Earlier quoted context omitted.
> No, Theranos was outright, egregious fraud, and most startups that "collapse under the weight of unrealized promises" are not committing fraud. Most startups don't get the traction and publicity that Theranos got, however. I wouldn't be surprised if a lot of founders would go to similar lengths given the chance; they just happen to have someone apply some reality check on them before things get out of hand.
I would be fairly surprised. If only because, again, this is fraud and lands you in jail .
Theranos was unique in both the scale of the fraud and how non-investors were potentially harmed. Most of these are just founders who knowingly or unknowingly get in over their head and then basically walk away after having lied about the state of things.
I’ve heard a bunch of stories from VC friends, but the one I was the most involved with directly was probably 10 years ago. My mom mentioned to me that she had been chatting with some senior local government official who mentioned they had a startup datacenter provider taking over a nearby abandoned office complex and converting it to a green datacenter, bringing hundreds of jobs to the area - had I heard of them?
I had not, and after some digging determined that the company had claimed to have a bunch of unique technology, and leveraged that to get preferential terms from the local government - free rent, no property or payroll taxes, and other cash- and non-cash concessions. They had also raised millions from private investors by saying they had active datacenters with customers and they needed money to expand.
Except none of it was true. They had no customers, no datacenters, no employees other than the three founders and one of their daughters. They had made commitments in three different locations over the past three years to build a datacenter while simultaneously raising money by saying they ALREADY had active datacenters and customers.
I shared this with my mom, who shared it with local government, who hand waved it away as nonsense. But nothing ever happened at any of these sites, and after they ran through the money they filed for bankruptcy with revenue of $0 and assets of ~$12k. Their biggest investor took control of their land lease from the local government. Some investors complained online about being lied to, and the local government quietly swept it under the rug. I spoke with a local business reporter who basically shrugged and said, “yup, you’re right, but no one wants to talk about it”.