly. So death or alone is literally a bank saying we're going to give you some money. You don't give us any stock and return, but you have to pay us back what we gave you plus m interest. And dead or alone is the safest kind of investment you can make, right? If that company ends up going bankrupt and they to sell off all of their assets, the people who gave them debt, they get paid first.

Now, standing behind those people who gave them debt, the bank are the venture capitals, the people who gave the money and said, you don't have to pay this money back, but you do have to give us some stock in your company. And that way we own a part of the company. And by the way, if your company does well, if you have a lots of profits, then we also have the right to the and some of those profits.

It's interesting that you say one of the earliest examples of venture capitalism was investment in a medical technology company because this series just I looked at serenus. Why are venture capitalists so often associated with technology? Are they only designed for that kind of business?

Not necessarily. But I went to harvard business. Well, when I was in hbs, we learned through really certain rule. Really certain was a great bank robbery of the most successful bank rover on one. Eventually he got caught.

Reporter came up to and they said, willie, why do you rob banks? And Willy said, well, cause that's where the money is and that's why venture capital is investing in tech right now and for the last one years or so, right? It's not.

The technology is something special. The venture capitalist didn't invest in other things. In fact, there's lots of venture capitalists who invest in all kinds of other things in in manufacturing companies and supply chain companies. But most of the VC dollars that we're aware of are going to tech, and that's because tech is the fastest growing industry, is where the money is.

Not only that, but the thing that we know about technology, at least as the industry is constructed right now, is you can get these economies of scale, right? You give someone a million dollars, they build facebook, and suddenly facebook is for five billion dollars. They don't have to hire a bunch of people.

There's also some history president here, which is that the birth of the tech industry is we think about that the birth of silicon valley was rooted in venture capitalism when pulp packard started, which was one of the the original tech companies that really created silicon valley. They were backed by a small group of venture capitalist. When stanford decided to start really growing aggressively to become a powerhouse university, one of the things that they did is they really put a lot of money into ventures capital in the silicon valley area. And the thing that they build in silicon valley is they build tech. And so since essentially the origins of the contemporary technology industry, venture capital has grown up alongside IT because that through the money is .

one times I venture capitalist, then have pretty much undammed tally changed the business landscape in the the last sixty eighty years.

What what they've done is they're y've definitely created a new source of capital for companies, right? They they have supercharged the ability to create new companies and start new companies. You know, if you were to go back to the one hundred fifties or sixties, starting a new company was like big deal ready with like yet to go find the money and you had to convince other people to join you in.

And IT was IT was a big, big risky thing. Most people worked for IBM, or they worked for you. Packard IT was the rebels who go off and start firms nowadays is to start a company. All you really need to do is like, know how to, like, put together a powerpoint deck with four or five slides and promise that you're going to make five billion dollars someday. And so you're right, venture capital has made IT much easier to start new companies, in part because venture capital has gone from being the small little thing to bring a huge asset class with billions and billions of dollars to give away every year.

You make IT sound like it's almost free money.

I mean, for some company is that is free money, right? At least at first. The problem is that there is no such thing as a free lunch or free money over the long term.

And so when you work with venture capitalists, you are definitely giving something up. You're giving up equity. Often times you're giving up control. You're giving up the ability to determine your fate.

Now that started shifting in the last couple of years, particularly among these these sort of high flying entrepreneurs and who seem like they have unico dust on them. The IT traditionally venture capitalists were in church, right? They were the guys and some guys, but they're mostly guys.

They were the guys with the wallets who had the cash so they could call the rule. But what's happened in the last decade in particular, as there has been so much growth, so much economic prosperity, is that so much money has flooded into venture capital, that they're no desperate to give their money away. And that's empowered entrepreneurs.

Entrepreneurs can now make demands of venture capitalists, so they couldn't make previously. They get to pick and choose who they are gonna low to invest in their companies. And as a result, the power dynamics has shifted.

Another important shift that's occurred is that venture capitalists used to be the adults of the room, right? So there is this one, early venture capitalist, m. Tom perkin, who was a famous venture capitalist who helped build six year seventy companies.

He's one of the the founders of liner perkins, which is one of the best known venture capital firms. The last wave of tech. And perkins would go in, and he would actually, like, get really involved in these companies, right? He would invest in the company.

He would show up with their offices one day a week, and he would hold people's feet to the fire. He would ask them, how much are you spending? Show me your budgets, prove to me that you're making good choices.

He brought with snows as good governance to firm. He was really involved in the companies that he funded. And this was true of venture capitalists. Throughout the sixties and seventies and eighties and nineties, venture capitals were the adults in the room.

And then this dynamic that I mentioned before, when all of the center there's so much more venture capital money now, suddenly entrepreneur s is are calling the shots. They're in charge because they can say, i'm gonna let you invest in my company. One of the demand ds that entrepreneurs had was to say, look, if I will invest my company, I don't want you stick in your nose.

And here I don't want you telling me what to do. In fact, I want you to give me an enough power so that I have a super voting authority on my board. You can't rain me in even if you want to. And I think many people would argue that has been a change.

not for the Better. Was this the issue at play with with theron's elize with holmes managed to raise a lot of money from investors while maintaining a tight grip over her company.

I don't know that there are no story very well like i've never reported on their nose, but just from reading the coverage, what I do know is my understanding is that elisabeth homes and others went to mainstream venture capitalists and that, particularly in the biotech space, right? People who know that space really well, people who know the blood technology space particularly well, and that those folks started doing their due diligence.

They started to asking things like, you know, can you give me proof that your technology works? How many peer reviewed publish papers do you have about this technology? Where other scientists are objectively evaluating IT in determining whether IT IT lives up to its promise? And whatever those establish venture capital is heard, IT made them decide not to back this company, right?

The people who backed theirs are like rupert murdoch, who knows media really, really well, but as far as I know, doesn't know much about biotech. But he divorce, right? Betty divided, even earn her own money.

SHE would inherited IT from people who started m way, the sorted or sales company. He was a uh, education secretary and donal trump. So I don't think that he has a degree in biotech. I don't maybe she's an expert in biotech, but I don't as far as I know, SHE isn't. So my guess is that those people were just in a position where they really weren't qualified to do due diligence and they didn't reach out to ask people who knew how to do do diligence on biotech to evaluate this investment .

before they handed over their money.

American scandal is sponsored by dell technologies, who you to shot their black friday event for their lowest Prices of the year. The future is on sale today with limited time deals on select pcs like the X P S sixteen that accelerate A I with intel core ultra processors.

Black friday is their biggest sail the year and the best time to upgrade, but it's only here for a limited time shot now at dell documents slash deals that's deltour comm slash deals. American scandal is sponsored by ora frames. Now here's something that I know is true.

The people we love most are the most hard to shop for. Luckily, there's one gift that probably everyone on your list is sure to enjoy. An ora digital picture named the number one by wire car because ora frames makes IT incredibly easy to share unlimited photos and videos s directly from your phone to the frame no matter where IT is.

So when you give an ora frame as a gift, you can personalize and preloaded with a message and photos using or APP, making IT an ideal present for long distance love ones like grandma or an birthday you forget, but who always remembers yours. It's a gift so special that they'll use IT every day. And all of frames come in a variety of styles and colors, so you can be sure to match the taste of anyone in your life.

And trust me, it's the easiest way to share back to school photos, cute halloween costume photos, that video you took over the holiday, anything that you think your friends and family might smile can be sent to their or frames almost and for a limited time visit or a frames dot com and get forty five dollars off or as best selling cover matt frames by using promotion de A S A check out that's A U R. A frames dot com. Promotion de A S is exclusive. Black friday cyber monday deal is their best of the year, so don't miss out turns in conditions supply.

To investigate perhaps the reason why there are so much money coming into venture capitalism, because IT should still be a an industry of some fundamentals, and that is a return on investment.

Absolutely, absolutely. So the reason why so much of money has come in is that during various periods, venture capital has provided huge returns, right? The venture capital model is kind of a strange one because if if i'm starting a venture capital firm, I know that i'm going to make, let's say, twenty investments and I believe going in before I even hung up my single, I believe that eighteen of those investments are gonna belly up.

They're going to declare bankrupcy. They're going to fail. They're gonna. Something's gna happen. They are going to be bad investments.

But one or two of them, one or two of them is going to be successes. And they are not just going to success, is they're going to be monster successes, right? I'm going to put in two million dollars in ten years later or seven years later.

My two million dollars is going to be worth a billion dollars. And it's going to make up for all the losses and all the other investments that I made. They didn't work out.

And for a long time, that logic was a pretty good logic because IT worked again and again and again, right? You put a couple of million dollars into facebook, and facebook becomes the biggest on earth. A guy named Mason, who runs a big venture capital fund called the vision.

He makes a series of investments during the first tech boom, most of which are terrible, most of which go bankrupt when the economy turns. But he put a couple of million dollars into a firm named alibaba, and there is couple of million dollars end up being worth something like thirty or forty billion dollars by the time alibaba becomes a giant. And so that has been the logic for a long time, is i'm gone to make a bunch of bets.

Most of them are gonna work out, but some of them are. And when they do, they're gonna knock IT out of the part. And so as a result, a lot of people standing on the sidelines, pension funds, downton funds, particularly people who listen to a good name, David swanson, iran, the endowment ment fund at yale, who was very, very enthusiastic about alternative investments about private equity and venture capital is a category of private equity.

They said, look, i'm going to start reallocating my money out of stocks because the problem of stocks is it's hard to get an outsize return. I'm definite not going na be putting IT into bonds right, because interest rates have been low now for over a decade. I'm going to put IT into venture capital because venture capital seems to be giving me higher returns. The problem with every asset class though is that when capital starts flooding in, usually returns go down. And that's what's happened with V C.

IT. Sounds like if when you're chasing the home run like venture capitalists do, there's a lot of incentive to not miss. So you might find yourself in some sort of gambler's fallacy thinking that importing good money after bad, what what's the danger there?

Well, exactly as you said, one thing that can happen is that eventual capitalist will have put money into a company. They'll be so committed to wanting to see that pay off a cr, they'll pour more and more money in. But the other thing that happened is that there has been this theory that has emerged known as blitz scaling, primarily within the tech industry.

And IT has its roots in some very sound logic. I was talking to one venture capitalists need is talking about uber. And he said, you know, we were early investors in uber, and as soon as he became clear that uber was going to be success, there were fifteen uber competitors.

And so the only way that we could protect our investment in uber was to get uber as big as possible, as fast as possible. And the only way to do that was to pour hundreds of millions of dollars into IT. So we could scale at a break necklace.

That's a blizz scale, right? And it's true. One of the things about the internet economy and the economy today is that IT is this winner take all economy, right? There's only one amazon.

There's only one uber. Lift is a little bit of a competitor, but even in that case, they're smaller and there's only two of them. And so this blitz scaling to get as big as fast as possible requires huge amounts of infusion of capital.

And that's what the venture capitalist support is. There is no way that a company can earn enough money to grow that quickly. They need to go to outside investors, and venture capitalists are on board.

So if i've invested five million dollars in this firm, minute says we want to become the biggest firm on earth, and then we need another five hundred million to do that. Then, as a venture capitalist, IT makes sense to me to give them five hundred million in none, only that. But if i'm a venture capitalist, I just raised a billion dollar fund, or a one point five billion doll fund.

I gotto put that money to work because I don't get paid until I put that money out the door. So when one of my investments comes to me and says we need five hundred million dollars more, or even though you can give us five million last time, i'm not unhappy to hear that suggestion because I got five hundred million burning a hole in my pocket. And if I can invested in one company, instead of trying to invested in ten companies, that means less work.

For me, blood scaling sounds like an attractive strategy if you you're certain your company is a winner. IT makes a instant monopoly in the market needs that this companies Operating in. But what if the company you're investing in isn't a winner? What happens when it's a bad venture?

What I mean ah i've never met an entrepreneur who tells me that the company isn't a winner, right? Like like if if you're the kind of guy who says what kind of guy who says, you know what I started of this company and H, I don't know, maybe to work, maybe IT won't. You're not doing well in silicon value.

You're not even in the office of eventually capitalist. You know, you've gone to the White combinator, some other place that taught you to say the reason i'm starting this company is because I can change the world. If we can just sell pieces of chicken faster and more more efficiently than piece will break out all over, right?

That's ingredient number one is to say that you're going to change the world. But ingredient number two is to say, and by next year, we will have ninety five percent of the world eating our chicken. Nobody ever comes in and says, you know, this company, maybe you will work, maybe IT. Won't they all pretend or maybe even believe that they're building the most successful company on the basis of lana?

Well yeah, that's the entrepreneur s pitch. And probably the the venture capitalist believes that to make the initial investment. But after that initial investment has been made, and even though the venture camillis knows that eighteen out of twenty of his gams are gonna fail, one of all twenty of them do, there's got to be incentive to continue propping up what was thought to be the winner.

Yes, absolutely, absolutely. When you're deep into a company, there's this old saying, right, if you borrow a million dollars from the bank, the bank owns you. If you borrow one hundred million dollars from the bank, you own the bank.

And that's exactly what happens, is that venture capitalists very often will make one investment, and then the entrepreneur come back in the last for more money. And they say, now I don't think, you know, I don't think you guys have lived up to the promise. I don't think you're the winner that I thought you were.

And they cut them off. And that happens a lot. And it's usually disasters ous for that entrepreneur, for that company when IT happens. The other alternative is that sometimes you invest one million dollars than you invest five million dollars than you invest ten million dollars, and they come back to you, they say we need more money now and you're thinking to yourself because, you know, they're not really hitting their Marks, right? They're not really performing the way that I thought, but I can't write down sixteen million dollar investment at this point.

The only thing I can do is give them another twenty million dollars and hope they'll have enough cash to figure that out and become the winner that I hope hope they were in the first place. This is, I mentioned before masses on a vision fund. This is what vision fund has done again and again and again. We work is one of the best examples. We work seemed like IT was sputtering. Things were falling apart, but matheson and vision fund had invested so much money into we work already that the only thing they could do was give them more money in the hopes that they can turn IT around and figure IT out because others SE, he said, tell his investors, I just lost tens or hundreds of millions of dollars for you.

Tell me how to dais VC deals are structured. It's probably not just one person anymore. These are big firms. It's an established business.

Yeah, IT is a big business. But I mean, that being said, there's usually one person inside of venture capital fund who is responsible for a particular investment. They're the person who's kind of leading the investment.

And then what will happen after that is if it's a big investment like, let's say, the churls do, higg venture capital fund is going to a put some money into company x and company wants to raise one hundred million dollars. So I become the lead investor and I, Charles, do hig. I'm the guy inside the fund who's really gonna like running heard on this, right? Like i'm in charge of it's i'm doing all the work.

I'm negotiating all the deals. I'm going to go to other venture capital funds. And I am going to say, look, i'm putting in ten million dollars.

I'm going to be the lead investor. If you want to come in, i'm going to create some space for you. You can put in five million or you can put in two million or you can put in eight million.

I'm going what's known as i'm onna syndicate out this round, and i'm going to let other venture capitalists participate with me. Now the reason why I would do that is because, number one, one hundred million dollars is a pretty big risk for me to take on my own right. I want to spread the risk around.

But also, I know that if I cut you in on this deal somewhere down the road, you're gonna cut me in on one of your deal. And so that way, I don't have to look for every single great deal and elbow my way into IT. I'm gonna get invited in by the syndicate that I belong to.

And at this point, there's really just about ten to fifteen venture capital front. There's hundreds, hundreds, maybe thousands of venture capital funds in the world, but there's only about ten to fifteen of them that do so by far, majority of the deals, right? These are the funds that control the venture capital industry and one of the ways that they preserve that authority is, first of all, they have a lot of money, but second of all, they tend to syndicate with each other. They work together as a pack in order to determine which companies is get in and to sometimes keep up starts out. We've mentioned .

here that the pitch for any aspiring business is that they're going to change the world. That is not just the bottom line, is an aspiration for the veteran of humanity, that's the entrepreneurs. But on the venture capital de, do they have a mission? Is that just earn province or is there something larger?

I mean, even guys you just want to earn profits, they never just say I just want to earn profits. The greedy ous person on the face of planet that will still tell you that they're in IT because they really wanted to be mother teressa IT. Just so happens that they became a billionaire in the process.

Yeah, with your capital alist, if you talk to, we'll tell you they got into this because they love technology. They believe technology will change the world. They want to find and encourage the companies of tomorrow that are gna, make the world a Better place.

And you know, a lot of them are being honest and truthful, like I have a lot of friends or venture capitalists, and they're really great people, right? They believe deeply in what they are doing. They're fascinated by new technology. They really want to help entrepreneurs reach their potential now at the same time, they also don't mind getting insane, rich and the fact they're able to be like, you know buy a gulf stream in addition to, you know, cure cancer. Hey, it's a great world.

Some people might look adventure capitalism and see the potential for a troubling system IT. Seems like you you've got the syndicate of self dealing billionaires, probably more self interested than theyd LED on to be with an overabundance of capital that they need to spend, giving bright eyed, bushy tailed entrepreneur s too much control. Um is that a fair criticism you think?

Yeah, there's excesses. But what you just described as like the recipe for a fantastic economy, right? Like like the whole point of particularly american capitalism is it's most to be easy to start new companies then it's supposed be able easy to walk away when it's not working and start and try something new like yeah it's bad when IT gets too concentrated, right?

When there's gatekeepers who start preventing good ideas from getting executed on when people who are clearly crazy and shouldn't be running companies are given a ton of money for bad, all of that is the store of. But excesses are part of capitalism, like there is no way to design an economy that does not have excesses in IT. If IT has free enterprise and competition like the system that we have, because at this moment in time, there is too much money, there is too little regulation.

There's you know basically we had what twelve, thirteen years now of unchecked growth. And so there are these excesses that you can point out and say, like this is going off the rails. That's all true, but the basic system itself is a great system like asking people to take on risk to vote with their dollars on what they think is going to win or lose.

That's much Better than the alternatives, which would be the government making bets on who ought to winner lose or being in a situation where they're such little capital, everyone so risk averse that if I have a great idea, I can't get any funding for. And that happened in the past. That still happens right now to some groups, right? The african americans have a much harder time, reason, capital, and that's disastrous for the economy, is disastrous for those communities as disastrous.

Follow us. So I don't think you can argue that, that the system itself is flawed is just that I have some excesses right now. I also want IT because I know the guys you're talking about theirs.

The important thing of that theirs says mainstream venture capitalists did not invest in thermos IT was individuals who are not professional vcs who gave their and its money IT was these like sort of fringe figures who were rich but weren't in the habit of making bets on companies that supported what would happen to their nose. Like there's OS in many ways. You can point to at something that's proof that the VC system actually works because all of the establishment bc, they all passed on parents.

American scandal sponsored by uncommon goods Spark something uncommon. This holiday was just the right gift from uncommon goods, incredible hand pig gifts for everyone on your list, gifts that Spark joy, wondered, delight. And it's exactly what I wanted feeling all in one spot, like what my wife found recently.

SHE loves puzzles and SHE adoors advent calendars. So uncommon goods is jigsaw postal advent calendars. With that's two great taste. The takes great together. And when we shop IT uncommon goods, we're supporting artists and small independent businesses.

Many of their handcrafted products are made in small batches, so Better shop now before they sell out this holiday season. And with every purchase made IT on common goods, they give back one dollar to a non profit partner of your choice. So far, they have donated more than three million dollars, and that's uncommon.

Good to get fifteen percent off your next gift. Go to common goods. Dcom slash A S that's uncommon goods.

Docs slash A S for fifteen percent off. Don't this out on this limited time offer uncommon goods. They're all out of the ordinary.

S, C, knows these aren't the sounds of holiday gifting. Oh, oh, OK, thank you. Well, they're not the sounds you are hoping for.

You want squeals of delight like this and spontaneously written songs of joy. I am so happy. Oh, yes. Oh, to give those, make everyone on your list feel heard with gifts like personalized jewelry, custom art works, vintage pieces and home decor for original gifts that say, I get you, F, C has IT.

He mentioned earlier that there might be a lack of regulation in the venture capital industry. What sort of regulations are there and what what are the responsibility lie s of venture cafila st to the public, into the companies that they .

so probably the the biggest regulation. And and this isn't just for for venture capital. This is true for for essentially all kinds of private equity investments, right?

When you're buying securities stock in the company that not a publicly traded company, the first thing is you have to be what's zone as a qualified investor, which means that you basically have to be rich. You have to you have to earn a certain amount of money each year. You have to have a certain amount of money and savings excluding the value of your house.

So basically, the government has said, unless you're rich to begin with, you can't do this kind of investing. And the reason why they say that is because they say, look, if you are rich, we assume that you're financially savy. So we're going to let you take one now for the venture capitalist, assuming that they raise all their money from qualified investors.

Then when a venture capitalists invest in a company, often times they ask for and return a board seat, right? They join the board of directors and maybe y'll get one or two seats, may or maybe they they won't get any. But if they join the board, that's really important because when you're on the board, you're the ultimate bosses of that company.

The board can hire and fire the CEO. In most cases, the board is where the book stops. Now there are some rules about what responsiblities you have if you serve on a board, the biggest rule is that you have essentially a fiduciary interest to all the shareholders and not just yourself.

So if, for instance, i'm on the board of a company and I learned about I take over offer, that would make me personally rich, but would screw all the minor investors, all the, all the employees, all the other people who have bought small pieces of stock in this company. I have an obligation to say no to that deal to protect the minority investors who are not on the board because I represent the shareholders, I don't just represent myself. So one of the things that has been a criticism of venture based companies is that venture capitalists will get on the boards of these companies and they will act in their own self interest rather than the interest of all of the shareholders.

Again, we work is the perfect example of this. So when we work was blowing up, there was a deal that was put on the table that would have paid off all of the board members, that would have made all of the big venture capitalist essentially given them a return on their investment, and IT would have screw wed all of the minority shareholder people like the employees who had stock. Now there are some who would argue, and I think this is a very powerful and legitimate argument, that the board of directors, these venture capitalists, were on the board.

They should have said no to that deal. They should have said, look, you have to give us a deal that treats everyone will, even if it's gonna me some a little bit of money, it'll be Better for everyone. Instead, the venture capital list said, yeah, we love that deal like, you know, here's my pocket fill IT up with cash and for the minority and investors, sucks to be you .

when we contemplate the spectacular explosions of we work and theron's, what would you take to prevent another failure of that scale?

And I think that we work in theano s should have been regulated away, right? Like I I don't think that more regulations would have prevented we work in their nose. I think in some respects, the system is working, but it's not working to a the full extent.

Like look, elisabeth homes created a fraud. SHE got people who invest in that fraud. The people who invested lost all their money, and she's on trial to go to jail.

So IT seems like that system is kind of work. now. There were a lot of other people who were injured unfairly, right? There's people who got bad test results.

There's people who were impacted by her fraud and they deserve to be compensated SHE deserves to be punished for that. But the system is trying to do that, right? We're always going to have raud, and it's good that the people who invest lost all their money.

They should also be publicly ashamed for doing that. In the case of rework, there's other victims, right? Unfair victims, the employees of rework.

But again, many of the people who invested money lost a lot of their money. Now some venture capitalists who invested in we work. In fact, the number of venture capital who invested we work still got rich off of IT.

They still make big profits. And I think that there should be opportunities for the minority shareholders and for others to sue, instate, adventure capitalist. You should have been a Better job of being the adult in the room.

You should have been there making sure that things didn't go off the rails. That was your obligation. And I lost money because you didn't live up to your obligation.

And I think that you should have to compensate me for that. I think that that's fair. And so I think that there always that we could strengthen civil liabilities and civil law to allow shareholders to sue.

I think the regulators, government regulators, should be taking more of an interest in working harder to regulate companies where the board of directors does not seem to be up to their responsibility, ie. S and does not seem to be doing a good job of keeping their eye on the firm. But these rules all exist, like we don't need new regulations to do this. We just need regulators that are willing to do IT.

But what would that look like if if regulators are doing IT, what would IT mean for regulators and prosecutors to get tougher on venture campsites?

So there is a feeling among some of observers of silicon valley that we need to see more criminal prosecutions of directors on boards for not upholding their for ducey duty.

And in one percent I can do, he said, look, the first time that you see a venture capitalists be put in the handcuff s and put into the police car and prosecuted criminally for not being the adult, the room for not living up to their obligation to protect minority shareholders, to stop a crazy CEO from doing crazy things, the first time one of those guys gets arrested and it's on T, V, you're going to see a huge change in silicon valley. You're going to see a huge change across venture capitals. And I think that's right, right.

For a long time, regulators have been toothless when IT comes to regulating private investments, in particular venture capitalists. There's been this romance about venture capitalist that there are the hand made of innovation. And I think at some point, some regulators going to step up and say, actually, these guys, this is where the book stops.

They didn't do their job, let's hold him into court. And then all of us said in the bunch of other people are going to starts saying, I got to pay close attention and make sure that I don't get arrested taxes. Charles.

to thank you so much for speaking with me today.

Thanks to have me on.

That was my conversation with Charles do IT, a polite, surprise winning journalist and the author of the power company. From wondering, this is episode four of fairness for americans can in our next series. The houston astro shocked the baseball world by winning the two thousand seventeen series just a few years earlier.

They were the worst team in the major leaves, but their maculate rise would be forever tainted when I was revealed that some players and coaches had cheat IT to gain advantage. If you're enjoying american scandal, you can unlock exclusive seasons on one free plus, binge new seasons first, and listen completely and free when you join wander plus in the wander APP apple podcast or spontini. And before you go, tell us about yourself, by filling out a survey and won dot com slash survey, american scandal is hosted, edited and execute produce by me linsey gram ford airship audio editing by Molly box music, mylan sic gram. Our senior producer is gay river executive producers, our steffani e genes janua backman and her non mop for one.

I'm jack warrant. In our first season of finding, I set out on a very personal quest to find the woman who saved my mom's life. You can listen to finding attached a right now exclusively on wondering plus in season too. I found myself, quote, up in a new journey to help someone i've never even met. But a couple of years ago, I came across a social media post by a person named li IT red in part three years .

ago today that I attempted to jump off this bridge. But this wasn't my time ago. A gentleman named dandy save my life. I still haven't found him.

This is a story that I came across purely by chance, but I instantly moved me. There is taking me to a place where i've had to consider some deeper issues around mental health. This is seasoning to a finding, and this time, if all goes to plan, will be finding ending. You can listen to finding andy and finding NaTasha exclusively, and add free on wondering plus. Join wander plus and Wanda apple podcast P.