Elizabeth Holmes, committing fraud, and drinking the Kool-Aid.

At the turn of the century – it feels odd to say this, given we’re talking about the 20th, not the 19th?– Brian Cauley and Evan Lewis, both former?Ammirati &?Puris?colleagues and now friends, approached Roberta and me, asking us to invest in their digital start-up?Merlin TV.?We were in the midst of the wildly irrational, highly contagious dot-com?epidemic, so it was no surprise we caught the bug.

I recall what I said to Brian and Evan as we wrote the angel-investor check:?“I?don’t?have all that much confidence in your idea, but I?do?have confidence in the two of you.”?We weren’t the only ones who fell ill; friends, family, former colleagues became feverish and succumbed.?If I recall correctly, Brian and Evan raised roughly a half-million dollars in what the private equity people have come to refer to “dumb money.”

Dumb indeed.?We lost every… last… penny of that investment.

I think of this now as I read?The?Times?story, “Silicon Valley Can’t Escape Elizabeth Holmes,” reporting on her conviction on four counts of fraud, having deceived investors about the company she founded,?Theranos. The difference is, Roberta and I lost thousands of dollars; the people who were sold on Holmes’ lies and deceptions lost tens of millions, not that any of these investors likely felt any more pain at being stupid than we did.

Was there anything to learn from this, or would I fall prey to Einstein’s famous quote:?“Insanity is doing the same thing over and over and expecting different results.”?

Shortly after founding?Solomon Strategic, I was approached by private equity firm?McCown De Leeue?(MDC) as they considered an investment in a west coast marketing agency.?“We don’t know anything about the business, but you appear to be expert in it,”?said one of the partners,?“would you be willing to vet them for us?”

I flew west, met with founder Mike Halloran and Managing Director Betsy Sperry, spent the day asking questions, looked at work, sat for a demo, then returned hope to craft a letter of opinion addressed to?MDC?Principal Christopher Crosby that opens with,

“This is a story about myth and reality.”

It wasn’t apparent to my clients – they were bankers, not marketers – but it was all too apparent to me:?the firm under consideration was a myth, a hoax, and, in truth, not a very convincing one at that.?I was being “Theranosed,” or “Holmesed,” or whatever term you want to use to refer to being misled, misinformed, or worse, outright lied to, but this time I wouldn’t be victimized by Einstein’s definition of insanity.

I chose my words carefully, but recommended against the investment –?“these issues [I included a bunch] preclude me from recommending that MDC make an investment”?– saying if they were going to ignore my advice (they struck me as hellbent to proceed, no matter?what?I said) they should, at the very least,?“take an aggressive stance on valuation,”?increasing their ownership percentage in return for funding.

I emailed the letter, then followed up with several calls, but never heard from Christopher Crosby or his colleagues again.?They likely ignored my counsel and decided to proceed. With the benefit of 20/20 hindsight, I realized the proverbial ship had sailed:?MDC?was?not?looking for analysis; it was looking for validation of a decision already made.

Today, if you look for the agency?MDC?bought into, you will discover a dry well.?If it exists, I certainly could not find it.

Okay, that’s?MDC, but what about Elizabeth Holmes??Here are three ways you can explain the fiasco:

There is the “not us”?apologists, who say, as?The Times?story points out,?“The technorati in Silicon Valley and beyond have long tried to separate themselves from Theranos… more a health care company than a tech company. It raised money from wealthy families and people outside the tech industry, while insiders saw through the hype.”

There is the court?jury, speaking truth to power as it voted to convict Holmes of fraud.

And then there’s?me, reminded of something my colleague Kathy Kissane said, quoting?The Art of Client Service:?

“A client who trusts you will seek your counsel.?A client who trusts you will forgive your honest mistakes, and will work with you to correct them.?A client who trusts you will partner with you in taking the risks that lead to great work.”

What’s wrong with Elizabeth Holmes and?Theranos??The answer lives in my?McCown De Leeue?story.?This was a?Kool-Aid?moment; I, unlike the seemingly smart, FOMO-focused people at?MDC,?wasn’t prepared to drink it.?With?Theranos, nearly everyone got drunk.

I wrote that?MDC?letter of opinion because I didn’t trust what Mike Halloran and Betsy Sperry were telling me.?But even worse,?MDC?chose to not trust my counsel, or me.?

All these years later, this still leaves me feeling just a little sad, not because my clients ignored my advice, but because I failed to convince them.