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Comment by rvz | Hacker News Reader

Well no-one would have thought that this pandemic would have been the cause of exposing these startup companies (unicorn or not) that are struggling to generate revenue and that rely on endless VC funding rounds for hyper-growth to start shrivelling up right now.

Perhaps it's time to focus on startups that actually generate revenue and high profits and invest in technology that is a good for everyone, such as healthcare rather than 'nice to haves' which have no plan for profitability.

As strangely predicted here: [0]

[0] https://news.ycombinator.com/item?id=21627809

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Plenty of companies that generate revenue and profit are going to go bankrupt in this crisis by virtue of not having a sufficiently large balance sheet to wait out the shutdown. In fact many of these will depend on the ability to draw funding or debt to survive.

And it would be great if we, as a society, had the capital to invest in them. But instead we've got WeWork and Bird.

California has been drinking the kool-aid for a bit too long, this is just exposing the pitfalls of allowing wealthy VCs to choose winners and losers by funneling billions of dollars into ridiculous and unprofitable ideas.

> And it would be great if we, as a society, had the capital to invest in them. But instead we've got WeWork and Bird.

Is it really "instead"? VC makes up a tiny percentage of investment overall. Most traditional businesses should get a bank loan. Amount of money for bank loans >>> money for startups IMO.

As Theranos amply demonstrated, being in an important industry like healthcare is no guarantee that you'll be able to generate real revenue or achieve high profits.

That wasn’t the problem with Theranos, the problem is Theranos didn’t have a product.

That makes no difference when the assertion is "invest in technology that is a good for everyone, such as healthcare." It's such a vague statement to be completely useless. Define "good" and tell me which companies are doing that in healthcare so I can invest in them.

You’re stretching to find a unreasonable interpretation of the above assertion. Theranos was a fraudulent company that never had a product to sell; trying to hold them up as an example of how even healthcare isn’t safe is ridiculous.

Surely you understand the fact that Theranos was a fraudulent company, that was able to receive funding from investors, means the same thing could happen again. I'm sure there are dozens or hundreds of better examples of companies we've never heard of that simply went under because they were not profitable.

In any case, the blanket assertion that healthcare companies should be invested in and they are "good" is stupid and should be scoffed at. Saying otherwise is ridiculous.

I wouldn't say that healthcare is unsafe. I'm skeptical of the original comment's entire thesis, that identifying companies in a socially useful space is a good investment strategy.

Debatable. But Theranos is certainly not a counter argument to the thesis.

With hindsight you are able to claim this but it was highly controversial to even criticize Theranos back in the day. The book outlines how hard and how long it took to open the can of worms.

It was controversial to say that in public, sure. I have sympathy for that.

But the nominally sophisticated investors drank their own cool aid and didn’t take the most basic due diligence steps at multiple points in this journey. They absolutely were in a position to know better, and got greedy.

Theranos was more like enron. They really didn't have a working product. It was all fraud.

Theranos was a scam.

Hindsight is 20/20. Investors couldn't just step into the future and ask someone whether or not Theranos was a scam and why.

They could have asked to see the proof that it worked and asked an independent third party to verify it. That's usually what happens when people do due diligence, and it happens every day in the business world.

Also, experts raises the red flags years before the scam was finally revealed. The fraud was trivially discoverable; investors let their goals cloud good judgement.

You could claim the same about Tesla, it has a lot of expert criticizing their financials but it is still up in the air if they are right or wrong. I guess if it does fail people will claim that it was obvious all along...

No, you can't say that about Tesla, nobody ever said making an electric car was literally impossible. Quite the contrary, the technology is well understood.

The experts raised the red flags very early that what Theranos was trying to do didn't appear to be scientifically possible based on current knowledge.

Tesla sells a product. Whether or not their business model around the product will work and whether the company is well administered is debatable.

With Theranos the experts were skeptical that the product was theoretically even possible, and they never demonstrated it working to anyone. All the “demonstrations” involved cheap tricks of shuffling people from room to room so lab techs could manually process the samples.

Furthermore anyone doing basic due process could’ve gotten a traditional lab test and compared to the Theranos tests, exactly like investigative reporters did later. Such an obvious test would’ve revealed problems much earlier, and nobody on the inside decided to try that.

At least with Tesla you can actually buy a car and actually drive it.

But they didn't. And there is zero guarantee it won't happen again to healthcare companies.

The whole point here is making some generic statement about an entire industry being a good investment is a simple-minded opinion. If this made any sense, the entire economy should be made of only healthcare companies, they're just so good, right?

Theranos was fine until they LIED.

Lots of VC backed companies fail. Many try to pivot. Had Theranos not been lying through their teeth and were actually developing tech, they probably could have pivoted to a slightly different direction or application.

Sure, maybe you can't diagnose an individual disease from a fingerprick, but maybe you can get useful data by doing it every time someone hits the doctor and looking at trends. Maybe you can get okay information from much smaller blood draws. Maybe you can optimize where the blood is drawn. Maybe you can get information from other fluids than blood.

There could have been useful science coming out of Theranos, but with con-people in the driver's seats, that was never going to happen.

Theranos was never fine because the tech they wanted to develop simply wasn't possible. Had they not lied, they would have crashed and burned anyway.

> Many try to pivot.

Theranos did. Originally they wanted the machines in every home, then they changed tack and tried to make more conventional testing equipment with fewer capabilities. Even then, what they wanted to do wasn't possible. Theranos was lead by a college dropout. The chance of them ever doing anything productive in the biomed industry was nil. They turned to fraud because everything else they tried failed.

I have read "Bad Blood" and am convinced Elizabeth Holmes believed they could actually make the tech work, given enough time and resources. It was fraud, but it didn't start off that way. I felt it was "fake-it-til-you-make-it" that got out of control.

FYI, lots of great companies were built by college dropouts. Microsoft, Apple, Facebook... on and on. That has nothing to do with it.

Conmen often start as delusional and incompetent.

Like all really good cons, you need to select good marks to pull it off. The way investors believed that someone else must have done due diligence on the product and the technical background was probably engineered from the start.

All the companies you listed are different though. Early on people were telling Holmes that whatever she wanted to do WAS NOT POSSIBLE. It became a fraud very early on.

I understand. But with enough "smart" people, enough money, and enough time, she may have really believed it was possible, eventually.

Were all those investors duped?

Agreed. Full disclosure - I work there, but I hope that Zocdoc can become an example of the good kind of startup that is actually viable on its own.

It helps that we provide a service that is still in demand with some modifications. We've been working hard to convert our in person appointment inventory to telehealth availability so that people have some basic access to medical care. Obviously this benefits us, cause it helps us keep the lights on. But it's also crucial for doctors - some of whom have seen their business almost go to 0, and patients who need to find ways to access telemedicine.

And for those in here who have been laid off - we are hiring software engineering roles as well as sales rep roles. Check us out if you just lost your job.

Everyone not involved in healthcare thinks that healthcare dependent businesses are safe. That’s far from the truth. Hospitals make their money from elective surgery. People are both postponing elective surgery and hospitals are keeping beds clear in anticipation of an outbreak. Also reimbursements for Covid related treatment is low.

There are tons of terrible healthcare startups that are propped up by VCs before they crash and burn.

> invest in technology that is a good for everyone

'Nice to haves' are good for everyone. People want to have fun in life, not just work, eat, sleep, and go to the hospital...

"Perhaps it's time to focus on startups that actually generate revenue and high profits and invest in technology that is a good for everyone"

Thing is, there is a lot of focus on such startups/companies you describe...we all choose what we want to focus on. 10+ years in startups/tech and I know little (care even less) about "unicorns" considering there are far superior companies with legit model and justified valuations.

If you use Black swan events to inform your investment strategy you will lose on average.

You think software VC's are bad? Two of the last biotech IPOs I followed in 2019 were pre-revenue companies: Frequency Therapeutics and Aprea Therapeutics. And this has been going on for decades as pharmaceutical companies steadily ran out of small molecule targets and started to shift drug discovery risk to biotech VCs and the public. I'm not talking about just losing money - they don't even have a product yet because it's still in clinical trials.

Anywhere from 25% to 75% of biotech IPOs in any given year are pre-revenue or unprofitable, depending on how the market is doing. That's obviously a small piece of the healthcare market in total but until the crisis, most other high growth healthcare company were moving in the same unicorn direction because of the easy access to capital.

The problem isn't the startups, its the investors who are advising and incentivizing everyone to grow out of control because they're sitting on too much money and can't find anywhere else that gives decent returns.

It makes sense that biotech startups are pre-revenue: it is illegal to charge money for a drug until it's gone through FDA clearance. That usually requires a Phase III clinical trial.

After FDA, you're not done: the company must then convince doctors to prescribe the drug, and health insurance to cover it.

All takes years, and requires investment. The estimate is that it now costs $1B+ to develop a new drug and bring it to market.

Oh absolutely. Usually they're at least past phase 1 trials so at least investors know that the FDA has at least spoken to the safety. I've worked in startups in both fields so it's just fun to watch software people salivate over the impact of biotech while the biotech people salivate over the easy money and sky high valuations of software.

That seems the problem in itself. We should, as a society, figure out how to do that more cheaply and without the incentive of profit. Too much chance of someone telling a bunch of lies or misrepresenting in order to make a buck.

A difference between drug discovery and technology is that in the case of drug discovery product-market fit is not as much of an unknown. If your drug works, there will be a market, it is pretty easy to estimate the size of the market, and you have market exclusivity for a period of time. In the case of technology, you need for both the product to work and for the market to materialize.

How many tech companies have IPOd without product market fit? Their main problem seems to be reigning in the unrealistic growth they've been chasing.

Billion dollar biotech companies can evaporate almost overnight, especially during a fiscal crisis. All it takes is a clinical trial gone wrong (or a competitor's gone right) and most will not be able to find enough capital to keep going. Without revenue, their survival depends entirely on the FDA and investors. It's a binary result without many options like downsizing, hunkering down, renegotiating debt, or seeking a bailout except a massive down round acquisition (or government intervention).

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