Around digital businesses A proprietary lexicon was born, made up of words such as ectocorn (startups that have a value of more than 100 billion dollars), rhinoceros (little-known startups that however invoice) and zombies, startups that live on high-risk financing. There is no term to define those who boast non-existent products or services and fraudulently obtain subsidies or financing.
the startup Theranos wrote a page of history in his own way, which became topical due to the verdicts of January and July 2022 against the CEO Holmes and the president and chief operating officer of the company, Balwani. The biomedical company founded in 2003 by Elizabeth Holmes promised to perform more than 240 tests with a single drop of blood instead of the different tubes needed. Until 2015, it raised investments for a total of about 1.1 billion dollars without actually ever having given real proof of the capabilities of Edison, the machine that was supposed to revolutionize the world of blood tests and that has made it rise to about 9 billion dollars the value of the company.
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Then an article in the Wall Street Journal, signed by John Carreyrou, opened the eyes of all those who believed in the potential of the Holmes project and his second Ramesh “Sunny” Balwanireporting the rumor of former Theranos employees who claimed, among other things, that the technology was not working.
A case that caused a sensation also because the company promised a revolution in the healthcare sector, knowing full well that it was far from being able to achieve it. To make the most tangible expenses were the financiers and the final customers who have had false test results delivered with all that this can entail, but the impact of this scam went further. Theranos inspired books and TV series and made investors and the media understand that their approach to digital neo-entrepreneurship could be improved. A young woman who was 19 in 2003 managed to impress investors, journalists, politicians and public opinion for over a decade.
The Holmes case
The startup Theranos was a scam, convicted the woman who wanted to be Steve Jobs
by Simone Cosimi
On January 3, 2022, Holmes was found guilty on 4 of the 11 counts and now faces up to 20 years in prison. Last July 7 Ramesh “Sunny” Balwani, president of Theranos, was found guilty of 12 counts of fraud and his fate, in terms of prison, is common to that of Holmes.
The sentencing hearing for Holmes is expected for next autumn, moved for now from 26 September to 17 October, the same thing regarding the judicial fate of his right-hand man Balwani, who will have to wait for the autumn.
History shows, however, that other startups have played not exactly clean behind their stakeholders and for amounts higher than those raised by Holmes. These are all episodes that, albeit on different scales, have contributed to undermine the aura of success that incenses digital visionaries.
WeWork
Another anomalous situation, which has made history and which has left Silicon Valley to arrive in the Hollywood area and become a TV series, is that of WeWork, co-founded in 2010 by Miguel McKelvey and Adam Neumann. The picture is so intricate that it deserves, for the sake of clarity, to be told back in time to better reconstruct the facts and explain why the startup, despite the difficulties, has raised investments for about 20.6 billion dollars paid, for over two thirds, from the Japanese investment bank SoftBank.
In October 2021 the second attempt by IPO WeWork, this time worth $ 8 billion, yes it is successfully concluded. The startup, active in coworking spaces, had tried to land on the stock exchange as early as 2019, with an estimated valuation of 47 billion dollars. The IPO was almost deserted by investors because, just as the company was looking for the road to listing, the media became interested in the startup, focusing on a business model deemed unprofitable and on governance, tightening the circle around the CEO Neumann. What emerged is an atypical overall picture for those aiming at stock exchanges: the losses have iterated over time to reach approximately 1.9 billion dollars in 2019 and Neumann would have sold shares for 700 million dollars in the months prior to the first IPO. An unusual amount for those who, thanks to the stock market, can see the value of the shares they hold rise.
Everything has been said about Neumann, stories that have highlighted his eccentric personality but similar profiles are not rare even in innovation salons. the aforementioned SoftBank invested billions of dollars.
After the IPO did not go through in August 2019, SoftBank invested another 5 billion, thus bringing the total paid into WeWork’s coffers to about 14.1 billion dollars, starting a reorganization plan that reduced the company’s assets and led to the dismissal of 4,000 employees. Before the IPO too Neumann was dismissedobtaining in exchange a figure close to 1.7 billion dollars.
Later, and we return to the present, WeWork joined forces with BowX Acquisition Corp, a SPAC (Special purpose acquisition company), which is a company that raises capital to invest in acquisitions. Turnover and occupation of coworking spaces have begun go up the slope but, during the second half of 2021 (therefore at the end of June a year ago), the losses for the period amounted to $ 888 million.
Nikola Corporation
The founder Trevor Milton convinced several investors, including Fidelity Management & Research and ValueAct Spring Fund, to invest approximately $ 2.5 billion in their own electric trucks. Nikola Motor Company, born in Utah in 2014.
In 2020, investment analyst firm Hindenburg Research published a report debunking Milton’s lies, wondering how American auto makers had trusted him. Very little of what Nikola claimed to do was true: he did not have a proprietary battery, he was unable to produce hydrogen, and even the demonstration video of one of the Nikola trucks was fake. The vehicle was towed to the top of a hill and then filmed as it descended, giving the impression of running.
The startup found a agreement with the Security and Exchange Commission (Sec, the body that monitors the stock exchanges) by paying a 125 million dollar fine and offering full cooperation in the investigation.
Also in 2020, after the scandal and the removal from any operational function of Milton, Nikola Corporation was acquired by SPAC VectoIQ and then moved to Nasdaq. While Milton will have to answer – along with Nikola – to several counts starting July 18, 2022, the company is continuing the research and is expected to put the Nikola TRE Brev truck on the market in 2024..
Mozido
Founded in Texas in 2008 by Michael Liberty, Mozido focuses on mobile commerce and payments. It seemed a visionary reality since, in fact, payments via mobile devices only began to have a significant market in 2015. Mozido found itself ahead of many competitors having already conquered users in Canada, the USA, South America and even in China. A business considered so greedy that it also ensnared Mastercard, which participated in the consortium of investors that allowed the startup to raise 400 million dollars. At the beginning of 2018, Mozido had a valuation of $ 2.4 billion and was listed among the unicorns. The startup though it diverted funding to shell companies in order to remove them from the share capital. In February 2019, after an investigation opened by the SEC, Liberty was charged with fraud and money laundering, rebuilding the stolen goods into $ 48 million, mostly used for private purposes in order to maintain his high lifestyle.
In 2016, the Wall Street Journal had anticipated that Mozido had struggled for months to pay salaries and, in the same period, Forbes claimed that the startup was the Theranos of the financial industry.
After a change at the top, today Mozido is called Fintiv and is still based in Texas.
NS8
Adam Rogas founded NS8 Inc. in 2016, a platform for the fraud prevention in ecommerce transactions. An idea well seen by the market that allowed Rogas to raise funding for 158 million dollars, attracting the attention of Edison Partner, AXA Venture Partners and Lightspeed Venture Partners, to whom he showed false financial documents that have made both the FBI and the Sec suspicious. Both authorities have set out on the trail of those 17.5 million dollars that the startupper paid to himself. Arrested in 2020, he faces up to 20 years in prison. Rogas’ platform, however, still has value. After the acquisition of the startup, which took place in 2021, it continues to exist.
Bouxtie
Startup founded by Renato Libric in 2012 has obtained funding for at least 4.5 million dollars. Bouxtie wanted to attack the gift card market, with an app that allowed you to buy customized ones. An unprofitable business, with a margin of a few cents per gift card, inserted in a market that is worth 100 billion dollars in the US. Libric managed to attract capital by falsifying bank statements, suggesting that the startup had $ 2 million instead of the real 7,000. Likewise, he exhibited fake offers received from large industries ready to take over his startup even at the price of 150 million.
It seemed to work, so much so that the Huffington Post placed Libric at the top of the ranking of digital entrepreneurs to follow in 2017. Libric knew full well that the business in which he dragged investors was not profitable and, moreover, it diverted $ 130,000 from the ‘agency. In September 2018, he was arrested on fraud charges, only to be sentenced in December of that year to 37 months in prison, 10 years of probation and $ 1.5 million in compensation. Bouxtie, for those wondering, still exists. Sells likes, visits and followers to TikTok users.