Elizabeth Holmes quit Stanford University at age 19 to build Theranos Corporation and grew its value to $9 billion. She told investors she could diagnose multiple diseases with a few drops of blood. However, the technology claims were proven false later on. That’s why Elizabeth Holmes’ Theranos was charged with massive fraud.
In 2014, the blood-testing start-up Theranos and its founder, Elizabeth Holmes, were extremely happy. Back then, Theranos was one of the most-celebrated start-ups in Silicon Valley. Holmes was the world’s youngest woman billionaire. She groomed herself as a female Steve Jobs by wearing a black turtleneck most of the time.
Two weeks ago, Holmes was found guilty of massive fraud. Holmes was found guilty on four out of 11 counts of wire fraud and conspiracy, which could send her to prison for decades. Jurors proved that the 37-year-old former CEO tricked media mogul Rupert Murdoch and the DeVos family. She also duped Walmart’s Walton family and other wealthy investors.
The BBC’s Tech Tent asked whether the Elizabeth Holmes’ Theranos disaster could be good or bad for Silicon Valley.
Here are the mixed views from the people interviewed by Tech Tent:
“There is a negative view that everybody lies, and all people know that everybody commits fraud,” says Robert Weisberg, a legal expert at Stanford University.
“I think this incident will scare some entrepreneurs pushing them to be extra careful.”
Others think that Elizabeth Holmes’ Theranos is a sort of moral lesson to investors. You should only put money into what you understand.
Most venture capitalists are reluctant to have headlines in the Wall Street Journal. I think the lesson here is to stay in your lane and invest in things that you know.” says Patricia Nakache from Trinity Ventures.
However, some investors pressure start-ups to exaggerate. One of the prominent Theranos whistleblowers who exposed the fraud was Tyler Shultz. He has established his own biotech company but experienced pressure to exaggerate growth potential.
“I am under pressure to overstate technology claims. Sometimes, investors will directly tell you – you need to double, quadruple, or 10x your revenue projection,” Shultz says.
He said that in an interview with Bobby Allyn of NPR. Allyn is also uncertain that Theranos will change everything in Silicon Valley.
He emphasizes how the systematic approach scientists bring to research can affect investors’ desire for rapid growth. VCs want the so-called hockey-stick growth – more and more growth. In contrast, science moves at a slow, peer-reviewed pace. The two are kind of incompatible, Mr. Shultz continues.
The idea behind Elizabeth Holmes’ Theranos wasn’t a bad one. Many Silicon Valley firms in the biotech field are working on blood diagnostic technology. California-based Karius is one of those companies. Karius is developing a technology to identify around 1,500 bacteria, fungi, viruses, and parasites in the blood.
Tim Blaukamp, one of the founders of Karius, told Tech Tent that it was hard to get investors after the Theranos fiasco came out. He believes Theranos has created more scrutiny from the investors, which is a good thing. But he also says that the scandal resulted in delays in innovation in blood diagnostics.
“I think the debacle changed our sector. There is no way that large capital should vanish without leaving a scar. In some groups, there’s the uncertainty of investing in the space altogether. I don’t think it has been a ‘win’ from both the scientists and the patients,” Blaukamp explains.
