Don’t expect Silicon Valley to learn from Holmes’ fall
‘Fake it ’til you make it’ still the game in town
SAN JOSE, Calif. – The fraud conviction of former Theranos CEO Elizabeth Holmes could offer Silicon Valley’s culture of hubris and hype some valuable lessons.
Will anyone in the tech industry actually take this moment to heart? Don’t count on it.
Holmes was found guilty on Monday of duping investors into believing that Theranos had developed a revolutionary medical device that could detect a multitude of diseases and conditions from a few drops of blood. She could face up to 20 years in prison for each charge, although legal experts say she is unlikely to receive the maximum sentence.
Federal prosecutors depicted Holmes as a charlatan obsessed with fame and fortune. In seven days on the witness stand, she cast herself as a visionary trailblazer in male-dominated Silicon Valley who was emotionally and sexually abused by her former lover and business partner, Sunny Balwani.
The trial also laid bare the pitfalls of one of the go-to moves of Silicon Valley entrepreneurs – conveying a boundless optimism regardless of whether it’s warranted, known as “fake it ’til you make it.” That ethos helped hatch groundbreaking companies such as Google, Netflix, Facebook, and Apple – the latter co-founded by one of Holmes’ heroes, Steve Jobs.
But few expect her conviction to lower the wattage on the brash promises and bold exaggerations that have become a routine part of the tech industry’s innovation hustle.
Holmes’ conviction “will send a message to CEOs that there are consequences in overstepping the bounds,” suggested Ellen Kreitzberg, a Santa Clara University law professor who attended the trial. On the other hand, she said, “investors are still going to want to make more money on a promising idea. They will always go in for the golden ring.”
Holmes remained seated and expressed no emotion as the verdicts were read. She bowed her head several times before the jury was polled by U.S. District Judge Edward Davila. After the judge left the courtroom to meet with jurors individually, Holmes got up to hug her partner, Billy Evans, and her parents before leaving with lawyers.
The bold dream Holmes pursued when she founded Theranos in 2003 at the age of 19 had become a nightmare by the time she was indicted on felony charges in 2018.
During that span, Holmes went from an unknown to a Silicon Valley sensation who had amassed a $4.5 billion fortune on paper to a vilified failure. Her downfall was dissected in documentaries, books, podcasts and will soon be rehashed in a Hulu TV series.
Holmes set out to create a less painful, more convenient and cheaper way to scan for hundreds of diseases and other health problems by taking just a few drops of blood with a finger prick instead of inserting a needle in a vein.
The concept – and the way Holmes presented it – enthralled wealthy investors eager to buy an early stake in a game-changing company. It helped Theranos raise more than $900 million from savvy billionaires such as media mogul Rupert Murdoch and software magnate Larry Ellison, as well as wellto-do families such as the Waltons of Walmart and the DeVos clan behind Amway.
What most people did not know was that Theranos’ blood-testing technology kept producing misleading results. That forced patients to undergo regular blood draws instead of the promised finger sticks and led Theranos to secretly test those samples using conventional machines in a traditional laboratory setting. Evidence presented at the trial also showed that Holmes lied about purported deals that Theranos had reached with big drug companies such as Pfizer and the U.S. military.
The deception backfired in 2015 after a series of explosive articles in The Wall Street Journal and a regulatory audit of Theranos uncovered potentially dangerous flaws in the company’s technology, leading to its eventual collapse.