A few days ago, Elizabeth Holmes, founder and former CEO of Theranos (pronounced with an accent on the e) was sentenced to 11 years and 3 months in prison: last January she was found guilty of fraud on 4 of the 11 counts she was on trial for. It only remained to define the extent of the penalty.
Come on Italian Tech we have already told what Theranos promised what we wanted to do was to drastically simplify the world of blood tests: from a single drop, and with a single machine, which customers could even keep at home, it would have been possible to carry out tests for over 200 parameters, including HIV positivity and to markers for some types of cancer. The problem is that the machine was not working and that Holmes and its chief operating officer, Ramesh Sunny Balwani (with whom the woman also had a long romantic relationship), would have deceived investors, companies, partners and patients.
Also Balwani was found guilty but we still don’t know exactly what charges (his sentence will be established at the beginning of December), while Holmes’s lawyers have already announced their intention to appeal against the sentence. Beyond this, the condemnation of the “woman who wanted to be Steve Jobs” teaches many things about the not always golden world of startups and Silicon Valley.
Healthcare and technology
D-Heart and Medicilio, the Italian startups doing what Theranos failed to do
by Emanuele Capone
youtube: il trailer di The Dropout
Investor mistakes
Theranos, founded in 2003 and reached a value of almost 10 billion in 2013, has raised hundreds of millions of dollars over the years from large or very large investors, such as Rupert Murdoch and the Walton family, owners of Walmart. And practically none of them, from what can be understood by leafing through the American newspapers, has admitted to having badly evaluated this startup. In an interview granted to CBNC shortly after the conviction, the venture capitalist Tim Draper this is how he replied to those who asked him if he was willing to admit that he was wrong: “Absolutely not, I think instead that we have destroyed another great icon”. Subsequently, Draper clarified his thoughts better: “When we supported Theranos, we knew it was a gamblethen she started taking a lot of bad advice and things went bad.”
Why do they do this? Above all for two reasons, one human and one economic. A bit because it is in general It’s hard to admit that you made a mistake, and even more for those who work in venture capitalism, where a single mistake can burn you forever: better to say “we tried, we knew it could go wrong, it went wrong”. Which is basically what Draper said. The other reason is that for the vast majority of these investors, the money put into Theranos is crumbs: Murdoch gave Holmes $125 million out of a $21 billion personal fortune; the Walton family reached 150 million, but on assets of 238 billion. And so on, except for a few cases.
And therefore, the first teaching is that not all startups that raise a lot of money are trustworthy startups. Better said: the goodness of a startup should not be measured with the sole parameter of the money raised o that he’s a unicorn (what does it mean?) oppure no.
youtube: Holmes responds to allegations
The role of newspapers
It must also be said that the faults of the investors are not all of the investors: from what has emerged, many would have been inattentive, would have gave money to Holmes and Balwani without checking necessary, without the due diligence procedures that are usually carried out in these cases. Especially when it comes to figures of this importance.
And yet, they have to be understood: “If someone like Murdoch gives you 125 million – they must have thought – he will surely have done the necessary checks”. Only he hadn’t done them either. Again: if in September 2015, a few weeks before everything fell apart, Bill Clinton and Jack Ma look at Holmes in admiration on stage at the Clinton Global Initiative, with the former urging her to “tell everyone how old you were when you founded the company”, visibly excited, who would have had the courage to cast doubts? What’s more: if all the newspapers, more or less all over the world, they dedicate cover after cover to her and indeed they call her “the new Steve Jobs”, who would have chosen to deny her the money and not believe in the dream?
He could do it only one like Bill Gates. In fact, he’s pretty much the only big name that not only didn’t fund Theranos but that Theranos people stayed well away from, probably aware that he and his team of healthcare specialists might call the bluff. If only they had checked.
Or the Wall Street Journal could do it, whose article of October 16, 2015 (this) it brought down the castle of lies and pushed those at Fortune to publicly admit (video below) that “it was a bit of a shock for us to discover that you only did one test with your device”, instead of the more than 200 promised.
Second teaching, which applies to those who write and also to those who read us: always exercise doubt and remember that if something is too good to be true, it probably isn’t true. That should always be true but not always trueas the two years of the pandemic have shown.
youtube: how Holmes’s language has changed in 7 years
Exploit the need
But because more or less everyone believed in Elizabeth Holmes and her project (whose story is well told in The Dropout your Disney Plus), from investors to companies, up to newspapers? Partly because she is very, very, very good at selling herself, as confirmed by the reporters who have followed the various stages of the process. Above all, because there was (and still is) a great need for what he wanted to do.
The idea of be able to simplify healthcareto make it accessible at a low cost and to make it easy for everyone, is an idea that many have been pursuing for about fifteen years now: even in Italy there are startups engaged (successfully) in the medical sector and in general this is undoubtedly one of the areas in which progress is not only expected, but also desired. Which is kind of what Theranos investors claimed: the direction is actually the one Holmes wanted to go in, only that she she said she had arrived before she had actually arrived. Because it probably takes more time in the medical field than in other fields.
Third lesson, then: maybe the motto Move fast and Break things, typical of Silicon Valley, is not good for medical startups. It’s good for Uber, because it’s good to disrupt the transport sector and it doesn’t matter if you break something, but not good when you’re dealing with people’s health and falsify the results of their analyses.
Stories
Six startups that fooled the world
by Giuditta Mosca
The rights of patients
Here, the people. Who seem to be the forgotten victims of this affair: Holmes was convicted of defrauding investors, but found not guilty as regards the patients. It happened because the prosecution failed to demonstrate that there was a direct relationship between her and the people who trusted her machine: there is no proof that it was she who spoke to them and convinced them to use the device.
And so what? Will no one pay for this? Actually yes, but it won’t be Elizabeth Holmes: the most accredited hypotheses say that it will probably be Balwani who will be found guilty for patient fraud. From a procedural point of view, the opposite discourse to the one made with her will be valid for him: Holmes defined himself as “the ultimate decision maker for the company”, it was she who made the decisions, met the investors and was on the covers (or on the stage with Clinton), but it was he who had control and responsibility for the laboratory. That is, the facility where the forged tests came from.