The cultural consequences of start-ups remaining private

There’s an interesting anecdote on loc 3960-3972 of Bad Blood, John Carreyrou’s gripping account of the Theranos scandal, recounting a follow up meeting between Rupert Murdoch and Elizabeth Holmes which sealed the former’s investment in the latter’s company. I thought it was a vivid account of the distinctive corporate culture which had emerged within Theranos and how this ran contrary to the expectations that could be found within other sectors, even amongst international elites who could be expected to have seen a great deal in terms of the personal entourage of fellow elites and the business expectations they bring with them into potential collaborations:

They met again a few weeks later at the media mogul’s Northern California ranch. Murdoch, who had only one bodyguard, was surprised by the size of the security detail Holmes arrived with. When he asked her why she needed it, she replied that her board insisted on it. Over a lunch served by the ranch’s staff, Holmes pitched Murdoch on an investment, emphasizing that she was looking for long-term investors. Don’t expect any quarterly reports for a while, she warned him, and certainly not an initial public offering. The investment packet that was later delivered to Murdoch’s Manhattan office reiterated that message. Its cover letter stated in the first paragraph that Theranos planned to remain private for the “long term” and went on to repeat those two words no fewer than fifteen times.

There are financial consequences to start-ups remaining private for longer, in some cases seeking to avoid going public altogether. Furthermore, it is only a possibility because of the ready availability of capital driven by low interest rates and the (illusory) promise of exponential growth. But what are the cultural consequences of firms remaining private for longer? How were the cultural pathologies of Theranos facilitated by their status? How did this corporate culture shape how the firm was seen by outsiders? Was the corporate culture of Theranos exceptional or can we see extreme manifestations there of tendencies which can be identified in other firms?

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