How a Steve Jobs wannabe duped investors out of millions of dollars

by Peter Griffin / 01 August, 2018
RelatedArticlesModule - Elizabeth Holmes

Theranos founder Elizabeth Holmes. Photo/Getty Images

The story of Elizabeth Holmes and her company Theranos shows how the “fake it till you make it” culture in Silicon Valley helped create a monster.

You don’t have to read many biographies of Silicon Valley luminaries to learn that they often cut corners, fudged the numbers and lied on their way to the top.

Oracle founder Larry Ellison was notorious for promising the world, then delivering buggy database software. Steve Jobs’ first big public unveiling of the Apple iPhone, in 2007, featured a half-finished device, the demo carefully scripted to show the few features that actually worked.

So many tech products have been promised but never delivered by Silicon Valley that there’s even a term for them: vapourware.

The current generation of hard-charging tech entrepreneurs has grown up reading and drawing inspiration from such stories. But the story of Elizabeth Holmes and her company Theranos shows how that “fake it till you make it” culture helped create a monster.

In Bad Blood: Secrets and Lies in a Silicon Valley Startup, Wall Street Journal reporter John Carreyrou, tells how a 19-year-old Stanford University drop-out in 2003 set out to become a self-styled female Steve Jobs.

Holmes promised to take the pain and inconvenience out of getting a blood test. As with Apple’s iconic products, the key to the pitch was simplicity. Rather than having to use a needle to draw blood from a vein to perform tests, the Theranos device she was developing would allow a painless prick of the finger to produce a drop or two of blood that could be tested for dozens of different conditions.

Samples would be instantly scanned using a handheld device, the results beamed to Theranos HQ for analysis, then swiftly returned to the patient and their doctor. Cholesterol levels could be checked; infectious diseases detected. Theranos promised to revolutionise doctors’ most effective diagnostic tool: the humble blood test.

The problem was that the Theranos device was vapourware. For myriad technical reasons, it would never work. So Holmes went all in, faking the results and lying to staff, customers and board directors in the hope the technology would catch up to her dream.

Ex-director Henry Kissinger. Photo/Getty Images

It never did. Last month, she and her former lover and second-in-command, Ramesh Balwani, were indicted on criminal fraud charges. They now face the prospect of jail time.

Over 15 years, Holmes raised US$700 million from investors and became a “unicorn” – one of a handful of start-ups with a US$1 billion valuation. At one point, Theranos had a valuation of US$9 billion, making Holmes the world’s youngest self-made female billionaire.

How did she do it? By taking the Jobs “reality-distortion field”, the self-assuredness that allowed the inventor to convince himself and everyone else that anything was possible, and setting it to overdrive. Even as a twenty-something woman in a male-dominated industry, she spoke with such conviction and authority that the usual due-diligence checks went out the window.

She stacked the board with ageing statesmen – Henry Kissinger, George Shultz – and former Marine Corps general Jim Mattis, now Donald Trump’s Secretary of Defence.

Anyone at Theranos who raised questions was fired and threatened with legal action if they spoke out. Eventually, a small group of ex-employees had the courage to reveal the scam, but by then, hundreds of thousands of dodgy tests had been done in pharmacies across the US.

Carreyrou leaves it to psychologists to determine whether Holmes is a sociopath. “But there’s no question her moral compass was badly askew. In her all-consuming quest to be the second coming of Steve Jobs … she stopped listening to sound advice and began to cut corners,” he writes.

Bad Blood sounds a warning about the next era of Silicon Valley innovation, which is more about biology than silicon. From Calico, the Alphabet-owned start-up trying to reverse ageing, to Impossible Foods, maker of the lab-grown burger, Silicon Valley is infatuated with genetics. But the tech sector will have to reach a new level of maturity to stop another Holmes from damaging its potential.

This article was first published in the July 28, 2018 issue of the New Zealand Listener.

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