Elizabeth Holmes is on trial for fraud, but don't forget about her VC enablers
sfchronicle.com
sfchronicle.com
For example, there was a company called blue turtle that claimed to want to build a bacterium that provided gaucher's disease enzyme as a probiotic supplement. I mean technically speaking it's not impossible, but there are so many things that 'dont exist yet and would need to be engineered' that I couldn't see it making it as a company.
Like seriously, i was able to look this up on wikipedia in the timespan of their demo pitch.
Notably, one early investor said, in interviews, that he was comfortable investing because Holmes' grandfather was a businessman, and another relative was a famous doctor (presumably the theory was that she was thus _genetically_ good at medical tech businesses?!). These were, by and large, very much the opposite of sophisticated investors.
Well, Tim Draper is a VC that people would associate with "Silicon Valley". (portfolio: https://www.dfj.com/)
The first $500k seed came from DFJ.[1]
But somewhat to your point, Elizabeth Holmes did not get his backing via the typical "VC due diligence" channel. Instead, she was childhood friends with Draper's daughter. Apparently, her charm completely bypassed his VC radar for detecting bullshit.
[1] https://news.crunchbase.com/news/theranos-elizabeth-holmes-t....
Can you point to the statement where he supported fraud or asserted that she was innocent of any crime?
If you need me to I can point you to a statement where he said he wouldn't back her as a CEO again.
You know it is possible to signal support to a friend and colleague when they're at rock bottom and with the entire world piling onto them, without endorsing the worst of their actions, right?
The last time I can find him saying anything publicly about her, he said he wouldn't back her as CEO again - though he would back her as "chief science officer", before quickly changing the subject [2]. Again, he's clearly trying to show her some personal support as a friend and colleague when nobody else in the world will do that, whilst very clearly stopping short of endorsing or denying any criminal behaviour.
What can you find that's more damning than this?
And why is it so important to you that Tim Draper should have publicly trashed her? Is it not enough that basically every other media and investment figure in the world was trashing her? Do you not have anyone for whom you would publicly signal support, if they were at rock bottom and the rest of the world was piling onto them, even if you know they may have done the wrong thing?
[1] https://cheddar.com/media/tim-draper-elizabeth-holmes-is-inn...
[2] https://theoutline.com/post/7157/one-of-theranos-first-inves...
You know there are people in the world who think things like: I was the first person to show her support when nobody else did, and so now I'm going to be the last person to keep supporting her when nobody else will. It won't cost me anything to show that I still care about her even if she's done wrong. If I don't, who else will? Some people sleep better at night doing that, rather than joining the mob taking delight in laying the boots in.
At any rate it's either close the "loophole" or accept the fact that proving intent to defraud is much harder than proving stupid. But at least we get to call them stupid.
The real victims are the people that received the results from such fraudulent tests and maybe even received improper treatments because of it.
Same goes for SpaceX's point to point travel. It will never happen and there are many warning signs pointing to this fact. For example in their presentation they list a large list of cities, many of those are completely out of the question. So in essence a blatant lie.
Sure SpaceX probably wont go under because they have some real projects but it is quite questionable for a company to make such claims knowing it will never meet them.
Maybe I am wrong but such announcements which clearly will never happen are just PR, like Ryanair announcing every couple of years that they either charge for toilets or remove the seats, both which will probably not happen in any near future but it gives them free press coverage.
So what were the warning signs before investors invested?
These announcements go beyond PR, they are borderline fraud.
That investors may have been foolish and greedy does not take away from the fact that Holmes acted to deceive them.
If I leave the keys in the ignition of my sports car and it’s stolen, I’m a very foolish person, but certainly no less the victim of a car theft.
Except that the investors gave the keys of their cars to Holmes. Holmes didn't grab their money without their permission.
Mine certainly does
the problem - this became an institutionalized modus operandi of Silicon Valley, finance, higher education, IP law, crypto, even real estate - essentially the entire economy of intangible goods and services. As Jim Chanos put in ‘We are in the golden age of fraud’ - lying to investors, public or congress or courts became so normalized that people no longer see any problem with it
Lot of companies do that atleast with software. Didnt Bill Gates tell IBM that they have an OS when they didnt and then bought an OS from someone else?
However, the software people rarely try to gaslight you into believing that the features actually do exist and you don't need them anyway. At least, in my experience. And, when pressed by customers, they usually fess up that the features are still "under development".
Listening to the "The Dropout" podcast, the thing that is striking is that Theranos had a bunch of things they said to investors and customers (Walgreens, Safeway) that they would not fess up to in deposition before the SEC. All of a sudden, the genius founder can't remember hardly anything of what happened in the last 10 years.
I don't doubt that Holmes wanted it to work. I think she thought that in the first few years, her R&D lab would actually be producing a machine that did what they claimed, and that they'd just be running the tests in house until the FDA approval came to sell them to everyone and his dog. But it seems she and the other brass didn't want to ever hear that they were not succeeding. And so they had to lie.
I was pretty disappointed because the articles about it made it seem like she had made or been part of a breakthrough in her undergraduate research to dramatically reduce the sample size. Imagine the applications in veterinary medicine! But this was not the case, she took existing tech and then started raising investment on the promise that it could be extended by sufficiently smart people, and then sold an image of herself as a prodigy to keep the ball rolling, while immunizing herself to the reality of the actual performance of the machines.
The big difference is she didn't have anything and no viable path to deliver it. A fundamental step had to be made which wasn't there. It is like promising anti gravity flight. If you have a functioning anti gravity Prototyp you can probably make a plane with enough engineering. If you don't it will not happen no matter how much money you pour in.
Looks more like she "messed with the wrong mf'ers" as they say. Tbf, $1 billion is a lot of money.
You could say the same thing about any fraud victims, especially love scams[1].
[1]"Police statistics show more than 75 per cent of people caught up in online romance scams refuse to believe they're being ripped off." https://www.abc.net.au/radio/programs/am/online-love-fraud-v...
someone falling for a romance scam is simply inexperienced in that matter, and should not be expected to know better
People that fall for romance scams tend to be older and significantly more experienced (in terms of life and love) than people who don't. They also continue with the relationship even when friends, family and eventually law enforcement sit down with them and show them that it's a scam.
I think many of these scams really highlight our innate desire to fool ourselves, especially when we are desperate and hopeful.
i doubt that older people are more experienced.
being married for a decade or two does nothing to prepare you for an online relationship.
older people likely never had an online relationship before and also weren't switching partners as often when they were young as people nowadays tend to. if they were they should have less trouble finding a new partner.
they are falling for online relationships precisely because they don't know how to find a partner otherwise.
but that isn't even the issue.
i don't know if i could tell the difference between a genuine relationship and a well executed pretender. not meeting in person makes it really hard to verify the claims being made.
what is puzzling is why someone would give up their life savings for someone they haven't even meet yet in person.
some expensive gifts for a few thousand dollars, sure, but all i have? that's something i'd bring into a marriage and only use if it is really needed. but then, i am a skeptic by nature.
there is also a big difference between loosing your life savings and a failed investment, given that the majority of investments fail anyways.
I know a bit about the clinical laboratory environment through a close relation. In fact, that person was the first clue I had that Theranos was BS. (This was before the WSJ article or any of the whistle blowers had come forward.)
Clinical laboratories are so resource constrained that FDA regulation would literally kill them. And many may not realize this, but 75%+ of any diagnosis is actually done by the lab. Care teams make hypotheses and labs reject them.
I feel somewhat sympathetic to this article's thesis, that these "fraud" laws are meant more as a bailout for rich and powerful people as a way to pin blame on a scape goat. A regular person defrauded by a bank or some other professional would have no hope of bringing their abuser to a criminal trial. But demonizing then CLIA loophole as if it is some ghastly deviation only fixed by the Powerful and Mighty FDA seems short-sighted.
Again, keep in mind that basically all lab scientists, all medical researchers who investigate lab procedures and all of the academics who study this and teach the next generation said Theranos was BS long before the government or press.
No one listened to them.
Clearly there's a big difference between a businessman saying such things and professional scientists and clinicians.
I don’t think it was just competitive posturing. He genuinely was down talking what is arguably the most successful consumer product of the last 50 years.
And how are all smartphone apps developed?
That's exactly what Ballmer was commenting on - the iPhone's $500 price (IIRC) was going to cause sticker shock, had it not been spread over a 24-month contract period. When Job's announced the price, he didn't mention carrier financing.
Professionals panning Theranos were not doing so because they thought it could not sell, or the cost, or other market-based concerns. They had "what you're saying is not possible based on my understanding of the physical world" concerns, and those questions were never answered at any point because it was a fraud and there was no answer.
“a new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents die, and a new generation grows up that is familiar with it.”
listen to reason, not authority
I know it’s popular (and sometimes true) to blame scientists for failing to adopt new ideas, but I don’t think you get to play that card in a situation where the alleged ideas are being kept secret. And yet many do play that card. As a scientist if someone arrives with a product that implies a massive (but unpublished) scientific breakthrough, then I’m going to express polite skepticism until they publish their results. If for whatever business reason, the startup wants to keep their breakthrough secret (rather than publishing and patenting it), well that rings alarm bells — but even then surely the investors can hire outside experts to review the science under NDA. If the startup refuses even that, then I think you need to accept that the most likely possibility is fraud rather than someone figuring out how to bypass the laws of thermodynamics or whatever.
However, most of the knowledge about such things is "siloed" inside the lab science community itself, without much awareness from the outside.
That being said, I think so few Valley VCs got duped because they actually did the due diligence and determined this was in the "not physically possible" realm.
> Many diagnostic startup companies use this loophole to bypass the FDA’s rigorous clinical study and validation requirements which, on average, take three to seven years.
Then:
> Why didn’t any of the investors simply require Theranos to submit all their tests and the hardware platform to the FDA?
I can't say I blame her for this, but I'm amazed how she managed to get funds without proper due diligence. For serious investments, VCs usually go through everything and have a good nose to smell bullsh*t. I guess (for this case) it was a good reference from influential individuals and politicians that probably (in this or that way) influenced VCs judgments.
At the end of the day, this feels like a bunch of rich people got suckered, couldn't dump it on the public market, and wanted to blame someone for their embarrassment.
Over in reality, the company’s operations burned $34 million in 2020, and they’re projected to burn $133 million in 2021. In the rest of the deck, Aspiration refers to its “EBITDAM profitability this quarter” and then uses EBITDAM throughout its financial analysis. Which is rich for a company whose entire (projected) profit model is dependent on explosive customer acquisition, which (to date) has been really, really expensive.
And I just love comments like this hah
This is a firm that registered less than $15 million in revenue last year. PayPal makes $15 million in revenue every five hours. It’s less than most NFL starting quarterbacks made in 2020 — Leo’s former girlfriend’s husband made over twice that.
Theranos isn't a typical case of founder hype like you describe. It was a con job through and through.
Don't harbour sympathy for Holmes. She's made it harder for good-faith actors to get access to funding.
Imagine the trauma of being diagnosed with a life-threatening disease, only to find out later that you’re fine. Or worse, a false negative result leading to a disease going undiscovered until it’s already progressed to a late stage.
You make it sound like they were 80 or 90% of the way there. But it seems like what they promised—hundreds of tests from a drop of blood—is totally impossible, which is why it sounded so amazing. They were not even 1% of the way to what they were saying they already could do. And they were giving what sound like fairly random blood test results to people with serious medical conditions, while pretending they were 100% of the way there.
She blatantly lied and out on a facade to be deceptive for millions of dollars. She is the one to blame and hopefully serves federal prison time
It struck me as a bit weird intellectually - DEI is important but let's first establish that the thing being done is great, and then second take a look at who's doing it. It seemed like this short circuited in the speaker's mind because it was such a cool narrative. I wonder if that happened more broadly - it's a story that you easily wish were true!
And now her defense is that she was used, abused, and manipulated by men. Occam's razor says she was a fraud then and is a fraud now.
In that way it was a textbook con. Avoid those that would sniff you out and focus on those that will be gullible to your play.
The problem is it took far too long for anyone to actually check the real mechanics of what was being done to see if it was faked, someone with almost no access saying it’s fake is not an authority.
People got hurt here because of how that played out, and that’s messed up.
https://fortune.com/2015/12/20/letter-to-the-editor-theranos...
Really quite something.
Original story: https://archive.md/BpOhV
And the even more original glowing and fawning cover story they did on Holmes in 2014: https://archive.md/XN6i6
> Precisely how Theranos accomplishes all these amazing feats is a trade secret. Holmes will only say–and this is more than she has ever said before–that her company uses “the same fundamental chemical methods” as existing labs do. Its advances relate to “optimizing the chemistry” and “leveraging software” to permit those conventional methods to work with tiny sample volumes.
Interesting how that reads in retrospect
> Holmes counters that because, as noted, her tests employ “the same fundamental chemical methods” as existing tests, peer-review publication of validation studies is both unnecessary and inappropriate.
Incredibly arrogant to the end fits well with her past behaviour
> Theranos, which does not buy any analyzers from third parties, is therefore in a unique position. While it would need FDA approval to sell its own analyzers to other labs, it doesn’t do that. It uses its analyzers only in its own CMS-certified lab. All its tests are therefore LDTs, effectively exempt from FDA oversight.
It's much more likely that she misled investors, and isn't that exactly what the lawsuit is about?
> This dismal success rate is why venture capitalists historically have rarely invested in these companies. So why then did they collectively put $1.3 billion in Theranos?
> Greed.
Well in that sense, most venture capital investment stems from "greed", but surely that's the whole point, to leverage the "greed" of risk loving investors into funding new ventures?