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Elizabeth Holmes learned all the wrong lessons from Silicon Valley

Theranos Chief Executive Officer Elizabeth Holmes. REUTERS/Carlo Allegri

Theranos Chief Executive Officer Elizabeth Holmes. REUTERS/Carlo Allegri

Published Jan 6, 2022


Theranos founder Elizabeth Holmes seemed to embody the profile of an entrepreneur favored by venture capitalists. She dropped out of Stanford University, worked constantly, ignored detractors, emulated Steve Jobs, and wanted to change the world with her blood-test innovations. She also brought tech start-up growth tactics - such as "fake it till you make it" - to the world of patient health, adding pharmaceutical company logos to PowerPoint presentations implying endorsements that had not been approved.

But fellow Silicon Valley entrepreneurs and backers say she represented only the worst of start-up culture.

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Theranos has become an instructive "anti-pattern" - a popular term among technologists - of what not to do, said Bryan Cantrill, co-founder and chief technology officer of Oxide Computer Company, a Bay Area tech firm building a new type of server.

The conviction of Holmes on Monday of four counts of wire fraud and conspiracy for misleading investors about Theranos's capabilities represents the ultimate reckoning for the brazenness of Silicon Valley that she personified. And while Silicon Valley says it has moved on and become more accountable and responsible, it is also scarred by what she got away with for years.

Holmes seemed like a rare model trying to change a male-dominated industry, said Amber Atherton, a start-up founder turned angel investor, whose company Zyper was recently acquired by Discord. "But when the truth came out that the product not only didn't work but that the entire company was built on an avalanche of deceit and fraud, it was hugely disheartening."

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Theranos rose to prominence behind the facade of its charismatic founder, who promised to revolutionize health care with her blood-testing system. Holmes inked deals with Walgreens and Safeway while she graced national magazine covers in her Jobs-like black turtleneck.

"This is someone who picked up these surface attributes and ignored a lot of what Jobs did right," Cantrill said. "You gotta dig a little bit beyond the black turtleneck and secrecy."

That goes for the way Theranos protected its secrets as well.

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The field of biotech investors is relatively small, so Theranos caught everyone's attention for raising hundreds of millions of dollars in funding from big names including Larry Ellison and Rupert Murdoch. Tech's defenders say it should have been a red flag that only a limited amount of funding came from traditional venture capital firms - most notably from Draper Fisher Jurvetson, a well-known company that has backed Twitter, Tesla and SpaceX - and that Theranos's board of directors did not draw from tech.

"All of us asked each other, 'Did you see the deal?' But no one could say they had seen a shred of evidence," said Leon Chen, a partner at the Column Group, a San Francisco-based biotech venture capital firm. This is highly unusual in biotech, where 90% of the work is reviewing a company's data, Chen said, not only to examine the results of experiments, but to determine whether the people behind the company are rigorous scientists.

"We can get it wrong," Chen said, "but nobody worth their salt is investing in the absence of seeing any information."

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In reality, Theranos was struggling with cash flow and with inconsistent test results, according to the case presented by prosecutors during the trial.

Far from running hundreds of tests from two drops of blood, Theranos was relying on third-party machines and a limited menu of tests that could be accurately run on its own technology, former employees testified.

Ario Jafarzadeh, head of design at Neeva, a privacy-centric search engine, who previously worked for Roblox, Google, and Amazon, said Theranos's saga seemed both larger than life - like the ruthlessness on display in his favorite TV shows, "Game of Thrones" and "Succession" - and painfully familiar.

"I know what it's like to be in one of these companies where most of the employees drank the Kool-Aid," he said. "You sort of turn a blind eye to the things setting off alarm bells, and the company's leadership papers over things that everybody at the ground level knows is happening."

In 2015, a Wall Street Journal investigation into the company unveiled a dysfunctional workplace and technology that was not working as promised. Theranos collapsed three years later, mired in regulatory and media investigations.

​​In the intervening years, the Theranos saga has become a Rorschach test for what's wrong with Silicon Valley. Tech industry defenders blame the media for hyping up Holmes as the next Jobs - and argue that few venture capitalists fell for her pitch. Silicon Valley's critics see Holmes as an example of tech hubris run amok. Tech media point to Theranos's fraudulent claims as a reason their coverage has turned more critical.

"I just don't think some of that 2012 vibe would fly as brazenly as it did back then," Jafarzadeh said. Nowadays, "companies at least have to pay lip service" that their products and practices offer something of value.

Holmes could have looked at Jobs's trajectory and come away understanding the importance of pairing herself with skilled technologists who understood how things worked, something Jobs excelled at, Cantrill said.

"The challenge of innovating is that you have to see the world as it could be and balance that with the way the world is," he said. "The more audacious your vision is, the more you need to be grounded in reality, and she completely failed in keeping herself grounded."

Cantrill said his litmus test for a good tech executive is their capacity to deal with failure when their vision runs into problems. "I think we can safely say she had a pathological inability to deal with bad news, and created an entire culture around suppressing that," he said.

Holmes defended herself on the stand, saying she genuinely thought the promising vision she sold to her investors was truthful and realistic.

But after a months-long trial, the jury convicted her of misleading some investors. The jury also acquitted her of four other counts relating to patients, and deadlocked on three more counts of allegedly misleading investors. Holmes is awaiting sentencing.