Many of us have been fascinated by the story of Theranos and its founder Elizabeth Holmes. Every major news show has produced a story about it. There are podcasts and YouTube videos about it. HBO, Netflix, and Apple TV have produced documentaries, mini-series, and a movie. The fraud was first revealed in a series of Wall Street Journal articles and the nonfiction book, Bad Blood: Secrets and Lies in a Silicon Valley Startup, by John Carreyrou.
For those who don’t know the story. Elizabeth Holmes dropped out of Stanford after a 1 ½ years to start a company whose lofty goal was to make blood testing available directly to the consumer. She claimed to have developed the technology to do 200 blood tests on a desktop device from a single drop of blood. When she presented her vision to a Stanford professor, Dr. Gardner explained it was not possible due to physics, medicine, and chemistry constraints.
But Holmes was able to convince another Stanford professor, Dr. Channing Robertson. Ms. Holmes most valuable skill proved to be her ability to mesmerize old, white men.
Holmes dropped out of Stanford with no medical training and two semesters of engineering education. While a limited education is possible when writing code; building a biomedical device requires advanced degrees in chemistry, physics, medicine, and engineering. Ms. Holmes had none; but she had charisma, a strong will, and a willingness to lie.
She put together a board of highly accomplished older white men, including Dr. Robertson, George Schultz, Henry Kissinger, Larry Ellison among others.
With a board of this caliber, she was able to obtain over a billion dollars in funding, and at one time her business was valued at $10 billion. A young woman leading a Silicon Valley unicorn (defined as a start-up valued at more than $1B), was a story that everyone wanted to hear, and she was on the cover of Fortune, Forbes, Inc. as well as national papers, news shows, and fawning seminars.
But experts knew that one would have to circumvent the laws of physics, engineering, fluid biomechanics, and medicine for her device to work. Despite Theranos’s intense efforts to keep this fraud a secret, it was only a matter of time before her high profile attracted the attention of an award-winning journalist. John Carreyrou exposed the fraud.
Holmes lied and misrepresented her capabilities, her personal life, her contracts, her revenues, and her life story. Holmes ruthlessly ran her company, forbidding collaboration and mistreating employees. Theranos was willing to risk the lives of their patients.
Her fall from grace was swift and dramatic. She was convicted of fraud and will be sentenced in September. At one time she was worth $4.5 billion, and collecting $400,000 annual salary as CEO of Theranos, today she is worth $0.
While Theranos was garnering all of this attention, there were other lesser-known startups that were equally fraudulent.
Trevor Milton of Nikola Motors has been indicted for fraud. At its peak, Nikola Motors was valued at $34 billion. Nikola Motors promised ecology-friendly hybrid and Hydrogen fueled trucks with fueling stations. They were able to secure substantial financing from GM, Bosch, BP and other well-known energy companies.
Milton never had functional vehicles and even faked the demo by towing a shell prototype to the top of a hill and filming it rolling down.
Like Holmes, Milton was a college dropout with no expertise in his area; but he could sell a dream. Who doesn’t want trucks with the same power as diesel engines that don’t pollute the environment? Who doesn’t want to move to Hydrogen technology? To date, it has been tried by many companies and its success remains elusive. So why would investors believe that someone who doesn’t have the knowledge or expertise could do it?
Unlike Holmes, Milton rewarded himself financially and is now worth almost $1 billion.
The next member of this rogue’s gallery is Adam Neumann, who despite misleading investors, walked away with $1.7 billion. He founded WeWork, a company that offers desk rental space for small companies. His differentiator was that he created a design and software to allow innovative, exciting collaboration in his spaces. At its height, WeWork was valued at $47B.
Almost messianic, Newmann is very charismatic. Unlike Holmes, he was able to enrich himself by many means including personally buying real estate and renting it to WeWork, trademarking the name, and selling the trademark to WeWork for over $5 million.
Neumann also dropped out of college and did not understand the financials that are required to be successful in real estate. He told investors that the company was profitable when in fact, it was losing money, up to $2 billion per year.
He also worked his people shamelessly, sometimes up to 20 hours per day, telling them that they were changing the world and would become rich in the process. At the same time, he knew that their small options would never make them wealthy. And he walked away with $1.7 billion, while the company didn’t have enough money to give the thousands of employees who were laid off basic severance. Had he cared about his employees as he had claimed, he might have taken a little less, so they could have a little more.
Neumann has inexplicably not been indicted, nor does it appear that he will be. His biggest investor, Softbank, has been left holding the bag. WeWork is still operating, but no one knows for how long.
While the crimes are similar, the coverage is not, with Theranos’s story generating almost 9 times more copy, documentaries, movies, etc. than the other two put together. Given the differential coverage and the fact that Newmann and Milton were able to enrich themselves at the employees’ expense I wondered if this was an example of women paying a steeper price for mistakes than men.
But then I re-read Carreyrou’s book. Nikola Motors and WeWork were considered fun places to work (at least until Newmann exhausted and shafted his employees). On the other hand, Holmes treated her employees brutally, firing them, threatening them, monitoring their personal and work emails, putting spyware on their computers. And she was indifferent about her patients, unconcerned that her machines could result in inaccurate medications. And she lied, and lied, and lied…at the same time obsessively needing attention. She threatened, followed, and sued former employees to keep her secrets. One of the former employees (George Schultz’s grandson) faced $500,000 in legal bills for talking to the reporter.
And her defense? She began by having a baby before her trial, hoping that juries would be sympathetic to the needs of the mother of a young child. She claimed that she was abused by her lover who she had made the COO of the company. She protested that she was treated less respectfully because she was a woman. The woman who had to know everything about her company all of a sudden, had no idea that this was going on.
Being one of the few successful women in Silicon Valley enabled her to get exposure that men didn’t typically get…and when it all fell apart, she played victim. She claimed she only cared about changing the world, not herself, and she may have made mistakes on her way.
Women are still paid less than men and are still subjected to sexual harassment and have a tougher time in the workplace.
But not in this case. Holmes deserved everything she got.
Angela Rieck, a Caroline County native, received her PhD in Mathematical Psychology from the University of Maryland and worked as a scientist at Bell Labs, and other high-tech companies in New Jersey before retiring as a corporate executive. Angela and her dogs divide their time between St Michaels and Key West Florida. Her daughter lives and works in New York City.