Theranos’s Fate Rests with a Founder Who Answers Only to Herself
nytimes.com
nytimes.com
And, just to make sure it's clear that I'm not exaggerating, we're talking about a company whose founder literally received something called the Horatio Alger Award last year:
She was the youngest person ever to be awarded
the Horatio Alger Award in recognition of
“remarkable achievements accomplished through
honesty, hard work, self-reliance and
perseverance over adversity.”
With that in mind, I briefly researched the 'Horatio Alger Award', it's being offered by the Horatio Alger Association of Distinguished Americans, a nonprofit organization. I checked their site and merit of any kind is only part of the story.
As I understood things, when you're awarded the title, you automatically become a member and it's not possible to gain membership otherwise. This prize ensures growth and continuity for the organization, along with potential funding.
I read the 'Become a Member' pdf document from their site and while it appears anyone can be nominated, as long as the nominee is 'on brand' with the organization's ideals of remarkable achievements, the new member/awardee will, in turn, have to support the association in as many ways as possible, either by contributing to the program (activities with an administrative or promotional purpose), AND/OR financially.
The form states that it 'must be completed and signed by the nominee and the nominator. If the nomination is confidential, the form may be completed and signed by the nominator only. By signing this form, the nominator and nominee acknowledge their understanding and acceptance of the responsibilities associated with membership in the Association.'
I think the more questionable thing here is possibly exploitation of the desirability of status and prestige.
Clothes are signals, even when you’re trying to signal that you don’t care about signals :-)
You can't wear only black turtlenecks without appearing to ape Steve Jobs.
Uh, why is this "especially" so, just because a woman is involved? Why are people so desperate to make everything a gender issue?
A scientist?! Since when?
This is certainly going to be one of those things studied in business school, that is for certain.
Just like saying that anyone doing one year of medicine before dropping out, can claim to have "medical background" ?
Not covering up the scientific questions raised by the FDA, for example, and stop pretending that all is fine in the best of the worlds.
A scientist should have scientific integrity above else, and admit they are wrong unless they can prove without doubt what they are claiming to be true.
> a person who is studying or has expert knowledge of one or more of the natural or physical sciences.
Would she be able to test out of all her BA requirements from Stanford with what she's learned?
I don't really think a scientist is a term that demands credentials. Obviously, specializations and distinctions in the field do, but you can certainly be an engineer without a degree and conduct science without one.
No.
Patrick Collison dropped out of MIT to be the founder and lead developer of 2 technology companies. So I guess I just have trouble figuring out what to call someone who performs all of the same tasks and functions as a label, has much of the knowledge associated with someone who has such a label, and actively studied the for a degree in that label as an autodidact, at a top-tier university(uncompleted), and as an apprentice.
Is he not an engineer? If not, would he be if he finished the few semesters he was shy of graduating at university of phoenix online?
How is someone an engineer without an official engineering designation?
It's funny that Zuckerberg is dismissed as a computer scientist, but accepted as an engineer, proving how arbitrary these titles are.
If we're using titles that describe what they do rather than professional licensing (which doesn't apply to software) then these people build software and lead teams that build software. That's software engineering. If you don't like the use of the word 'engineer' for someone who isn't a Professional Engineer then,
a) Tough, that boat has sailed.
b) Pick a different word, "software builder", "coding guy", whatever.
No matter how you slice it, they are not computer scientists.
It's a descriptive statement about the company:
Nobody on Theranos's board has a pharma, hematology, research, or diagnostics background related to the line of business of Theranos.
This makes it that much more difficult to get the bottom of what they've innovated, if anything at all.
The only person that had some knowledge of biology on board was Holmes. Now, while the board usually doesn't deal with the technical minutia they should be definitely keeping an eye on possible regulatory needs and associated risks
Like, I see it like this: She presents Theranos as LeBron James. If I want to win a championship as a player, I'd have a higher probability of getting one if LeBron is on my team. So I join him.[0]
Where are all the awesome supporting cast members?
[0] Yes I realize he's 2/6.
"“For every Theranos, there’s a Facebook,” said Bryan Roberts, a partner at Venrock, a leading venture capital firm."
Really? I thought unicorns were called unicorns because they're, well, rare?
Also interesting that we're now at the point where Theranos == failure.
I'd say there's two unicorns in there, one died from accelerated aging and had its corpse eaten. Remember even Ford and GM were unicorns once upon of time.
iPod changed the course of Apple's destiny. There's a reason that the company was renamed from Apple Computer, Inc to Apple, Inc., and the first step towards that transition was the iPod, not the iMac.
PS: There stock hit the lowest point in 1998 under jobs, but 1998-2000 was a solid run up before the market tanked. Don't forget they did a 2:1 split in Jun 21, 2000. But, in terms of fundamentals they were a huge profitable 10x unicorn and growing in 2000. And even at the bottom of there second dip in Jan 2, 2001 @14.88 they where at twice Jan 2, 1998's split adjusted 6.815.
edit: typo
- Own a majority interest in your company.
- Be the company's chairman/woman and CEO.
- Issue dual-class shares ("supervoting shares") where class B shares carry many more votes than ordinary class A shares so the board can't pull a Steve Jobs on you.
Upon learning that, it seems to me that the company has grown more organically, more like a bootstrapped business of sorts.
1) its core technology is basically non-existed, non-proven, non-peer-reviewed and was never fully covered by its 20 or 30 something non-core patents. it seems its core tech is all inside EH's head.
2) their company machinery is not healthy enough that "could be run by a monkey" (quoting warren buffett, no offense to any one). even some guy hired by EH for their biochem had to killed himself.
3) EH is the only hub node for the vast politicians on its board and its political network.
Peer-review is just intended to keep the obvious crap out of journals. It's an opportunity for paper authors to face objective questions from experts about things like their methodology, why did they do it this way instead of that way, are they aware of this potentially related work, why didn't they address this potential objection, etc.
It's also not unusual for scientific work originating in businesses to seek publication long after it has found application in the business. For example Google staff have published some important papers in computer science; but usually long after Google the product started using those techniques.
Now that they are under attack, Theranos' position would be greatly strengthened by having some peer-reviewed papers to wave around to show some legitimacy. But--the fact that they don't have those papers is not, by itself, proof that they are frauds.
It does seem likely that they are frauds--but that's because of direct investigation and reporting of their methods, not because of peer-review (or lack thereof).
“I don’t know if she’s another Steve Jobs,” said Jerry Yeo, professor of pathology at the University of Chicago and director of the Clinical Chemistry Laboratories there. “You have to subject yourself to peer review. You can’t just go in a stealthy mode and then announce one day that you’ve got technology that’s going to disrupt the world.”
Professor Yeo said that he and his colleagues wanted to see data and testing in independent labs. “We have a small army of people ready and willing to test Theranos’s products if they’d ask us,” he said. “And that can be done without revealing any trade secrets.” [1]
[1] http://www.nytimes.com/2015/10/30/business/the-narrative-fra...
It's not unusual for independent testing to show effects significantly smaller than those reported in the clinical trials that lead to FDA approval.
Sometimes the results approach placebo levels.
I feel bad for anyone that got roped into this mess and tried to do right by it. That person(s) exist, and when this sideshow completes itself, they're looking at a sweet 60 Minutes segment that I'll gladly make some popcorn for.
The need to clean house at the top to have any chance seems so obvious that I'm surprised the board hasn't resigned yet. I suppose they are giving Holmes the benefit of the doubt to come up with her own turn around plan first.
So she was 19 years old when she founded the company? What was the product back then?
What the product is now.
I don't know her personally, but from what I've gathered she's always had a very well-to-do network via her Father (?). Probably helped a bit.
How do VC's end up investing in stuff like this? That's not meant to be a rhetorical question, I know nothing about investing. I'm genuinely interested in how very smart people end up giving millions of dollars to fund vapourware.
What is the due diligence process? Don't VC's hire an independent expert in the field to audit the core technology? I guess confidentiality is an issue, but we have NDAs for that, right?
Timothy Draper, the well-known venture capitalist,
had been a neighbor when the Holmeses lived in
California. The children played together. “I gave
her her first million bucks to get the business
going,” Mr. Draper says.
And it doesn't hurt that her family is ridiculously well connected, or that Holmes is obviously an incredibly intelligent person...It just seems like the technology simply didn't pan out, and she was never able to say '¯\_(ツ)_/¯ sorry guys, no dice.'
Quite a few VC's would never invest these kind of funds without a full process DD (legal, financial, technical, commercial), but once you're vetted by one of the top flight VCs and have received an investment from them a lesser party could easily make a whole pile of (wrong) assumptions, especially if there are links between the parties outside of the VC circuit.
What should be done is definitely not always what is actually done.
A simple reason for this is that if the DD fails the investor pays for the DD from their own management fees, but if the deal goes through the company invested in usually gets the invoice from all the DD parties (as per the terms sheet, this is a very common clause). This puts a weird incentive on VCs to let deals go through, they can't have too many DDs fail during the process or it can actually materially impact their ability to work.
Imagine that if 2% (which is pretty much the going rate) of a small fund (say 50M) is what the VC company has to operate on for every year that it runs (so 1M) divided over all the partners and associates in the fund, renting a building in some prestigious place, travel and so on has to bear the additional load of several full process failed DDs (anywhere from 50K to 200K each) it can really hit hard if too many of them fail.
So if there is a way to avoid doing DD because a larger party is already 'in' this is a quick way to validate and a very easy mistake to make. Of course - given that that is what I sell - I would very much prefer it if every round every investor would do their own due diligence but in practice you really don't see that. The most common format is that in every round there is some level of DD done (thoroughness roughly related to the size of the deal) and then all the parties involved decide to invest (or not...) based on DD done by one of them.
In the Theranos case I suspect the 'big names' blinded investors, which is dumb on a very basic level. But it's their money and if they decide to throw it away on a BS project that is their right. The bit that really bothers me is how many good companies you could have funded instead of this one too-good-to-be-true unicorn.
It's funny that you yourself were very high on Theranos in early articles on this site, and specifically praised the obvious due diligence these companies must have done.
The main point is that I (and many with me) are quite shocked that this amount of investment was done without anybody knowledgeable in the field apparently doing DD on the company. That there is a mechanism that explains this is what makes it interesting, especially given the size of the various investments.
There are a few more cases like this that are - in my opinion at least - more interesting still because they are closer to fields that I know more about than about bloodworks. And that's one of the main take-aways for me, investors should invest in things that they understand or they should hire their own independent experts to verify that the technology is real, but in practice even if they know this they do not always do it, even at the level of Theranos (hard to imagine, but there is pretty solid proof by now).
That Theranos is - at this point this seems likely - a lemon is a very good and extremely expensive lesson for anybody that wishes to invest looking at the bona-fides of the other investors already on board. That should count for exactly nothing. Good luck convincing the world of that but that is my conclusion.
The way I read the Theranos story is that the dream didn't work out, that - rather than welcome inquiry and fixing of the tech. They chose to become super defensive and play silly games rather than to open up which suggests that there is a level of self deception going on. And this is where it becomes very hard to distinguish a scam from an accident and a fraud from simply one of many failed investments.
If anything the level rather than the principles here are what attracts attention, you see this situation in the investment world with great regularity at lower levels of investment and usually these take much less time to play out.
I wonder if at some level Theranos and its executives still believe they can 'fix' the technology or if they have actually given up on that. This will be the harder part for them, to acknowledge defeat and to own it.
It's a sad story, nothing to be gleeful about but at least for me there are some very valuable lessons here. Social proof is no proof at all and each and every investor that lost (or stands to lose) money in this whole saga will have paid a very dear price to learn that lesson.
Next up: uBeam.
edit: and right now, she's clearly frantically trying to come up with what they need to hear to give her even more money. I give her a 75/25 chance of succeeding if she avoids any direct mention of sexism (although slathering on heavy implication), and combines it with an Icarus narrative, a born-again redemptionist narrative (a Jimmy Swaggart speech), and tries to recast Theranos as a charity that was swinging for the fences to reduce the costs of health care to help the poor and our economy. Then, she should show a new, mostly unrealistic medical device concept that if successfully created could reduce the costs of some expensive area of health care 10x. It can't be related to diagnostics in any way, because she'll have to not contest the proposed ban, but instead embrace it.
She can keep that con going long enough to get out of the ban, and go back into diagnostics, hopefully after buying a viable idea (or more than one) from someone who actually knows what they're doing. Going forward, she could still end up running the biggest company in the U.S.. It's super-awesome to be white and rich.
A good partner for her would be Bill Gates, a similarly ethically empty person who has elevated themselves into secular saint status by writing checks.