It is an obvious truth of the modern era: Technology progresses so fast that no one can possibly keep up with all of it. This includes professors at Harvard, investors in Silicon Valley and everyone either geographically or technically in between. Changes are simply too fast, too complex, too broad and too specific for venture capitalists (or anyone else) to keep up with all of them. Sure, a venture investor can specialize, but that limits the ability to find and fund deals; besides, any one area can be hot for a while, and then cool off.
It is more than just not wanting to look stupid; successful venture investors cultivate an air of not only understanding the technology, but knowing where it is going in the future. That kind of reputation is a handy thing for a venture capitalist to have. Whether it reflects reality is almost beside the point; what's important is that founders, bankers, employees, and the tech press believe you have the gift.
Haven't we all seen this before? Of course we have. Let's go back to an earlier era, when Enron, was riding high, before the gigantic energy trader turned out to be one big accounting fraud. The company's chief executive officer, Jeffrey Skilling, used to berate analysts who questioned the company’s business model, telling them they were too stupid to get it. The same could be said of Bernie Madoff, whose multibillion dollar Ponzi scheme, had it been legitimate, would have required several times the number of equity options that actually existed in the world.
The basic lesson here is that when people are too embarrassed to say “I don’t know,” bad things happen.
It is a shame that the Theranos story didn’t check out. Perhaps the promise of the technology, and the personal appeal of its founder, led to a lot of wishful thinking on the part of all involved. The unwillingness to admit error is a consistent problem for investors --- really for everyone. We need to get over it.
This column was provided by Bloomberg News.