Fallen Elizabeth Holmes showed Silicon Valley what not to do

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

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,” says Leon Chen, a partner at the Column Group, a San Francisco-based biotech venture capital firm. This is highly unusual in biotech, where 90 per cent of the work is reviewing a company’s data, Chen says, 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 says, “but nobody worth their salt is investing in the absence of seeing any information.”

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, says 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 says. “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 says. 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 says.

“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 says. “The more audacious your vision is, the more you need to be grounded in reality, and she completely failed in keeping herself grounded.”

Cantrill says 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 says.

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.

The Washington Post