Co-founder and former CEO of WeWork, Adam Neumann&nbsp

We are living in the golden age of the entrepreneur. Thanks to our collective fascination with billionaire business leaders, start-up moguls are the hottest celebrities of the 21st century. When they aren’t being photographed at red carpet events, they can be found making television cameos or dominating the cultural conversation on Twitter. Long gone are the days when tech founders and start-up moguls lived quietly in the background, making millions yet rarely making headlines. Today, tech entrepreneurs are household names, achieving rockstar status the likes of which was traditionally reserved for – well, rockstars.

The only thing that interests us more than a business success story, however, is one of fraud and failure. Take a look at the biggest pop culture hits from the past few years and you will notice an interesting trend – many of our most-watched television dramas, binge-worthy streaming series and must-listen podcasts have chronicled the rapid rise and fall of would-be entrepreneurs. From the Fyre Festival fiasco to the spectacular fall from grace of WeWork’s Adam Neumann and Theranos’ Elizabeth Holmes, these stories continue to captivate audiences around the world. But does the recent proliferation of these tales – of fraud, deception and wrongdoing – suggest that something has turned sour in the entrepreneurial world?

Rather than being the work of a few ‘bad apples,’ these cases may be reflective of a more pervasive cultural problem in Silicon Valley. It appears that Wall Street is no longer the epicentre of white-collar crime, with California’s tech bubble birthing a new generation of fraudsters and tricksters. As new stories of start-up chicanery continue to emerge, has the ‘fake it till you make it’ mantra corrupted entrepreneurial culture as we know it? The life of a successful entrepreneur is certainly seductive to many a young business founder. Fame and fortune awaits those who land on that ‘needle in a haystack’ billion-dollar idea, with today’s zeitgeist venerating start-up moguls to an almost unhealthy extreme. And for those plucky go-getters set on making a name for themselves, the start-up landscape has never been so alluring, and the rewards never so great. With just an internet connection and an idea, anyone can launch their own business, while investors remain spend-happy and hungry for the ‘next big thing.’ Last year, investors poured a record $330bn into US-based start-ups – an approximate four-fold increase in the amount of money being invested in start-ups when compared with five years ago.

Just as popular culture turns business moguls into celebrities, investors can find themselves seduced by ‘visionary’ leaders. Modern-day entrepreneurship celebrates audaciousness, self-belief and a disregard for the rule book. We are drawn to those bold risk-takers who have an unwavering belief in their idea. While traditional companies relied on a strong brand name and an instantly recognisable logo, 21st-century technology firms almost always have their founder as the face of their business. The Facebook empire is fronted by Mark Zuckerberg, Tesla is synonymous with Elon Musk, and Amazon will forever be associated with Jeff Bezos – despite its founder having stepped down as CEO last year. Elevated to celebrity status, these tech moguls have convinced investors and consumers alike of the validity of their products and services – achieving spectacular success and working their way onto world rich lists in the meantime.

The cult of personality
It’s not hard to see why many would be keen to emulate the success of the early 21st century tech elite. Elizabeth Holmes, founder and CEO of ill-fated blood testing company Theranos, was even said to have modelled herself on the late Apple co-founder, Steve Jobs. In business, and particularly the start-up world, the cult of personality is strong, at times blinding potential investors to possible red flags and early warning signs.

Such was the case with Holmes’ Theranos. In 2003, aged 19, Holmes founded the health tech firm Theranos, with the aim of revolutionising diagnostics through a simple finger prick blood test. Just one year later, Holmes had raised $6.9m in early funding, giving Theranos a $30m valuation.

Over the course of the next 10 years, Holmes succeeded in ramping up investor interest in the firm, with US Treasury Secretary George Schultz and media mogul Rupert Murdoch among her high-profile backers. By 2014, the firm was valued at $9bn – making Holmes the youngest self-made female billionaire.

Just one year later, however, and the cracks were beginning to show. After a whistleblower sounded the alarm over the validity of Theranos’ blood testing equipment, the Wall Street Journal published a series of shocking exposés on the company, casting significant doubt over the firm and ultimately leading to its collapse. The question everyone found themselves asking was: just how did Holmes get away with it? To investors, she was a captivating leader with a good story. And for some, it seems, that was enough to part with millions.

The power of personality and story-selling is also evident in Adam Neumann’s controversial leadership of co-working company WeWork. While Neumann favoured a more gregarious, outlandish leadership approach than that of the more reserved, composed Theranos boss, both won over investors with their charismatic style and unfaltering belief in their ideas.

Co-founding WeWork from a single office space in SoHo in 2008, Neumann was messianic about the benefits of flexible, multi-use co-working spaces, convincing investors that his ‘physical social network’ of office buildings was the ‘future of work.’ His optimism proved infectious, and by 2018, he had turned WeWork into the largest private occupier of office space in Manhattan.

But it wasn’t to last – reports of Neumann’s erratic management style tainted the company’s planned IPO with the firm slashing its valuation and ultimately abandoning its efforts to go public at the last hour. Its value tanking, the troubled firm was forced to lay off 2,400 employees (see also Fig.1). Much like Holmes, Neumann was able to successfully acquire billions of dollars in venture capital from investors, his enthusiasm and self-belief enough to make up for what was ultimately a flawed business plan. And while there is an important lesson for investors to learn from these scandals, there is little evidence that these high-profile cases have dampened VC enthusiasm for finding the next tech ‘unicorn.’ Investors are continuing to pour money into start-ups at record rates, seemingly undeterred by the lofty valuations of the Silicon Valley start-up bubble.

A cultural crisis in Silicon Valley
While it would be perhaps more palatable to dismiss cases such as WeWork and Theranos as one-off scandals, we may find that these cases are actually the canary in the coalmine, indicative of a wider, more entrenched cultural problem within Silicon Valley. Just as the uncovering of the Bernie Madoff Ponzi scheme scandal prompted a profound reassessment of the investment industry in 2008, these cases should, at the very least, cause us to question the modern entrepreneurial landscape.

Nobel Prize-winning Holocaust survivor Elie Wiesel, who lost $15m to Bernie Madoff’s swindling, said of the financier: “We thought he was God. We trusted everything in his hands”. Similarly, the current culture within Silicon Valley seems intent on making messianic leaders out of start-up founders, creating a climate where the authority and judgement of these perceived visionaries is unshakable and unquestionable.

The current culture within Silicon Valley seems intent on making messianic leaders out of start-up founders

In 2014, entrepreneur and Paypal co-founder Peter Thiel penned an article for Wired magazine, entitled: ‘You Should Run Your Start-up Like a Cult. Here’s How.’ In the article, Thiel claimed that “the best start-ups might be considered slightly less extreme versions of cults,” and admitted that “cultures of total dedication look crazy from the outside.” It appears that many budding young business minds took note of this advice, with Silicon Valley fast earning a reputation for a pervasive ‘cult-like’ culture. Indeed, Thiel theorised that every tech start-up should be made up of “a tribe of like-minded people fiercely devoted to the company’s mission.” Looking at Silicon Valley today, many start-ups seem to have succumbed to this cult-like mentality. And when founders are elevated to near mythical, ‘cult leader’ status, then mistakes, misjudgements and even malpractice can be overlooked. While innovation and vision should be rightly celebrated, Silicon Valley must be careful not to turn a blind eye to wrongdoing – even when it is disguised as industry ‘disruption.’

If this recent wave of Silicon Valley scandals have exposed the dangers of the ‘fake it till you make it’ mindset, they may also remind investors that impossibly high valuations for young, trendy start-ups may be just that – impossible. Tech unicorns are no longer the mythically rare creatures that they used to be. As of March 2022, there are 607 active unicorn companies in the US, with 75 reaching that coveted $1bn valuation since the start of the new year. With valuations continuing to soar and venture capitalists betting big on start-ups, investors need to make sure that they aren’t taken in by a charismatic leader and a good story alone – or they could end up chasing a unicorn that simply doesn’t exist.