For decades, Silicon Valley’s motto has been “fake it till you make it.” Elizabeth Holmes faked it a little too hard and is paying the price. Billion-dollar investors pour cash into companies that promise to “change the world” with their science and technological advancements. But investments rely on trust over proof, with most of Silicon Valley’s culture being filled with secrets, fine lines, and grey areas. Investors in Theranos weren’t let in on the “secret sauce” of this miracle technology, as is typical for intellectual property in Silicon Valley. However, the debacle may force transparency in the startup realm with investors doing their due diligence before hashing out millions and founders dropping the “trust me” act instead of answering “this is how.”
Who’s Elizabeth Holmes?
Once hailed the “female Steve Jobs,” Elizabeth Holmes was raised in Washington, D.C. and California by wealthy medical and entrepreneurial parents. Family and friends knew her to be an ambitious child who spoke about becoming a billionaire early in life. While studying chemical engineering at Stanford University in 2002, Holmes started Real-Time Cures, soon renamed Theranos. Two years later, she dropped out of school, at 19, and went all-in on her startup.
Elizabeth Holmes (Photo by Dai Sugano/MediaNews Group/The Mercury News via Getty Images)
What was Theranos?
Theranos was a Silicon Valley company that promised to revolutionize the medical and healthcare industries. Holmes claimed her technology and scientific tests could detect dozens of illnesses and diseases from just a few drops of blood, collected from a finger prick. The methodology was supposed to be fast, easy, and academically supported. Theranos’ blood analysis machine, the Edison, would erase the need for taking large blood samples and laboratory testing. It could supposedly detect and diagnose cancer, diabetes, high cholesterol, and other major life-altering ailments.
As expected, this jaw-dropping technology drew in over $900 million from investors trying to get in on the future of medicine. However, it turned out that the Edison and “nanotainers,” small blood collection devices, did not produce consistent results, were unreliable, and fell far below the standard Holmes claimed they met.
In 2015, The Wall Street Journal released an investigative report on Theranos’ operations and products. After that, the company spiraled, and Holmes was going down with it. For years, Theranos employees and founder Elizabeth Holmes lied to investors about results, obtaining FDA approval, and the fact that, in reality, the science and technology were not credible or verified – and never were. Essentially, Theranos was a company of lies, coverups, and inaccuracies.
In December of 2021, Elizabeth Holmes was found guilty on 4 of 11 counts of wire fraud and conspiracy to commit wire fraud. Just a handful of high-profile investors alone lost $600 million. In 2019, The Investor: Out for Blood in Silicon Valley was released. It dove into the WSJ investigation, the story of Holmes, and her failed company.
Silicon Valley Culture
Failure is embraced and sometimes celebrated in Silicon Valley. But a key point is admitting when you’ve failed, and Elizabeth Holmes refused to do that. This scandal of fantasy, unachievable science, many believe, will sober up the systems and culture in California.
Over-promising and hyping up your product to draw in money and attention from investors is typical. Many experts told Holmes and the world her idea would never materialize and that she was selling a dream. Margaret O’Mara, one of the experts, wrote a book, The Code: Silicon Valley and the Remaking of America. She observed that investors are looking at ideas and the people behind them rather than the technology, engineering, or science that back them up.
The Theranos fiasco might change that. Investors, afraid to fall victim to the next lying Elizabeth Holmes, could be more willing to do their due diligence, demanding that these young dreamers asking for millions first cough up the bona fides. A tech venture capitalist and big-tech hater, Roger McNamee, predicts this culture shift in Silicon Valley; squashing out “promoters and scoundrels” and “secrets and lies.”
Future of the Valley
Intellectual property is the holy grail of new tech firms. Secrecy of innovation and discoveries is essential to a startup’s success. But it is sometimes used as a smokescreen – and Theranos is the perfect example.
The relationship between Holmes and her investors, as is typical in the Valley, was based primarily on trust. But the “fake it till you make it” motto is at odds with the reliance on faith. Theranos’ claims and faked results violated the belief investors relied on.
For this system of trust and secrets to crumble, entrepreneurs will have to tone down the self-hype and provide transparency into their business model and the legitimacy of their claims. On the other side, investors cannot rely on preliminary ideas and trust and will have to attach strings to their cash, demanding proof of product and success.
~Read more from Keelin Ferris.
