Youth. Charm. Fearlessness. Ruthless focus. These can be positive attributes in an entrepreneur, but in a more rational world, technology investors wouldn’t overvalue them. Risk capital would be allocated based mostly on evidence, data, progress towards milestones—in short, on proof.
In the real world, of course, proof is hard to come by. Hope, avarice, or fear of missing out often drive investors to plunge ahead. That’s when trust, gut instinct, and blind faith become the proxies for ground truth.
That works, at least some of the time. Venture investors know they’ll lose many of their bets—that’s why it’s risk capital. The system is built to absorb the small failures. All you need is one good roll—like Andy Bechtolsheim’s $100,000 check to Google, written in 1998, years before the company stumbled upon a viable business model; in 2010 Forbes estimated the value of Bechtolsheim’s investment at $1.7 billion.
Occasionally, though, there’s a dramatic failure, one so big that it leaves insiders and outsiders asking how outsized risks went overlooked and why no one saw the disaster coming. That kind of inquest began after California-based medical-diagnostics startup Theranos—which raised more than $1 billion in funding against a peak valuation of $10 billion—was brought down by allegations of systematic fraud. For more than a decade, founder and CEO Elizabeth Holmes was able to mislead her customers, investors, and board members about the company’s progress in developing a tabletop machine intended to run hundreds of standard lab tests on a single drop of blood. The scheme came undone in 2015 thanks to a few brave whistleblowers and the work of Wall Street Journal investigative reporter John Carreyrou. In 2018 Carreyrou, a two-time Pulitzer Prize winner, published Bad Blood: Secrets and Lies in a Silicon Valley Startup, which began to unpack the misjudgments and systemic failures that had enabled Holmes to continue the charade for so long.
Then came the real media feeding frenzy. In early 2019 ABC News and Nightline published a six-part podcast about Holmes, The Dropout, and documentarian Alex Gibney released The Inventor: Out for Blood in Silicon Valley, which premiered at the Sundance Film Festival with backing from HBO. Even before Carreyrou’s book appeared, Legendary Entertainment had snapped up the movie rights, with Adam McKay (The Big Short, Vice) attached as director and Jennifer Lawrence set to play Holmes. Not to be outdone, streaming provider Hulu has now ordered a limited series about Theranos starring Saturday Night Live’s Kate McKinnon. Surely, at this point, someone is recruiting Lady Gaga for the Holmes role in Theranos! The Broadway Musical.
With each retelling, it seems, the story focuses less on the lapses that allowed the Theranos hoax to go unchallenged and more on Holmes, her Steve Jobs complex, and her impulsive chief operating officer and co-conspirator Sunny Balwani. In the glare, the opportunity for a thorough examination of both culpability and gullibility—both the pathologies inside Theranos and the naïveté that left its investors, partners, and customers so vulnerable to glamorous shysters—may be slipping away.
Before our eyes, the media industry is hijacking the Theranos story and turning it into a Silicon Valley-style true-crime spectacle, complete with beguiling villains and blood. Lots and lots of blood.
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THESE ARE THE FACTS OF THE CASE: HOLMES studied chemical engineering at Stanford but dropped out in 2003, in the fall of her sophomore year, with the dream of commercializing something called a TheraPatch. It would stick to the skin and use tiny needles to draw blood into a microfluidic sensing system, which would diagnose an infection or imbalance and deliver an appropriate drug, all without a standard blood draw by a phlebotomist. (Holmes told everyone she was terrified of big needles.)
The idea was half science fiction and half nonsense. A patch could never hold enough antibiotic to reverse an infection, to mention just one of the myriad technical problems. Phyllis Gardner, a professor of medicine at Stanford who reviewed Holmes’s sketches, congratulated the 19-year-old for her creativity but warned her the idea would never work. Holmes also encountered pushback from venture investors familiar with medical technology. Carreyrou describes an abortive visit to Emeryville, CA-based MedVenture Associates: “Unable to answer the partners’ probing technical questions, [Holmes] got up after about an hour and left in a huff.”
Others were more willing to suspend judgment. Some of the advisers and backers drawn in by Holmes had scientific training, like her chemical engineering professor, Channing Robertson, but most did not. Older men seemed especially impressed by Holmes’s passion and determination. Tim Draper, the founder of venture firm Draper Fisher Jurvetson, was one of the first to invest. As Holmes refined her plan—she soon scrapped the patch idea in favor of scheme to build a small, automated box that could run hundreds of standard lab tests simultaneously on just milliliters of blood from a finger-stick—Theranos would go on to attract a herd of other grandees from corporate, finance, and government, including Don Lucas, Larry Ellison, Robert Kraft, Carlos Slim, and Rupert Murdoch. The company’s board would eventually include such aging luminaries as George Shultz, Jim Mattis, Bill Frist, William Perry, Henry Kissinger, and Sam Nunn.
With the robotic lab-in-a-box technology still in its early prototype phase, Theranos began to ink agreements with big partners who wanted to use the system, including Walgreens and Safeway. In 2012 Safeway began sending the company blood samples collected at new “Theranos Wellness Centers” built inside some California stores. Walgreens followed suit in 2013.
But what only Theranos insiders knew was that the technology didn’t work. The effort to combine immunoassays, general chemistry assays, hematology assays, and DNA amplification assays in a single machine required a nightmarish tangle of tubes, centrifuges, and spectrophotometers, with robot arms moving samples around in tiny pipettes. The pipettes regularly broke. The centrifuges exploded. The instruments fell out of alignment. (Gibney’s documentary evokes the chaos of Theranos’s lab-in-a-box with a harrowing computer-generated sequence imagining the machines’ blood-spattered innards.)
To test all the blood flowing in from Safeway and Walgreens, Holmes and Balwani
