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 allegedly decided to cheat. They told lab technicians to dilute the incoming finger-stick samples, or just gather regular phlebotomy tubes, so that most of the tests could be carried out on commercial analyzers purchased from companies like Siemens. By 2015, all but a dozen of the 240 tests on the Theranos menu were being performed on these commercial analyzers—which was just as well, in a way, since the handful of tests performed on Theranos machines were wildly unreliable.
The façade began to crumble after Carreyrou persuaded several former employees, including George Shultz’s grandson Tyler Shultz, to share their stories. The Journal published a series of exposés by Carreyrou beginning in October 2015. Within months, Walgreens had shut down its wellness centers and the government had banned Theranos from the lab business. In 2018 Holmes settled fraud charges brought by the Securities and Exchange Commission. She and Balwani deny any wrongdoing, and are awaiting criminal trial.
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IN HIS BOOK, CARREYROU TACKLES THE THERANOS SAGA IN A METICULOUS, chronological, but fast-moving and readable form. As a writer, he’s blunt but dispassionate—an admirable trick, given that he’s also a character in the story. (Carreyrou endured months of surveillance by a Theranos-employed PI.) The book is unsparing in its depiction of the fakery, compartmentalization, bullying, and even blackmail that Holmes and Balwani employed to defend their hollow empire. But it’s also remarkably restrained, letting the facts speak for themselves and eschewing psychological speculation. Carreyrou doesn’t try to get inside Holmes’s head until the very last paragraph:
“I’m fairly certain she didn’t initially set out to defraud investors and put patients in harm’s way when she dropped out of Stanford fifteen years ago. By all accounts, she had a vision that she genuinely believed in and threw herself into realizing. But in her all-consuming quest to be the second coming of Steve Jobs amid the gold rush of the “unicorn” boom, there came a point when she stopped listening to sound advice and began to cut corners.”
Because Carreyrou isn’t out to demonize Holmes, there’s room in the book to ask what went wrong. The truth seems to be that Holmes neither sought nor received much “sound advice.” After investors with experience in medical diagnostics turned her away, she avoided or evaded smart money that could have helped reset the company’s ambitions. The funding came in, instead, through a pyramid of personal, family, and Stanford connections.
Holmes’s link to Tim Draper, for example, was his daughter Jesse, who’d been Elizabeth’s childhood friend and next-door neighbor in Woodside, CA. She recruited legendary Silicon Valley investor Don Lucas through her father, who went to school at Wesleyan with a banking executive who knew Lucas. Lucas, who’d mentored Larry Ellison and was in his late seventies when he agreed to invest and chair Theranos’s board, “doted on Elizabeth” and treated her like a granddaughter, Carreyrou writes.
The Hoover Institution, a Republican think tank at Stanford, was another hotbed for recruitment. George Shultz joined the board after meeting Holmes in 2011. He, in turn, brought in Kissinger, another Hoover fellow. These lions of diplomacy who’d faced down presidents and dictators—“men with sterling, larger-than-life reputations who gave Theranos a stamp of legitimacy,” in Carreyrou’s words—were putty in Holmes’s hands. “Elizabeth’s iron determination and great intellectual ability turned me from a mild skeptic to an enthusiast,” Kissinger told USA Today in 2014. Shultz testified after Holmes’s fall that he “didn’t probe into” whether Theranos’s technology worked, because it “didn’t occur” to him.
It’s clear from Carreyrou’s book that the hope, credulity, and ignorance that made many people into willing marks for Bernie Madoff can also be found in Silicon Valley’s technology investing class. No one asked what gave a young woman with a couple of semesters of undergraduate chemical engineering training special insight into microfluidics, or why she’d failed to bring in investors who understood the lab testing business. People like Draper and Lucas who’d made fortunes identifying young software talent assumed that their instincts about healthcare entrepreneurs were just as good. Tellingly, not a single MD, life sciences PhD, or biotech industry veteran was added to the Theranos board until 2016, after the scandal had broken.
Of course, there’s more to the picture. Theranos also gamed the regulatory systems designed to ensure that clinical lab results are accurate. Normally, labs must be certified under the Clinical Laboratory Improvement Amendments (CLIA)—a process overseen by the federal Centers for Medicare and Medicaid Services (CMS)—and the machines they use must be approved by the Food and Drug Administration. But Theranos argued that its technology fell into an obscure category called “laboratory-developed tests” that neither agency closely regulated. The company did obtain CLIA certification for its Palo Alto lab, but it didn’t show inspectors its proprietary equipment, only the room full of commercial analyzers. Until Tyler Shultz blew the whistle, no one outside the company knew that its entire far-flung testing business was being operated under the cover of that single certificate.
That’s just one of the shockers Carreyrou unearthed. A full accounting of the governance failures and regulatory loopholes that cleared the way for the Theranos hoax will take years, but Bad Blood makes an excellent start.
Inevitably, readers won’t share Carreyrou’s circumspection. Why did she do it? My own sense is that Holmes is a kind of female Tom Ripley: a fantasist so accomplished that she convinced even herself that all the corner-cutting was for a righteous cause. But just as critically, she accumulated power in a way that allowed her to keep outsiders from seeing the whole picture and to swat away anyone who challenged her. When Avie Tevanian, an early board member who’d been Steve Jobs’s right-hand man at Apple, went to Lucas with his qualms about Holmes’s management in 2007, he was told to resign.
Over time, most skeptics or critics were forced out of Theranos. There’s a precept in high-reliability “Lean Six Sigma” manufacturing that even the lowliest assembly line worker, if they spot a defect, is empowered to pull the “Stop” cord and shut down the whole line. Theranos took the opposite approach. Asking questions was the quickest way to get fired.
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ALEX GIBNEY’S FILM, THE INVENTOR, FLESHES OUT THE STORY, BUT DOES NOT ADVANCE IT MUCH. As the title advertises, it’s focused more on Holmes herself than on the system she exploited. This isn’t surprising: film is a visual, personal, and emotional medium, and a good documentary needs strong characters, even if they’re anti-heroes like Holmes. But the film sinks at times into voyeurism, as if demonstrating Holmes’s strange magnetism were the same as explaining why so many people fell victim to it for so long.
Much of the key footage in Gibney’s film was actually shot by rival documentarian Errol Morris. Theranos’s ad agency, Chiat\Day, hired Morris—famous for films like The Thin Blue Line and The Fog of War and for his ad campaigns for Apple and other big companies—to make commercials and promotional videos for the startup. So, while Gibney’s narration unfolds, we see a white-coated Holmes striding authoritatively around Theranos’s glass-walled headquarters and speaking earnestly (and, we know now, untruthfully) to the camera about the life-saving potential of the company’s faster, cheaper diagnostics.
Morris was working to build up the Theranos myth and now Gibney is using the same footage to dismantle it. But once you grasp that irony—and get over the weirdness of the fact that one of our greatest living documentarians unwittingly became the main contributor to Gibney’s film—you realize that it’s still just surfaces, images, reflections. It’s odd that a nonfiction film about a crafty illusionist should be this obsessed with appearances. No matter how long we gaze into Holmes’s eyes, we aren’t going to find the source of the darkness in her soul.
There is some clever visual storytelling in the film, such as the CGI tour of the insides of a Theranos machine, as well as lots of aerial drone footage of idyllic Palo Alto. We get to meet many of the people who helped Carreyrou crack the story open, including Tyler Shultz. Gibney recruits smart and entertaining expert witnesses, including behavioral economist Dan Ariely, who explains why stories are more powerful than data and why it’s easier to cheat when you’re convinced it’s for a good cause. And there’s a revealing sequence where Holmes is on stage at Theranos, mic in hand, boasting to a roomful of employees about meeting the president of Brazil. The camera swings to the seated workers, who were probably meant to look worshipful; instead they’re glancing around like nervous hostages planning their escape.
We come away from the movie even more convinced that Holmes is some kind of sociopath. But we don’t learn anything new about why the system around her was so ripe for manipulation or how the scheme might have been foiled sooner. Reading Carreyrou’s book leaves you feeling righteously angry; Gibney’s film creeps you out.
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IF YOU ARE A GLUTTON FOR DISASTER YOU CAN ALSO IMMERSE YOURSELF in a four-hour audio treatment of the Theranos saga. The Dropout from ABC News and Nightline reintroduces all the same folks we met in the Carreyrou book and the Gibney film, and they repeat the same basic story. But host and co-producer Rebecca Jarvis, the chief business and technology correspondent at ABC News, has extra time to share source material not found elsewhere, such as tape from court depositions. The podcast format allows her to break the story into six digestible segments, each ending with the requisite cliffhanger.
One perceptive moment in the podcast comes in the fourth episode, when Jarvis speaks with John Ioannidis, a Greek-American professor of medicine at Stanford University. After commenting wryly that the name Theranos sounds like a combination of the Greek words tyrranos (“tyrant”) and thanatos (“death”), Ioannidis points out that any technology as ostensibly disruptive as the Theranos finger-stick test ought to have been vetted in thousands of peer-reviewed scientific papers. Instead he “practically found nothing” after a 2015 literature search, which prompted him to write a JAMA opinion piece critical of Theranos-style stealth research. “How can the validity of the claims made be assessed, if the evidence is not within reach of other scientists to evaluate and scrutinize?” Ioannidis asked.
It’s a seemingly unassailable point, and it was the first time anyone had dared question Theranos in public. But the disturbing fact is that many early-stage life sciences and biotechnology startups sidestep the scrutiny and disclosure that comes with peer review, lest they divulge their intellectual property and risk being outflanked by competitors. Holmes didn’t invent this culture of secrecy; she exploited it.
For the most part, the Gibney film and the ABC podcast foreground the deception and the deceivers and leave these important process questions in the back seat. At bottom, what’s happening is that Americans aren’t committing enough true crimes to satisfy the market demand for true-crime documentaries, true-crime cable series, and true-crime podcasts. Theranos is fundamentally a business story about Silicon Valley ethics and investing practices gone awry—about venture capitalists and board members who let themselves be duped by a protégé and who failed to ask the most basic questions about the company they were duty-bound to govern. But because the story features a young female founder, and because it’s also got all that scary, scarlet blood, it’s been sucked into a transmedia content-generating machine that, like Theranos’s own devices, dilutes its meaning more and more at each stage.