Thursday, November 8, 2018
The Theranos collapse and Elizabeth Holmes' indictment makes me wonder about what investor biases may have played a role in allowing Theranos to operate as long as it did. In an op-ed in The Hill, Ann McGinley and I point out that it might have been her seemingly deliberate projection of an idealized masculinity:
Presenting the right identity may unlock millions in funding and bypass close, critical reviews. Consider Elizabeth Holmes, the recently indicted founder of Theranos. Flanked by a board sporting retired military officers, she presented herself as a masculinized take on the Steve Jobsian ideal — aping his wardrobe choices with a black turtleneck sweater.
Her costume was often complimented by a blazer’s broad shoulders, and she spoke with a startlingly deep voice. The presentation exuded a hard-charging masculinity, allowing backers to see her as a Jungian fantasy of Jobs’ second coming.
The op-ed ties back to the bigger law review article discussing the ways in which a bias toward favored identities causes founders to perform their and their entities' identities to please sources of capital.
Gender bias (and other forms of implicit bias) likely does more than just raise capital costs for founders. It also seems to saddle venture capital funds with risks. The same techniques legitimate founders may embrace to raise capital might also be used by fraudsters looking to increase their odds on a con. In essence, uncorrected implicit biases may make it easier to dupe VCs into buying into frauds.
There may be ways to mitigate this risk. Implementing some blind or purely paper-based screening process to vet initial ideas without in-person presentations may provide a check similar to the techniques used in orchestral auditions. After all, research has led Cass Sunstein and others to conclude that job interviews do more harm than good. Getting a diverse committee to consider and approve investments might also also provide another check because a diverse group might not share the same biases. Of course, some biases are strong and widely shared. For example, investors generally tend to prefer investments pitched by masculine voices.
Ultimately, I don't know how to perfectly solve the problem. At the least, being aware of it and proceeding deliberately may allow some funds to reduce the role bias plays in their decisions.