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Bursting Bubbles

A Fake Mayo Company, a Jaden Smith Lawsuit, and the End of the Silicon Valley Dream

Deciphering Silicon Valley’s strange new post-euphoric landscape.

August 3, 2017 6:56 pm
Jaden Smith in Los Angeles; Josh Tetrick, CEO and Founder of Hampton Creek during keynote address in New York City.
Jaden Smith in Los Angeles; Josh Tetrick, CEO and Founder of Hampton Creek during keynote address in New York City.
Left, by Michael Tran; Right, by Bryan Bedder, both from Getty Images.

“We focus all the time on disrupting ourselves, and that’s one of the core tenets in the way we operate. Silicon Valley is a great symbol of disruptive technology being able to, one, change the world, and, two, obsolete itself.”

Who spoke these prescient, evocative words? Was it Steve Jobs, the historic and indefatigable founder? Or Ron Conway, the storied venture capitalist, and forefather of Silicon Valle’s great flourishing? Or perhaps Sheryl Sandberg, one of the most accomplished executives in the industry’s short history, whose discipline and acuity have helped accelerate Facebook beyond the expectations of even the most aggressive Wall Street analysts?

Alas, these were the musings of Elizabeth Holmes, the disgraced founder and C.E.O. of Theranos, who has seen her once rapidly ascending star erupt just as quickly on account of the now discredited veracity of her start-up’s technology. Holmes, who was once the world’s youngest self-made female billionaire, is currently scraping the very bottom of Theranos’s piggy bank. Earlier this week, the company settled with Walgreens, a former partner, reportedly for more than $25 million. It’s just the latest settlement for Theranos, which is hemorrhaging its cash reserves as it works to close a series of disputes and lawsuits with various investors and partners. Theranos, which raised nearly $700 million since its 2003 founding, reportedly had just $187 million in the bank in January. In June, the company told its investors it was down to $54 million. Last month, it put its Palo Alto headquarters up for rent.

For a time, Holmes’s story was considered a bizarre outlier to a general narrative of transparency and optimism. Shortly after a series of pieces by Wall Street Journal investigative reporter John Carreyrou illuminated Holmes’s house of cards, Theranos’s very failure was singled out as an example of what worked about the Valley. Indeed, many of the industry’s top venture capitalists had passed on the company. Advanced scrutiny of the type often practiced on Sand Hill Road showed that the company simply couldn’t pass a smell test. Theranos, it seemed, was proof of Holmes’s own mantra: in Silicon Valley, you either make it big or burn up fast.

Holmes’s foibles have become a cautionary tale, but they also appear to have been an antecedent of a darkening narrative to have overcome the Valley in recent months. Indeed, Silicon Valley—or rather the ’s idea of itself—seems to be teetering on the edge of obsolescence. Sure, fears of a second dot-com bubble never quite materialized. (“Where’s the kaboom?” Marc Andreessen’s Twitter bio once read. “There was supposed to be an earth-shattering kaboom!”) But the unsexy reality of the industry’s deflation has been no less dismal. Uber had its moment of reckoning this year after a former engineer published a blog post exposing the sexism and wrongdoing that underlied the $70 billion company’s corporate culture. More than 20 Uber employees and a number of executives were fired or resigned for reasons pertaining to human-resources violations; in the wake of the revelations at Uber, leaders at other tech companies and V.C. firms have come forward, too, and a number of men have resigned. And yet weeks after he was evicted from his company for presiding over a culture of sexual harassment—to say nothing of an existentially damaging lawsuit—Travis Kalanick now appears hell-bent on returning to the helm of Uber. Perhaps more perplexingly, as my colleague Nick Bilton recently reported, it might just happen.

Most recently, Tom Frangione, the C.O.O. of Greylock, stepped down after the firm learned he’d had an undisclosed relationship with another Greylock employee that was deemed “inappropriate.” Female entrepreneurs accused Justin Caldbeck of Binary Capital of similar inappropriate behavior. In June, Greylock partner Reid Hoffman wrote a “Decency Pledge” in light of revelations of sexual harassment by venture capitalists. “If a manager propositions his employee and defends his behavior by suggesting it’s just ’two consenting adults,’ what do we think?” he wrote, perhaps unaware that weeks later an executive from his firm would be ousted for this very behavior. “Outrageous and immoral behavior that ignores the power relationship.” That it took female entrepreneurs and employees going on the record, risking their reputations to call out such blatantly inappropriate behavior, is an indictment of the tech industry’s inability to live up to its stated mission of changing the world for the better.

These scandals only reveal that Silicon Valley is just as venal and sexist as Wall Street ever was. As the entrepreneur Erica Baker recently noted to Kara Swisher, one difference between Wall Street and Silicon Valley is that the former at least acknowledges that they often behave like jerks. “The people in power who continue to have power and continue to do these things without any consequence or repercussion will continue to do it over and over again,” Baker said. “There are people in the industry now who have the reputation of being huge jerks still running tech companies.”

The bad behavior and dishonesty coalesces around a number of other head-scratching developments in the Valley. Seed-stage financing has been down for two years, and transactions and dollar investments have slumped 40 percent since their mid-2015 peak as venture capitalists have struggled to find the exits. I.P.O. euphoria has given way to grim recognition as many of the Valley’s most hyped companies—Twitter, Box, Snapchat—have collapsed in valuation. At the same time, the Bay Area has found itself swamped by an influx of foreign cash in the form of Japanese billionaire Masayoshi Son’s SoftBank Vision Fund, a $100 billion goliath that has been crowding out traditional investors and driving up valuations from Southeast Asia to Britain to Atlanta, leaving investors “baffled” and “bewildered” by Masa’s blunt force strategy. The usual power players are “no longer the big boys on the block,” one European V.C. told Business Insider. “It’s going to drive up prices and they’re moaning about it.”

Some of Silicon Valley’s not-really-a-tech-company tech companies, meanwhile, appear to be winding down. Juicero, a faddish Wi-Fi-connected juicing company, recently slashed its price and is cutting staff. The hottest new market segment—companies selling direct-to-consumer mattresses—appears to be getting saturated. But the apotheosis of this absurd new reality identity may be a lawsuit filed by Jaden Smith against Hampton Creek, an embattled vegan mayonnaise company that, according to our newfangled business designations, likes to consider itself a technology company. (Tech companies are sexy, after all, while condiments companies are often not.) Bloomberg’s Olivia Zaleski reports that the bottled-water start-up, founded by the son of Will Smith and Jada Pinkett Smith, is suing Hampton Creek over a trademark dispute. Hampton Creek, most notable for its eggless mayonnaise product Just Mayo, recently lost its entire board after a year plagued by scandals, including the company instructing employees to buy back Hampton Creek products from store shelves (employees say this was done to juice sales numbers; the company alleges it was a means of testing for quality assurance). When three executives allegedly tried to overthrow C.E.O. Josh Tetrick in a coup, Tetrick created an elaborate ruse in which the executives, while on a business trip in Majorca, were told to cancel their flights to Germany in order to meet with a V.C. When the three showed up for the meeting, they were surprised to see a human-resources employee from Hampton Creek, beamed into the room via teleconference, who delivered their termination papers.

Silicon Valley has tended to be defined by both its optimism and excess, and it has often used the former to justify the latter. But now a larger change seems to be afoot. The sometimes irrational dynamism of a once exuberant industry has been replaced by a handful of tech superpowers that have crowded out all competition. Snapchat, once the hope of a new generation of tech I.P.O.s, has floundered amid competition from Facebook, which has used Instagram to copy most of Evan Spiegel’s innovations. Blue Apron, which was once a darling of the New York start-up scene, saw its I.P.O. derailed in June after Amazon announced a $13.7 billion deal for Whole Foods, adding retail grocery stores to its expanding e-commerce empire. This trend toward gigantism has mostly favored just five tech companies—Amazon, Apple, Facebook, Google, and Microsoft—which are now worth more than $3 trillion, combined, forcing each to pursue bigger and more unwieldy acquisitions in pursuit of market supremacy.

How the Valley might “obsolete itself” remains to be seen. Even as Marc Benioff puts the final touches on his gleaming Salesforce Tower, now the tallest skyscraper in San Francisco, there is a sense of spiritual exhaustion in the Bay Area below, where soaring real-estate prices have contributed to a desperate homelessness crisis as the city’s boy-kings turn toward more technocratic pursuits. Sam Altman is trying to tackle his own Jared Kushner-sized slate of social problems, from A.I. to housing, health care, and a universal basic income. Hoffman and Zynga’s Mark Pincus are trying to disrupt the Democratic Party. Priscilla Chan is trying to rid the world of all disease.

For others, the utopianism of this new era is less naive, and more apocalyptic. Twitter and Facebook, which were once seen as the vanguard of a newly interconnected, democratic age, are now pilloried for deepening partisan divides and facilitating propaganda. Elon Musk, the industry’s most visionary futurist, is hurriedly pouring his fortune into a far-fetched plan to relocate humanity to Mars in anticipation of planetary catastrophe. Among Musk’s nightmare scenarios is the rise of super-intelligent robots, a technology that Mark Zuckerberg has described as key to making the world a better place, although both agree A.I. will likely eliminate millions of jobs in the process. Kalanick stands to profit either way.

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