Deception in Silicon Valley
It is quite a tale John Carreyrou tells in his book, “Bad Blood: Secrets and Lies in a Silicon Valley Startup.” It is a story of jawdropping lying and greed so immense that billions of dollars fly by with every turn of the page. It’s a tale of heroic cupidity on a scale that made the very best and the very brightest look like the very, very foolish. We’re talking about Henry Kissinger, George Shultz, James Mattis, Sam Nunn, a clutch of Waltons, the super-lawyer David Boies and, for a while, Rupert Murdoch. He poured millions into this alleged scam and then, disappointingly for those who like one-dimensional nemeses, allowed his own newspaper, The Wall Street Journal, to blow the whistle. You will not be able to put this book down.
The subject is Theranos, the startup that promised to revolutionize blood testing. It was valued in the many billions but now teeters on the verge of bankruptcy. Still, the real subject as far as I’m concerned is Elizabeth Holmes, who started the company as a 19-year-old Stanford dropout with the bluest of blue eyes and deepest of deep voices -- and who wore black turtlenecks in blatant imitation of Steve Jobs. She handled her elders the way a snake charmer handles snakes. Only in her case, she was the one with poison.
Her genius, Carreyrou says, was lying. The men she recruited to her board of directors could all be unfairly characterized as flattered fools, but they actually serve as standins for us all. They accepted the pitch of a woman who confessed she was afraid of needles. She had come up with a blood test that could be taken with a teeny-weeny drop or two of blood from the finger. No pain, much gain. No more searching for a vein. No more having to do it repeatedly so that the vein collapses. Kissinger, Shultz and the others saw a device to save lives. They knew little about the technology. So, it turned out, did Holmes.
Theranos employed people who did. But, as Carreyrou writes, when these employees suspected that the device was not working -- the results were being faked and the lives of patients were put at risk -- they were fired, often escorted off the premises that very day by security personnel. Employees were compelled to sign severe nondisclosure agreements, the violation of which would trigger a lawsuit that could cause ruination. Carreyrou’s account of Theranos’ security measures -and of Holmes always accompanied by a phalanx of blackuniformed bodyguards -brings to mind “A Handmaid’s Tale.”
Some board members and investors wondered about the excessive security. Some wondered about missed deadlines and a high turnover. All were dissuaded or pacified by Holmes, a zealot who apparently believed so fervently in her vision that truth was just a matter of time. This is a Silicon Valley failing, which is why billions get invested on the promise of billions more being made -- fake it till you make it, as the saying goes.
Theranos signed agreements with Walgreens and Safeway, companies you would think could not be fooled. It recruited investments from experienced venture capital firms that were wooed as easily as those naive grandees who joined the board. They were simultaneously dazzled by Holmes and blinded by the dense opaqueness of the firm. Holmes no doubt told them what they wanted to hear. Vast fortunes lay buried in the ether. Uber and Spotify, both cited by Carreyrou, achieved astronomical valuations before they turned a penny of profit. Theranos, Holmes promised, was next.
Earlier this month, the U.S. attorney in San Francisco indicted Holmes on fraud charges, to which she has pleaded not guilty. She stepped down as Theranos’ CEO and now faces up to 20 years in jail. The company, once valued at about $9 billion, is a Silicon Valley pauper. Holmes, once a paper billionaire herself, is set to be portrayed by Jennifer Lawrence in the inevitable movie. I’m ready with my popcorn.
There are several heroes in the Theranos story. One is Tyler Shultz, a former Theranos employee who tried to convince his obstinate grandfather, now 97, that Holmes was a liar. The other hero is the media. Carreyrou, an astonishingly indomitable investigative reporter, broke the story for the Journal. But before he had done so, Rupert Murdoch put $125 million into Theranos, becoming the largest individual investor. Holmes went to Murdoch, asking to have Carreyrou’s story killed.
It ran Oct. 15, 2015.