Once viewed as a rising star of Silicon Valley and a figure of inspiration for women in tech, the former CEO if Theranos has been found guilty of defrauding investors during the company’s fifteen years of trading.
Elizabeth Holmes established Theranos in 2003 after famously dropping out of Stanford to pursue her own entrepreneurial interests. Her goal was to revolutionise blood testing methods by creating technology that could analyse and diagnose medical results from a single finger prick of blood, making blood tests more accessible and affordable.
However, Holmes had been informed repeatedly by medical and scientific experts that was she was trying to achieve was impossible. Despite knowing her technology simply did not work, Holmes made repeated false claims to investors, industry audiences, and the public about the extensive capabilities of her company’s patented machines.
She claimed the technology could diagnose hundreds of potential diseases or medical conditions from a single drop of blood, doctored documents from third-party companies advocating for her devices, and stated that she had successfully trialled the devices with the US military to help care for soldiers. These statements encouraged investors to hand over $900 million in venture capital under false pretences, inflating Theranos’ net worth considerably even as the company continued to lose money. At its peak valuation, Theranos was worth $10 billion.
So, how did a young woman, with very little expertise in the medical field, manage to convince so many intelligent and experienced investors to part with so much money?
Elizabeth Holmes had the connections to high net-worth individuals from the beginning. Timothy Draper was a childhood neighbour and Don Lucas was connected to her father’s college colleagues. Her family did run in the right circles and Holmes recognised an opportunity to capitalise on her parents’ networks.
Once one high profile investor with a good reputation agrees to invest, other investors see this as an endorsement of the business potential and want a piece of the action. Many of the investors of Theranos were connected, introducing each other to the business and to Elizabeth Holmes.
She made the right promises to the right people, highlighting the humanitarian aspect of her plans to those who were sympathetic and showcasing the military potential to the individuals who wanted to see practical applications.
There was a significant lack of due diligence from Theranos investors, as highlighted in court, that should not have overlooked the lack of solid evidence that Holmes’ devices actually worked or that the information she was providing people was legitimate.
Holmes was also talented at branding herself. She had a carefully tailored public image and persona as the CEO of Theranos, taking on a style and attitude many attributed to Steve Jobs. She promoted a rigorous lifestyle and constantly emphasised that she only ever spent her time working to make her business a success. In the 2000s, many would have been incredibly inspired to see a young woman at the helm of Silicon Valley.
Holmes did not work alone; her COO, Ramesh ‘Sunny’ Balwani, was allegedly instrumental in many of Theranos’ operations. The question is, how much did he play a part in the fraud? Well, he also faces trial in 2022.
As Elizabeth Holmes waits for her sentencing, facing a potential of 20 years in prison, those who have followed the story from the beginning of the scandal wonder if this trial has changed anything in the world of business. Will ambitious start-ups struggle to find the venture capital in an environment that has been badly burned by the unfortunate legacy of Theranos?