The Final Act Begins

Elizabeth Holmes (Fortune image)

Like many followers of Bay Area tech, we were guardedly excited when we first heard about Elizabeth Holmes and Theranos in 2013:

By extracting a few drops, not vials, of blood, instantly analyzing them, and charging much less for its service than a standard lab, Ms. Holmes' company threatens a vast industry that performs "6.8 billion lab tests annually in the U.S."

1) It does seem too good to be true.

2) Nevertheless, I wish Theranos were a public company; it would be perfect for the small speculative portion of my investment portfolio.

In 2015 the Wall Street Journal ran an exposé on Theranos' blood-testing technology:

the Journal’s article argued that [Theranos'] tests are not reliable, and revealed that it does only a few tests with its own devices, using other firms’ technology for most of them.

In 2016 it became clear that the technology was a will-o'-the-wisp, and Theranos' estimated value (it had not gone public) plunged to zero.

In 2018 began the final act ("the Reckoning"):

It now turns out that Ms Holmes’s claims were deceptive, according to the SEC. She allegedly exaggerated her startup’s capabilities. Theranos only reliably performed a dozen of the 200 tests it offered with its own technology. It also lied about its portfolio of clients. For example, investors were told that its technology had been used by the American military on the battlefield, when it had only been used in studies; and that it was poised to be rolled out by a grocery chain even when the deal had collapsed. The financial figures were apparently concocted, too. Ms Holmes told one investor that Theranos had $108m in revenue in 2014; the real figure was $100,000.

Elizabeth Holmes has been fined $500,000 by the SEC and prohibited from being an officer of any public company for ten years. The story--a self-made female entrepreneur disrupts an industry and becomes a billionaire, she was a college dropout like Steve Jobs and even wore black turtle necks like Steve Jobs---didn't play out as expected. Alas, we were the victims of our own desire.