This analysis was first published in SvD Näringsliv, in Swedish, on January 4th, 2022.

One of Silicon Valley’s most celebrated companies turned out to be a fraud, in the legal sense of the word. But the investors who got taken in will probably fall into the same trap again.

“This is what happens when you work to change things. First they think you’re crazy, then they fight you, and then — all of a sudden — you change the world.”

Dressed in her now-famous black turtleneck and blazer, Elizabeth Holmes, CEO of the American blood-testing company Theranos, tried to explain away a critical article in the Wall Street Journal. She went on CNBC and said she was shocked that the paper had published claims that the company had problems, given that she had sent over thousands of documents she said proved the opposite.

That was 2015. It’s now 2022, and the article turned out to be largely correct. On Monday evening, Elizabeth Holmes was convicted of defrauding her investors. She now faces several years in prison.

What the trial has really been about is where the line sits between a genuine failure and deliberate fraud. That Theranos’s blood-testing machines didn’t work the way they were supposed to — that’s not in dispute. But Holmes had presented both their function, their precision, and her customer contracts in a way the court found to be on the wrong side of the law. She was acquitted on other counts relating to patient fraud, and on several more the jury couldn’t agree at all.

The trial has drawn a massive press corps and huge public interest. Holmes, who once appeared on the cover of a magazine under the headline “The next Steve Jobs”, has likely inspired a fair amount of schadenfreude. The company was valued in the billions and had some of the most prominent investors in the world — among them media mogul Rupert Murdoch and the Walton family, founders of Walmart.

The spectacle hides similarities with plenty of more ordinary companies. The phrase “fake it till you make it” — pretending while you try to catch up with what you’ve promised — is an extremely common philosophy among startups in both Silicon Valley and Sweden. Founders almost always have a big vision of what they want to build.

For a small number of companies, all it takes is time to actually get there, while most others fold or pivot long before. Dressing up what your company can do in front of users, investors, and prospective hires is essentially standard.

Since these exaggerations are so common, you have to ask what the investors actually knew about Theranos before they put money in. Did they even understand how hard the problem was that Holmes was trying to solve? And if so, how close the company really was to a solution? The questions that got asked were partly limited by the fact that Holmes avoided taking money from more specialized venture-capital firms. Instead, she talked to wealthy families whose expertise was limited.

But the real mistake here may have been the fear of missing out on a good deal. There simply isn’t time to find out how much is actually true. Because before you do, the company may have picked other investors instead.

Can a trial like this change how investors approach due diligence? Angela Lee, who teaches venture capital at Columbia Business School, doesn’t think so. “People don’t want to miss a good deal. If anything, I’ve actually seen an even faster timeline for due diligence in recent years”, she told Bloomberg. She also confirmed how common exaggeration and embellishment are among founders: “I would say 15 percent of founders do this every day.”

It’s easy, as they say, to be wise in hindsight. After the Theranos scandal broke, investors came forward to say that they had seen something was off. But every day, half-truths are presented by entrepreneurs at an accelerating pace.

Similar events are therefore likely to happen again. When the fear of missing an investment opportunity is greater than the risk that something doesn’t add up — it’s only a matter of time before we see the next Theranos. If not in court, then at least in bankruptcy.