The worst trades in history… a punt on a medical miracle

In 2003, Stanford undergraduate Elizabeth Holmes, who had a fear of needles, decided to develop a device that would drastically reduce the amount of blood that needed to be drawn for medical testing and eliminate the need for samples to be sent to a laboratory. She founded Real Time Cures (renamed Theranos) in 2003 to develop the idea. By 2004 she had dropped out of Stanford to pursue it full time, and ploughed money from her trust fund into the company.

What was the idea?

To finance development, Theranos raised money through various venture-capital rounds. The initial sums raised were modest, starting with $500,000 in June 2004 (giving the company a valuation of $30m), but they rapidly grew and the company hit an implied valuation of $1bn after it raised $40m in 2010. In 2013 the firm announced a partnership with chain store Walgreens, propelling the firm and Holmes into the media spotlight. Theranos raised a further $543m in 2014 and 2015, giving it a valuation of roughly $10bn.

What happened next?

Acting on a tip-off from a former employee, Wall Street Journal reporter John Carreyrou investigated and discovered that the main idea was nothing but hot air and the technology didn’t work. By 2018 Theranos was shut down and Holmes jailed for 11 years for fraud.

Lessons for investors

Investors lost nearly all of the $700m they put into the company. They were lured in by doctored reports that gave the impression that the technology had been validated by major drug companies and by faked demonstrations of its main product. They should have been more vigilant. The DeVos family, for example, admitted that they invested $100m without talking to executives or hiring outside experts to test their claims.