Holmes’ conviction sends a clear signal that the startup ecosystem must be built in good faith • businessroundups.org

Let’s start with the assumption that the venture founder compact is built almost entirely on trust, especially in the beginning. Sure, due diligence is important in the investment process, but lying about your capabilities can undermine the relationship between founder and investor – and in extreme cases, to the detriment of the larger, global startup market.

In the wake of Elizabeth Holmes’ conviction on Friday for defrauding investors, I’ve seen people claim she was only guilty of messing with the wrong people – the rich. The implication here is that Holmes’ wealthy investors deserved to lose their money. I would argue that what she did helped undermine the entire corporate pact, which is why she’s going to jail.

As businessroundups.org’s Amanda Silberling wrote about the company on Friday:

Holmes founded Theranos in 2003 after leaving Stanford. She presented investors and partners about technology that would revolutionize the health care system — instead of drawing blood intravenously and waiting days for test results, her technology would prick a tiny bit of blood and immediately run dozens of tests on it. Soon she was the CEO of a $10 billion company, but as it turned out, the technology wasn’t working.

What Holmes did was build a company by convincing investors that she could create something she knew it was a lie.

The tech startup ecosystem exists in part because investors who have capital to spare are willing to risk some of that money for a founder with an idea.

These investors can be fabulously wealthy individuals. They could be athletes like Stephen Curry or Serena Williams, or entertainers like Kevin Hart or Ashton Kutcher. But they can also be larger entities such as venture capital funds, investment funds or pension funds that invest on behalf of people who are not too wealthy.