Will Disgraced CEO Elizabeth Holmes Woo Another Batch of Silicon Valley Investors?
WHY YOU SHOULD CARE
She founded a blood test company once worth $9B but now faces criminal charges. Yet Theranos might be trying to get back in the game.
By Matt Foley
The Jobsian Silicon Valley CEO who was once out for blood has taken a bath. Now, the young entrepreneur could be back for more.
Elizabeth Holmes’ would-be empire came crashing down in the aftermath of a damning investigation by Wall Street Journal reporter John Carreyrou, whose initial story on the fraudulent practices of Palo Alto–based blood-testing company Theranos broke in October 2015. The culmination? Hundreds of employees fired and liquidation by a private equity firm coming soon. In March, Holmes and former Theranos president Ramesh “Sunny” Balwani were charged with fraud and stripped of company control in a civil suit that was settled. In April, nearly all of Theranos’ staff was laid off — paring the company down to about 20 people.
A two-year criminal investigation continues, but apparently Holmes, 34, still has the entrepreneurial bug. In an interview with Vanity Fair to promote his upcoming book, Bad Blood: Secrets and Lies in a Silicon Valley Startup, Carreyrou said Holmes is rounding up investors for an entirely new startup idea. A skillful manipulator who faces accusations of fostering an abusive workplace to market a dangerously fraudulent product, will Holmes convince investors to give her another shot?
Silicon Valley is rife with alternative truths and power-hungry founders, but the details here are particularly troubling.
As a 19-year-old sophomore at Stanford University in 2003, Holmes had the idea for a wearable arm band that would test a patient’s blood sample via prick, diagnose the ailment and simultaneously inject the appropriate medication. When that concept proved not to be feasible, Holmes pivoted to a device inspired by glucose monitors used to regulate diabetics’ blood sugar levels: a finger prick that would provide enough data for any lab test known to man, uploading patients’ data online to a doctor who could prescribe the therapy. Therapy and diagnosis equaled Theranos, a portable device that would save lives through early detection and make health care more consumer-driven and affordable.
Almost immediately, Holmes leveraged her friendship with the dean of Stanford’s engineering school, Channing Robertson, into a bonanza. Robertson became her first board member and, by 2006, Theranos had raised $45 million. By 2014, the company rocketed to a valuation of $9 billion — more than Spotify and Uber at the time. Not unlike many bright-eyed college-dropout CEOs in California’s Bay Area, Holmes’ role model was Steve Jobs. She took to dressing in all-black and turtle necks, and employing reality distortion — the Jobs-inspired psychological phenomenon in which a person’s intellect, persuasion and persistence convince others to believe in a mission, no matter how difficult.
She sold a murderer’s row of prominent investors and board members on the idea — former secretaries of state George Shultz and Henry Kissinger; former senators Bill Frist and Sam Nunn; Gen. James Mattis — and they in turn helped power the massive valuation, along with a major direct-to-consumer breakthrough. Walgreens legitimized Theranos in 2013 by putting the product on its shelves. Soon, nine-digit investments were flowing. Rupert Murdoch, whose holding company News Corporation owns the Wall Street Journal, pledged $125 million, and the Walton family invested $150 million. Betsy DeVos, now secretary of education, added $100 million, as did the Cox family — Atlanta billionaires who own Cox Enterprises. Even New England Patriots owner Robert Kraft gave $1 million. “I know it’s controversial to say,” Carreyrou told ReasonTV in a recent interview, “but she wrapped these older men around her finger. She did it with her intelligence — she’s a very smart woman — and she did it with her charm.”
The good times were short-lived. Carreyrou alleges that, in rushing to partner with the hot new startup, Walgreens failed to vet the company. Walgreens suspended its plans to work with Theranos following the Journal’s 2015 report that the company was fraudulently using traditional blood-testing machines to run its tests, rather than Theranos’ own Edison machines. Essentially, Theranos was avoiding inspection by using traditional blood testing methods, then putting unreliable products in the hands of potentially ill consumers. Holmes settled the civil suit with a $500,000 fine and the return of 18.9 million shares of stock. The district attorney’s office in San Francisco is pursuing a criminal investigation.
In addition to his report that Holmes is once again chasing capital, Carreyrou’s book made headlines with its characterization of Holmes’ “sociopathic tendencies.” Silicon Valley is rife with alternative truths and power-hungry founders, but the details here are particularly troubling. Carreyrou alleges that Holmes built on a culture of “fear and intimidation,” with employees fearing the wrath of Theranos legal consultant and famed lawyer David Boies. According to Carreyrou, Boies acted as the “company scarecrow,” scaring potential leaks to the media or regulators. And in April, a leaked video showed Theranos employees playing a Space Invaders–style video game in which players shoot at Carreyrou’s floating head. For some, Holmes included, the messenger is to blame.
Holmes has yet to apologize for the company culture or for putting thousands of potential patients at risk. “This is what happens when you work to change things,” she told CNBC’s Jim Cramer in 2015. “First they think you’re crazy, then they fight you, then you change the world.” She did, however, tell Today in 2016 that she feels “devastated that we did not catch and fix these issues faster.” Representatives for Holmes did not respond to requests for comment on this story.
So what does the future hold for the defamed CEO seeking new investment? As part of her civil settlement, Holmes cannot lead a publicly traded company for 10 years. But a private venture could yet prove to be her lifeline, if she can distort reality once again.