Why everybody gets duped by hot health and science startups

  • Health and science startups seem uniquely positioned to fool investors and the public.
  • Theranos is a well-known example of a risky healthcare investment gone wrong, but a handful of other new health and science ventures have raised questions too.
  • Investors, psychologists, and researchers told Business Insider that this was happening for several reasons, including the amount of capital flooding the space as well as naivete and inexperience.
  • Primarily, the Silicon Valley tech ethos of “move fast and break things” is not being counterbalanced by the healthcare principal of “do no harm,” the experts said.
  • Visit Business Insider’s homepage for more stories.

Healthcare investing isn’t for the faint of heart.

Where a traditional Silicon Valley tech startup might dare to disrupt how people share photos or hail a ride, health and science startups often involve putting vulnerable people’s lives on the line.

Theranos is a well-known example of a risky healthcare investment gone wrong. Investors sank hundreds of millions of dollars in a blood-testing company with little to no published science, and when it was gradually revealed that the advanced technology required for the company’s ideas did not yet exist, Theranos toppled.

John Ioannidis, a professor of medicine at Stanford who was an early Theranos whistleblower, told Business Insider that the company was not an anomaly.

Ioannidis authored a recent study that found more than half of well-funded healthcare startups were failing to publish any research, a practice considered key to ensuring that the science behind a new company is solid and that it won’t harm patients.

Ioannidis, along with investors, psychologists, and other researchers, told Business Insider that these problems were cropping up for several reasons, including the sheer amount of capital flooding the biotech startup space as well as scientific naivete and inexperience on the part of investors and the public. Primarily, the Silicon Valley tech ethos of “move fast and break things” is not being counterbalanced by the healthcare principal of “do no harm,” the experts said.

“Most investors have very little ability to assess the validity of the promises and claims being made,” Ioannidis told Business Insider. “They just go blindly, and some of them are lucky.”

“Many of them are not,” he added.

Nevertheless, biotech and healthcare startups have scored an unprecedented amount of money from investors in recent years. Last year saw more than $US20.3 billion go to healthcare startups, according to data from the professional-services giant PwC. That’s nearly three times the amount those startups took in in 2012.

‘Move fast and break things’ versus ‘Do no harm’

A decade ago, Facebook’s cofounder and CEO, Mark Zuckerberg, told Business Insider’s Henry Blodget that Zuckerberg’s prime directive to Facebook employees was to “move fast and break things.”

It has become the unofficial motto of Silicon Valley.

Healthcare and biotech investors say it shouldn’t apply to startups in their field, however.

Sometimes, founders can come to the healthcare space with the desire to disrupt things – to break away from the chains of regulation and give patients what they believe they need,Racquel Bracken, a vice president at the venture firm Venrock, told Business Insider.


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As Silicon Valley tech giants like Facebook and Juul push into healthcare, they see revolution. Outside experts see red flags.

But while this attitude can work well in traditional tech fields like ride-sharing or social media, it becomes dangerous once you’re dealing with something like a new treatment for a disease.

“In particular in Silicon Valley there’s this ethos of ‘move fast and break things’ from the tech world,” Bracken said. “That gets applied a lot with entrepreneurs who maybe don’t have a healthy sense of respect around why healthcare is such a highly regulated industry.”

Science is complicated, and vulnerable patients with life-threatening conditions may be more susceptible to hype.

That means regulatory agencies like the Food and Drug Administration play a key role in protecting people. She said startup founders seeking to steamroll those regulations did not have patients’ best interests in mind.

“You have a huge responsibility when what you’re doing is going to affect how someone’s disease is treated,” Bracken said. “The FDA exists for good reason.”

‘Even exceptional people can be duped and drawn in by brand’

From a psychological perspective, health and science startups may present the perfect storm to trick investors into believing in unfounded claims, some researchers told Business Insider.

Gordon Pennycook, an assistant professor at the University of Regina in Canada, has studied why so many of us can fall for seemingly impressive yet untrue statements. He and his team have found that randomly generated strings of words, formatted like aphorisms, are enough to consistently prompt feelings of profundity in experiment participants.

So why do we fall for what his team has called “pseudo-profound bullshit”? Why does neurobabble make arguments more impressive?

The reason people tend to fall for falsehoods, he said, is that they don’t want to spend too much time challenging others’ claims. In other words, it’s easier to believe people than to challenge them. Since the brain has a finite amount of energy, people sometimes try to shorten the time they spend on critical thinking, Pennycook said.

Investors “don’t have infinite cognitive resources,” he added.


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Health and science startup founders can also mask their complex ideas with jargon that entices investors to spend money without encouraging them to think too hard about their claims.

Julie Grant, a partner with the venture firm Canaan, said charismatic founders could also be highly persuasive. This can be especially true when their idea promises to shake up an ingrained part of the healthcare system or even save lives, like in the case of Theranos and its founder, Elizabeth Holmes.

“Even exceptional people can be duped and drawn in by brand,” Grant told Business Insider last year.

While convincing leaders might appear to lend credibility to an idea, one magnetic founder is not enough to legitimise a health startup that risks people’s lives, Benjamin Tseng, a principal at the venture firm 1955 Capital, told Business Insider last year.

“You can’t just count on a charismatic CEO who will cobble together some people and say, ‘OK this is going to work,'” Tseng said.

Unfortunately, the likelihood to fall for rubbish health products may have increased recently, according to Kit Yarrow, a professor emerita at Golden Gate University. People have what she called an “unquenchable thirst” for information about their bodies, minds, and relationships – and a recent report from Deloitte suggests they’re spending more money on it now than ever.

Because the possibility of profit in the healthcare industry is high, some investors may also be less likely to think critically about a product’s complicated science, Yarrow said.

“Venture capital has a model that fits really well with some industries. It fits great with retail,” Yarrow said. “I don’t know if it’s that good of a fit for something that has a health component to it.”

Ioannidis, too, said some investors get duped by health startups because investors often lack credentialed advisers who can warn them against bold, expansive claims.

“Health and biology are not tech problems,” Ioannidis said. “They are more complex and involve steps proving safety, efficacy, and no harm.”

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