Lots of things happening in the news cycle this time around, from SXSW to Trump’s recent stint at turning the White House into a reality TV show, and just about everything in between.
But we’re here to focus on the things people are likely to gloss over. Let’s get started.
Theranos’ Final Act
It seems the Theranos story is coming to a close. At least, that’s what many expect with this latest news concerning the company and its founder, Elizabeth Holmes. The SEC, earlier this week, have formalized their charges against the Theranos founder, bringing an end to a story years in the making.
Except, there’s something curiously missing from her deal with the SEC. Here’s what TechCrunch had to report:
For her part, Holmes has agreed to: pay a $500,000 penalty; be barred from serving as an officer or director of a public company for 10 years; return the remaining 18.9 million shares that she obtained during the fraud; and relinquish her voting control of Theranos by converting her super-majority Theranos Class B Common shares to Class A Common shares. This way, if Theranos is acquired or otherwise liquidated, Holmes won’t profit until more than $750 million is first returned to Theranos’s shareholders.
A couple of things here are missing. First, this deal only bars her from serving as an officer or director of a public company, with this limitation expiring after 10 years. Holmes doesn’t have a history of serving as an officer or director at a public company. Her most famed accolade is her history of running a private company and her primary role in raising growth capital. In that regard, her work credentials are more lucrative for startups than it is for public enterprises. We may, very well, see Holmes return to a startup executive role sometime soon, with little to no restrictions on her capacity in said role. In fact, her experience of having raised over $700M from investors may help her command a premium.
Second, she’s relinquishing her controlling stake in the company, relegating herself to a minority shareholder from a supermajority owner role. As such, in the event of a lucrative exit, where all her shareholders and creditors are paid off, there is a fair chance that she’ll profit as well. Moreover, it doesn’t actually bar her from exercising her voting rights with the company. It’s debatable how big that voting right may be, but either way, it’s the fact that she will still have a voice in the company that’s the issue here.
This is, actually, indicative of a larger problem in Silicon Valley, and, perhaps, the business world at large — questionable behavior doesn’t dictate meaningful convictions, whether legal or societal. There are a couple of examples that come to mind. There’s a movie, starring Matt Damon, titled The Informant!, in which Matt plays Marc Whitacre, former president of Decatur turned FBI informant. He did, in the end, serve a jail sentence, but returned to corporate life, currently serving as an executive at a private, biotech firm in California. Then, there’s the founder of Juicero, Doug Evans, who is, according to this Vice video, getting offers from all sorts of startups in the Valley.
To be fair, Whitacre may, very well, have paid his dues to society by serving his sentence. Evans may be vindicated of his unethical acts because his company offered up refunds to everyone who wanted one for their Juicero machines. And, Holmes, too, may be, now, free from blame, because she’s relinquished absolute control over the company that once made her “the next Steve Jobs”. I’m not here to make a judgement call on whether the outcomes of these cases are fair. I’m here to point out that it’s problematic that the legal, and societal, restraints to prevent such people from returning to similar positions is rather weak. Any other convictions, or rumors, would end someone’s career. Yet, when it comes to white collar crime, there doesn’t seem to be a parallel.
After the dust settles, I wouldn’t be surprised if Holmes finds another position in a startup as an executive. After all, the SEC deal doesn’t bar her from doing just that. Moreover, I’d expect her to play a key role in fundraising for any new company that hires her, leveraging her rather expansive network across the US. Likewise, I’d expect Evans to take on a similar role in the near future. I just hope that, based on their past, they work to reconcile their transgressions, and to prevent similar behavior in others. At the same time, however, I wouldn’t be at all surprised if this whole story were to happen again, whether it be involving the same actors, or not.
I once had an interview at a global marketing agency (this was when I was still, very much, focused on a career in marketing), and I got a question — what social media platforms do you use? I, obviously, answered very truthfully, and said I was on LinkedIn, Facebook, and Instagram, along with Kakao, WeChat, and Line. The interviewer proceeded to ask why I wasn’t on Twitter. I gave an answer that, in retrospect, was rather abrasive. I stated that I don’t see the value proposition of the platform, and I couldn’t see it existing in the not-too-distant future. I, obviously, didn’t get the job.
But it didn’t change my stance on the company. I was still convinced the company was in a controlled descent, with the only way out of the downward spiral an acquisition by a competitor. Turns out Twitter’s management and I don’t agree. Twitter thinks it can pull itself out of its financial rut by introducing a premium tier to its service. The service is aimed at local businesses, and will help them better leverage Twitter’s data and platform to drive up business. BMO capital market analysts are calling this move a “solid step down the road to recovery”, bolstered by the social media firm’s first profits since going public 4 years ago.
But is it, really?
First, there’s the issue of user base. Twitter’s user base growth has been stagnant, with MAU metrics climbing just 10% since Q1 2015. Facebook, on the other hand, grew its MAU numbers by nearly a third in about the same time. This is despite Twitter’s initial point being a mere fraction of Facebook’s — less than a fifth, in fact. Already, from this data, we can see that Twitter may not be the platform for small businesses, which are strapped for resources, to be investing their time and money in. Facebook has, not only t he user base, but also the growth to warrant investment of marketing resources.
Second, in terms of profitability, the BMO analyst stated that if the company can manage its costs, profitability will naturally improve as top line pressures ease in the coming quarters. In terms of cost, Twitter’s write offs may have contributed heavily to that end, having acquired many startups in hopes of integrating their services to Twitter, and creating an ecosystem. Most representative of this is Vine, which is largely considered to be a failed acquisition. Unfortunately, the company’s top line pressures doesn’t seem to show any signs of easing off soon, with the growing dominance of Facebook and Instagram, coupled with an ambitious Snap, and a growing move of the industry away from simple social media to messaging, signified by the Chinese giant WeChat, and Facebook’s increased investment in Whatsapp. Twitter’s value proposition is becoming, increasingly, marginal and insignificant.
I wrote earlier this week about how investing in public, internet companies requires a different approach than investing in a traditional company — both for investors and companies. The TL;DR version is that investors need to focus on the long term, not immediate profits, and companies need to create and communicate a plan of attack to be insanely profitable in the future. Twitter isn’t doing that right now. Twitter has a plan to maintain what it has, and it’ll help it be profitable. But does it have the potential to continue growing like its competitors?
There doesn’t seem to be a plan, or at least, they’re not communicating they have a plan, to increase its user base. They don’t seem to have a plan to control the toxicity of the content on their platform, and, perhaps most importantly, they don’t seem to have any ideas to generate new revenues from their existing stakeholders. And, anything they seem to dabble in, their competitors seem to do infinitely better, like live sports streaming, which YouTube is quickly taking over.
It may be that I’m just overly bearish on Twitter, and that the user base it already has is extremely dedicated that they’d pay anything to keep the platform open. Or, it might be that they’re really struggling, and the only thing keeping them from admitting it is the reputation of being one of the pioneers in the social media field. If it’s the latter — which I’m hoping it isn’t — it’s time to be objective, and take drastic action.
The World’s First Blockchain Elections
This is a surprising turn of events for the world of blockchain. Sierra Leone, a country in West Africa, has just held its presidential elections using a blockchain system, developed by Agora. The system was used to capture votes at 70% of polls in the country, which isn’t an insignificant amount.
First, a disclaimer. I’m no crypto expert, nor am I qualified to go in depth about blockchain technologies, and the ramifications it may have on the future of humanity. I am, however, going to offer up some observations I have concerning the matter. First, this is likely to open the floodgates to non-financial applications of the blockchain. It’s likely to act as a proof of concept for many blockchain applications, such as blockchain supply chain management platforms, which seems to be an area of interest for companies like Wal-Mart. Whether it’ll help other applications like supply chain management gain traction is debatable, but it’ll definitely help lower the barrier to entry for these new applications.
Second, and this observation is more contentious, is the possibility of using this technology to help fledgling democracies in certain parts of the world, by helping lend legitimacy to the results of an election. That was the preliminary goal of this preliminary roll out with Sierra Leone, where elections results were always contentious. This may help countries foster, and eventually establish, strong, lasting democracies. Whether this development is good or not isn’t the point of this development. The point is that questionable election results may be a thing of the past. The Florida recount in 2000, or the conspiracy theories surrounding the 2016 elections — all these will be no more.
It won’t, however, get rid of election meddling by foreign powers, since those involve influencing the populace, rather than manipulating the vote registry directly.
But, perhaps most importantly, this proof of concept shows that blockchain technologies can be independent of their resulting crypto tokens, and provide a valuable proposition for human society at large. No longer will blockchain technologies be purely for speculative tokens and equity replacement tokens. At least, that’s what I’m hoping for.