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Parashat Toldot

“The voice is the voice of Jacob, but the hands are the hands of Esau” - How Elizabeth Holmes and Sam Bankman-Fried managed to capture investors in a web of lies with the art of impersonation



These last few days, the startup world was hanging at the edge of its seat waiting to hear the outcome of two major news stories. The first, the final verdict of Elizabeth Holmes, founder of Theranos, sentencing her to 11 years in prison for 4 counts of fraud. The second, the collapse of the crypto company, FTX, headed by Sam Bankman-Fried, which turned out to be based on lies. These young entrepreneurs will go down in history as two of the greatest impersonation artists the industry has ever seen. So successful, that they managed to capture some of Silicon Valley’s top investors in their web of lies.


In the face of these recent events, investors, entrepreneurs and industry leaders alike are finding themselves bewildered by the question - how the heck did this happen? How did a man like Alfred Lin end up apologizing to investors for his $150 million investment in a fraud-based venture? To me, the greater question is how we as human beings let ourselves be fooled time and time again by con-artists. And the answer lies in the inner mechanisms that drive our decision-making.


We would all like to believe that every decision we make, big and small, is the result of a rational thought process. This is especially true in the case of investors who have to decide which startup would be given the chance to change the world and which won’t, a decision that often involves hundreds of millions of dollars. In those cases, we’d like to believe that the final vote in favor of investing was based on due diligence, the cold hard facts. But that would be inaccurate. While every investor has a due diligence process in place, underneath it is a tectonic layer of emotions which more often than not gets the final say.


99% of the time we are driven by emotion. In her book ‘What does it matter’ (from Hebrew, מה זה משנה), Tali Sharot illustrates how a single image planted in our brain can make us forget everything we know about the world, while our sentient mind blurs this basic fact and making us believe that it was logic that dictated our choice. It follows that if a certain person could crack the code of how to make people feel, that person would win the greatest power of influence. In the world of entrepreneurship, that person could change the world - for better or worse.

Let’s take a look at how this works. Parashat Toldot tells us that Jacob was a great impersonation artist. When his father Isaak is at his deathbed, Jaacob, encouraged by his mother Rivka, plots to steal the birthright from his brother, Esau. At first, Isaac does his due diligence trying to understand who is standing in front of him. To alleviate his father’s doubts about his identity, Jaacob turns to his senses:


So Jacob drew near to Isaac his father, and he felt him, and he said, "The voice is the voice of Jacob, but the hands are the hands of Esau." And he did not recognize him because his hands were hairy like the hands of his brother Esau, and he blessed him. And he said, "Are you [indeed] my son Esau?" And he said, "I am." And he said, "Serve [it] to me that I may eat of the game of my son, so that my soul will bless you." And he served him, and he ate, and he brought him wine, and he drank. And his father Isaac said to him, "Please come closer and kiss me, my son." And he came closer, and he kissed him, and he smelled the fragrance of his garments, and he blessed him, and he said, "Behold, the fragrance of my son is like the fragrance of a field, which the Lord has blessed!


Jaacob pulls out all the big guns. He uses Isaac’s sense of smell, taste and touch to invoke his fatherly sentiments, his trust and his pride in his son, Esau. He does everything he can to make Isaac stop thinking, ignore the voice of reason and the words he’s hearing and instead delve deeper into the emotional world. In other words, he’s manipulating his father’s decision-making mechanism until he gets what he wants - the birthright blessing.


Like Jaacob, Holmes is a great impersonation artist. Just as Jaacob put on his brother’s clothes, so did Holmes try to impersonate Steve Jobs and his black turtlenecks. Like Jaacob, she too distorted her voice to make it sound more authoritative. Through her storytelling, Holmes got investors to an emotional state of FOMO. She did that by planting two images in their mind. In one, they are up on a stage, telling the world how they were part of the greatest revolution the medical world has ever seen. In the other, they are standing backstage, ashamed at having passed on an opportunity of a lifetime, while all of Silicon Valley’s top investors take their place on the stage. Which image would you have chosen? The answer is clear and can explain how people like Larry Ellison, Henry Kissinger, George Shultz and many others fell for her lies.

Sam Bankman-Fried was another pretty good impersonation artist. The emotion he invoked in his investors was the spirit of youth and excitement. He made people like Alfred Lin believe they are part of a group of brilliant, talented young men who are leading the crypto world. Once he got Sequoia, the way to the hearts of other investors was easy. Who of us would not lean on the fact that Sequoia is a co-investor to justify our own choice and obscure the fact that we were driven purely by emotion?


Faced with these stories, it seems there's no way out of this dire state of affairs. But that is not the case. I believe that experienced investors can and must avoid situations of this kind. I believe that there is a way to avoid decisions that end in colossal failures. A way for investors to stay clear of entrepreneurs who turn out to be con-artists, impersonators, liars.

Every investor has a favorite field of investing. For one it’s the promise of great riches; for another it’s getting excited by groundbreaking technologies; for yet another it’s wanting to be around beautiful, talented young entrepreneurs who are about to change the world. All of these fall into the category of what I define as “the danger of emotional-investments”.


For me, it’s impact. I often come across fascinating startups in healthcare that are passionate about reducing socio-economic gaps, who want to strengthen peripheral populations, and who present me with a business model of economic justice. These types of investments expand my heart and fill my stomach with butterflies, all because of the impact potential that’s in them. Given that, I could have easily invested in Theranos. And while I haven't invested in Holmes or in any other fraud-based startup of that scale, I certainly have made mistakes of this kind over my many years as an investor, mostly with impact investments. And I’m convinced that I’m not the only investor who gets tempted every once in a while when a startup in a field we care deeply about promises to change the world for the better.


This tendency, like many other emotional tendencies, is just the warning sign investors need to help them avoid situations of fraud and impersonation. Whenever I recognize the feeling of impact in myself, I make sure to look into the startup more closely, have another meeting, do more careful due diligence. Whatever it takes until the question of what’s driving me to invest becomes detached from my positive, emotional tendencies towards the startup or the entrepreneur. Self-awareness, staying on our toes, being humble and resisting our urge to act as we feel is how we arrive at a rational decision. And that’s the best defense against the Elizabeth Holmess and Sam Bankman-Frieds of the world. May it be so that we, investors, entrepreneurs and human beings learn a great lesson from these stories.


Shabbat Shalom


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