[Music]

asking yourself whether you're wrong is

a really good thing

if you really feel strong conviction

that you're doing the right thing

then keep going

that ideology is shared by some of the

world's most ambitious creators who

flock to northern california with a

dream

they seek like-minded encouragement to

move fast and break things

and even fake it until they make it

those principles can come at a cost

always for investors often for

entrepreneurs and their employees and

sometimes for the public at large

and for one entrepreneur once lauded the

world's youngest self-made female

billionaire

the cost could add up to years in

federal prison

this is silicon valley a hub of

innovation that's often coupled with

sleight of hand i'm alexis keenan and

this is yahoo finance presents

[Music]

nearly a billion dollars gone bust

swallowed by the opaque silicon valley

biotech startup theranos

whose founder elizabeth holmes faces

years in prison for a pitch pushed to

extremes

i knew that i could do something that

would be different than what everybody

else is doing she said her technology

would revolutionize healthcare

miniaturizing a suite of common blood

tests down to a few drops

the technique would democratize

diagnostics driving down cost to make

tests so affordable that consumers could

access periodic snapshots of their

personal health over time

it was a story that holmes told with

unwavering conviction

if you watched a movie

and you took

one frame

out of that movie

you said okay elizabeth

tell me the story

i would never be able to tell you that

story but

if you gave me a series of frames

i could begin to piece together a story

the concept captivated investors and

media and turned homes into a startup

sensation
though her stardust began to settle when

the wall street journal exposed frames

of her story as technology overhyped

the reckoning fueled a barrage of

scathing news reports

a new york times bestseller

and a feature documentary

leaving homes accused of fraud of

peddling impossible science and

portrayed a vixen

her confident charm and even physical

appearance were cited to explain why

distinguished advisors and hopeful

investors in a male-dominated field

bought what she was selling

yet not everyone is convinced that

holmes was just a persuasive pretty face

or that her methods to materialize her

vision should be viewed in black and

white

this is going to sound a little strong

but to a certainty she's a victim

because

she didn't know what she didn't know and

she relied on people who gave her bad

advice

or mismanaged it i think

even for theranos i'm not 100 convinced

that it is fraud although that i mean we

have lots of leads that many many many

things were wrong

the first crazy concept that we had that

people said absolutely could not be done

especially when

i tried to raise money for the first

time to start the company was wanting to

change

the way lab testing was done if you're

going to start a company

the first question is why right for me

it was

this is a change in the world that i

want to see the change was never

realized at least not by theranos

instead the company imploded under a

raft of lawsuits regulatory actions and

sec fines all targeting homes for

promising more than she could prove

yet holding homes to both criminal

charges and such intense media scrutiny

could ultimately be what makes her

unique as a silicon valley entrepreneur

and may overshadow her pioneering role

in an emerging biotech field

the biggest concern i've had with the

media was in immediately after um

theranos started falling apart was there

was a rumble of people saying well this

was such a bad idea this could never

happen or actually really i think

elizabeth's vision

is was phenomenal right and i share the

same vision so i really resonate with

that i think it it is a good idea

and it needs to be um it needs to happen

it's all doable i mean that's the other

thing there wasn't any

engineering problem that couldn't be

resolved by the time i came to the

company there was refinements

i think with a different board maybe

with a different co with somebody at a

coacher and help developer as a ceo and

a spokesperson

i think a lot of this could have been

avoided

in a culture that handsomely rewards

innovators while embracing this fake it

till you make it ethos who deserves to

shoulder the blame

prosecutors say it's holmes and her

former boyfriend and theranos coo sonny

belwani for allegedly operating the

once-hyped blood testing company as a

criminal scheme that defrauded investors

doctors and patients

others including one of theranos's

earliest critics say the answer is not

as clear
and take into account a system known to

conflate optimism with reality

i suspect that there's many other

companies that don't really have

the ideas that they propose that they do

that they have they're still working on

them

they haven't tested them out they are

probably over optimistic

and maybe most of these ideas would fail

i don't think that terence is an

exception in that regard

if theranose is no exception how

strongly will criminal accusations hold

up and where will jurors draw the line

between an entrepreneur's push for

disruption and fraudulent deception

[Music]

but i'm sure the courts are going to

place a different standard on than i do

but my standard is

if an entrepreneur makes a claim and you

want to invest

it's your obligation

to go validate all the claims she's made

she may have made exorbitant statements

but those could have all have been

corroborated before the money was

invested and in fact if somebody had

done the work to try to corroborate them

they would have found out

they're really

exorbitant

they're wishful and uh

and they're futuristic and they don't

represent the present if you invested

based on those claims you would have

said okay that's fraud

if holm's strategy was to temporarily

fake it

how different were her tactics from her

silicon valley peers

when did the alleged charade begin

why did financial backers keep her

company afloat for more than a decade

and what lessons should future investors

learn

the answers lie in a tangle of

conflicting symptoms that can give

investors reason for confidence as well

as caution in the traditions of seed

capital rich silicon valley

[Music]

disruption

often begins

like this an aspiring creator claims

their vision for a new reality then sets

out to piece together the missing parts

to their puzzle what we wanted to change

was

the fact that when you find out you're

sick

you're already too sick in many cases to

be able to really change the course of

the disease the way you change that is

you have to reinvent every element

of the system which means you have to

reinvent the test you have to reinvent

the devices you have to reinvent the

software you have to reinvent the

locations through which the testing is

provided the pricing so this was not

a short-term business plan

and there's one place perhaps more than

anywhere else in the world that fosters

the rapid incarnation of these bold

ideas

this is the valley of dreams right it's

it's a unique situation there's no other

place in the world where somebody with a

big idea can come and have access to

capital have access to all of the

corporate services you need to get it

off the ground so people come here with

big dreams and i think elizabeth had a

great big dream

region of resources in its early days

known as the santa clara valley was

formed by generations of tech pioneers

whose ideas were brought to life with

the help of deep pockets

silicon valley was just another little

agricultural valley in california

through the middle part of the

20th century and the thing that changed

it all was world war ii and the cold war

the government did something that it

hadn't done before in the big way it got

into the research and development

business and particularly put immense

amount of money into research and

electronics and computing

it was decades before the blockbuster

successes of valley tech icons steve

jobs bill hewlett and david packard when

the valley's founding fathers put the

federal government's money to use the

startup that brought silicon into

silicon valley

was a short-lived operation called

shockley semiconductor

and the person who founded it was

william shockley he was a co-inventor of

the transistor

a veteran of telecom behemoth bell labs

shockley realized the power of silicon

to miniaturize transistors that by the

mid 1950s helped power the world's first

microchips

and so the valley gets more and more

significant in the landscape of tech by

1957 shockley's team founded its own

startup fairchild semiconductor

instead of turning to the federal

government the group made a radical move

and looked to the private market

securing funding courtesy of east coast

investment banker arthur rock

arthur rock later becomes

one of the most legendary venture

capitalists in silicon valley history

that same year the microchip earned a

reputation as indispensable as the

soviet union launched its sputnik

satellite the first artificial earth

satellite beating the us into orbit

this basically lights washington dc's

hair on fire and all of this money

starts getting invested in

rockets and missiles and

technologies to get things and people

out into space and ultimately to the

moon

in shooting for the moon the influence

of santa clara valley technology and the

investment dollars it attracted were

forever altered the region had

officially left behind its agricultural

roots to become a tech and investment

hub

a next generation would prove what

silicon could do

not just for big business and government

but for the individual

who has all the computers the

establishment the government big

corporations

key players to that independent movement

were two fairchild alums bob noyce and

gordon moore who in the late 1960s

founded intel to build memory chips

they too tapped venture capitalist

arthur rock whose 2.5 million dollar

stake advanced the uniquely american

concept of partnering wealthy investors

with tech entrepreneurs

the concept would carry into the next

millennia to prop up countless

enterprising founders including

elizabeth holmes so once you have a

computer on a chip you can build a

wooden box about around it and it's a

desktop computer and it's under your

control it's not under the university's

control or the pentagon's control and

look it's vietnam it's watergate this is

an anti-establishment moment in american

culture

that movement gave rise in the mid-1970s

to computer enthusiasts steve wozniak

and steve jobs

with noyes's help jobs in wozniak

secured funding for a first personal

computer the apple through investor mike

marcola and later through sequoia

capital that would evolve into one of

the region's most profitable vcs

the venture capital becomes an important

glue between the generations right who

are the leading venture capitalists of

today there are people who were that you

know had these massive exits in the 90s

who in turn were funded and mentored by

people who had massive exits in the 80s

and 70s

these generational networks reinforce

silicon valley's tightly knit circles

and its backlash against corporate

business as usual

you can't have total corporate

misbehavior in order to be successful

but the same time there's this

encouragement and cultivation and

tolerance of behavior that might get you

kicked out of a traditional company

silicon valley has a strong sense of

itself from the very beginning as not

being like other companies this is a

different sort of business we think

different we do things differently and

we have amazing results as a result

even investors have been known to play

by their own rules

the venture campus themselves did not

want to suit their nose

and there's a reason for that it's

because they all live in silicon valley

and if they sue a company that they've

invested in

um they're they're not going to get the

next deal plaintiff's attorney reed

catherine represented individual

investors who did sue theranos claiming

fraud

two late stage minority backers who

bought company shares indirectly and

complained they relied on false claims

the sole venture capital firm to sue

theranos was one of its largest

investors partner fund management it

brought two lawsuits that ended in

settlement

it's very important for the venture

capitalists to be able to get the next

deal to get the next google to get to be

able to be one of the first to invest

that was a already a well-established

part of valley culture by the time steve

jobs comes along there were lots of

arrogant jerks in the semiconductor

industry and part of the the culture of

the chip makers the semiconductor makers

was if someone was producing amazing

technology you were kind of going to let

them get away with murder

[Music]

in hindsight a predictable setting for

the whirlwind ascent of elizabeth holmes

and for her meteoric fall

[Music]

when we began theranos what we focused

on was creating a customized medicine

tool that could be used in the home the

ability to begin bringing monitoring as

we call it into the home we believe

could fundamentally change the way that

both patients are treated as well as

drugs are developed

that was elizabeth holmes in 2005

one of the few times early on that she

spoke publicly about her ambitions

i think it all starts with a very unique

kind of founder who

truly has a passionate burning

conviction that
they've come up with an idea that will

change the world

and they have the soaring ambition to

just be driven to want to make it happen

as fast as possible convictions spurred

homes to drop out of stanford university

in 2003 the 19 year old traded in life

as a full-time undergrad for life as a

full-time ceo

i'd always

believed that

the purpose of building something

building a company is to

make a difference in the world and i got

to the point in which i i found what i

felt like i was born to do

as if ripped from a playbook for silicon

valley super stardom homes early college

departure followed in the footsteps of

oracle's larry ellison and apple's steve

jobs

another homes era dropout included

facebook's mark zuckerberg who in 2004

cut his time short at harvard there was

a lot of money left over from the

dot-com boom you have paypal being

acquired by ebay turning the founders of

paypal who become known as the paypal

mafia into multi-millionaires and that

includes people like peter thiel elon

musk reid hoffman um jeremy stoppelman

like all these people who go on to found

other companies in the valley who didn't

graduate college and left college at 19

years old

we had bill gates we have steve jobs we

have mark zuckerberg

holmes filed her first patent around the

same time she sidestepped her college

career

a wearable monitor with skin piercing

microneedles to detect biological red

flags and deliver therapeutic drugs

by the next year in 2005

investment capital was rolling in

and how much money have you raised thus

far in venture capital funds

we raised just over 6 million and then

we've also raised money from private

investors

factoring for inflation the figure

dwarfed even apple computers first money

raised in 1977

a 250 000 investment much of which was

structured as a loan

with many fewer strings attached

investors bet big on homes

that's in the beginning it was don lucas

very seasoned venture capital guy i'm

sure he i don't know the details but i

know don's reputation will not know he

probably did excellent due diligence

well the first guy really was don lucas

senior who had originally been an

investor in oracle but at this point in

time i think he was sort of not fully

paying attention to what's going on

however well vetted the apparent

confidence was contagious billionaire

venture capitalist tim draper backed

homes

as did billionaire oracle co-founder

larry ellison what was fundraising like

finding the right people to

invest in you i think is everything

to find the right people holmes didn't

need to look far

draper had been a family friend and

other deep pocketed investors traced

directly to home's alma mater

stanford's biggest most important

product isn't tech it's people look

through the whole genealogy of silicon

valley starting with hewlett and packard

who were stanford students there in the

30s and you have access to incredible

resources professors business people

coming to campus modern stanford has

become this town square for billionaires

right it's this place where you rub

shoulders with incredibly successful

people and they're telling you this is

how you can be like me the exclusive

access held another secret to home's

initial success

prominent backers gave rise to an

impressive board including former u.s

secretaries of state henry kissinger the

late george schultz and former

secretaries of defense william perry and

general james mattis

like the only person missing from your

board is the pope how did that happen

was it like i'm just gonna write to

henry kissinger these kind of caliber of

people who are in the public eye but

probably not so easy to ring up in our

case those were people who i had the

privilege of getting to know and in many

cases working with for in some cases a

couple years before we asked them to

join the board

once one got on board

and was sold by the others were sold by

him they're all related to the hoover

institution for the most part which is

stocked with former heads of state and

very powerful people people who've had

incredible political careers and

military careers who also have in turn

connections to the business community

and instill credibility on a very young

untested person for all its privilege

the early board was mostly devoid of

expertise in diagnostic testing

biochemistry and molecular biology

at least in its initial composition

practically they had no scientists who

were relevant to the topic of what that

startup was about they had powerful

people who could really sway power

across many constituents and probably

facilitate investors to send their money

to theranos and open lots of doors and

gain publicity but they had no science

they had no signs and they had no board

to tell them that they have no science

one exception was holmes college mentor

and first director

then stanford chemical engineering dean

and professor channing robertson i think

he gave the credibility that these

investors needed

i hired the person that i was working

for at stanford and um that's a

wonderful story isn't it yeah huh it was

great

like entrepreneurs before her holmes

tweaked her concept along the way within

two years of leaving stamford her patent

applications included a portable

analyzer that would quickly and

inexpensively test biological fluids

including blood

i got interested in blood and lab

testing because

it's a tool and the ability to

dramatically reduce the sample volume

that's required for

doing lab testing traditionally and

dramatically reduce the cost

holm's portable analyzer first became

known as the edison and later as the

minilab

in its first iteration the device would

cater to pharmaceutical companies to

test adverse drug reactions in clinical

trials

later versions would serve doctors and

patients

replacing the bulk of traditional lab

testing all together

instead of having to

go

to a lab in order to give blood

we're actually going to begin to make it

possible for people to do lab testing

in the places they need care

instead of large needles vials of blood

and days-long processing times holmes

envisioned that doctors and patients

could draw just a few drops of blood

using a finger stick sample stored in

the company's proprietary nanotainer and

get immediate results for an array of

common blood tests the product

is meant for an individual to actually

conduct a blood test

ultimately at home and the box is about

the size of a printer desktop printer so

it's probably maybe 18 inches long and

15 inches wide and 12 inches tall

home's pivot to engineer a desktop

analyzer came with a mountain of

electrical chemical and bioengineering

challenges

the vision was so ambitious that critics

including theranose employees said it

couldn't be done

added hurdles came from richard fuse a

homes family friend 30 plus years her

senior who filed a patent to seize upon

an overlooked element in the would-be

analyzer's supply chain holmes later

sued fuse accusing him of creating the

patent with stolen theranos ip

by 2010 five years into her pursuit

there was light at the end of the tunnel

after struggling to stay afloat holmes

reported to the sec that theronos had

sold 45 million dollars in private

company shares and the 12 million line

of credit came from holmes then

significant other sunny belwani a

dot-com-era millionaire who homes had

recently hired as theranos's coo

so i actually think the impact of what

we are doing to put the diagnosis right

there where the patient is this

invention is going to be way up there we

will have the same impact on human

health and medicine as the discovery of

antibiotics had

belwanian homes first became friends in

2002

belwani was 37 and holmes 19. the two

became a couple after holmes left

stanford she didn't choose sonny really

the board made her go hire somebody and

sonny looked good on paper the couple

was criticized for going to great

lengths to keep their romantic

relationship a secret

that was that was ridiculous this is

part of the navy tank the way that the

company found out that she and sunny

were having a relationship she changed

her home mailing address to be his

she never told the board and once we

began to see the documents and and the

communications between them it became

very clear

in an unfruitful deposition catherine

pressed holmes to explain

can you tell me

whether or not you had a romantic

relationship with sonny

bellani again due to the pending charges

by the department of justice i am

instructing elizabeth to invoke her

fifth amendment rights and not answer

did you ever get an answer

to those questions

no

she pled the fifth the partnership

continued until 2016 when belwani left

the company the dynamic is likely to

come into focus in belwanian homes now

separately scheduled trials

according to court documents

holmes intends to introduce evidence

concerning her mental state during her

time as ceo

in 2013 holmes and belwani struck an

equally puzzling business partnership

theranos announced a major deal with

drugstore giant walgreens to deploy the

device in its palo alto and arizona

stores despite the device's design for

home and doctor's office use

under a 140 million dollar contract

walgreens would become the exclusive

pharmacy to offer theranose tests and

someday in more than 8 000 u.s stores

walgreens got enamored with the notion

of putting one on every store so that

you as a customer can come in and have

your blood test done while you shop

in a carefully worded press release the

company said consumers can now complete

any clinician-directed lab test with as

little as a few drops of blood with

results available in a matter of hours

it went on to say that blood samples

would be drawn either from a tiny finger

stick or a microsample using traditional

methods

the walgreens partnership made holmes a

darling of business and tech media her

story catapulted to the covers of

magazines and to the front pages of

newspapers

under homes in belwani's management in

2014

theranos's funding spiked to 400 million

she was on every cover looking her steve

job best everyone called her the next

steve jobs and it was just wonderful i

mean i i don't know a ceo who wouldn't

kill to have that kind of positive

publicity

wired first reported cerenosis analyzer

could perform hundreds of blood tests

and as many as 30 from a single drop

homes soon boasted to fortune that 70

different tests were possible from a

finger stick sample and that theranos

offered more than 200 common tests

the bold claims elevated holmes to her

first cover feature

i was the editor tim was the story

editor and roger parloff was the writer

and we were excited about it it sounded

you know just like everyone else said

back then i mean this was like the next

big thing you know and there was a lot

of enthusiasm about it and a lot of

interest certainly

it's already a good-sized company with

500 employees who was represented by

david boyes who at that time was sort of

the preeminent attorney in the country

and

it had backing from larry ellison and

betsy devos
techcrunch also interviewed holmes in

the peak of her company's ascent

this is the amount of blood that's

needed to draw to do a test a lot of

private companies were getting a

significant amount of funding so

i think it was valuations were just high

across the board and there was a sense

there was a lack of circumspection i

guess around what was going on in the

industry forbes followed suit publishing

a cover feature of its own they were

kind of saying she may be the next big

thing like visionary guru silicon valley

big deal young a lot of ceos sometimes

they can be very controlling and she

just had none of that i think even at

that point forbes was already telling me

that she was apparently america's

youngest self-made female billionaire

the coming out party lasted nearly two

years as holmes purported to disrupt the

multi-billion dollar diagnostics

industry dominated by companies like

quest labcorp siemens and abbott

meanwhile walgreens customers relied on

cerenos branded tests and the company's

valuations soared to 9 billion

the company grew to more than 800 people

on its payroll including former apple

osx developer avi tavanian eventually

asked to resign from the theranos board

and chief scientist ian gibbons a

30-year biochemistry expert who in

2013 took his life after receiving a

subpoena to testify in the patent

dispute with home's former family friend

there's a little bit of irony in the

photograph now it's like the fire like

the firehouse catching on fire what

you're seeing in that photograph it's

exactly what is not supposed to happen

by that time u.s attorneys say holmes

was peddling a fraud

the accusation was first waged in an

october 2015 wall street journal expose

reporter john kerry rue skewered holmes

claims that her technology could

accurately process hundreds of tests

using the finger stick technique

it really wasn't until

john carried through the story

in the wall street journal came out that

we had an understanding that

there was less here than met the eye

whistleblowers who informed carrieroo's

reporting compounded the damage claiming

the analyzer returned enough false

positive and false negative results that

the company was forced to run all but

one test on traditional equipment made

by the very companies homes aimed to

disrupt

even if you could test blood on

third-party equipment they were diluting

that blood

on equipment that was not made for

diluting that blood their defense was

well we did have the technology and it

wasn't that on our box but it was on

third-party equipment in their testing

and in their quality assurance and all

the things you're supposed to do at a

lab they were

if the numbers didn't work out they were

they were

playing with the samples they used and

it's questionable

at the heart of the justice department's

indictment are accusations that holmes

and belwani lied about theranose

technology to dupe investors and

business partners into forking over cash

and to do patients into paying for

walgreens-based tests

claims further examined in carrier's

non-fiction book bad blood

and an alex gibney's documentary the

inventor

well the question is

did she know she was perpetuating a

fraud or was there something more

mysterious going on i think she is

afflicted with what the police call

noble cause corruption meaning simply

put it's like the end justifies the

means

holmes and belwani's knowledge will be

key to their defense given prosecutors

burden to prove intent a non-negotiable

element required to obtain a conviction

well that's what makes this a difficult

story to draw conclusions about in terms

of investment fraud because i don't

think anyone disbelieved this story

including elizabeth holmes at the outset

by 2010 seven years after home started

theranos is when u.s attorneys say she

and belwani began a conspiracy that by

2015

would include lying to investors about

the range and accuracy of tests faking

product demonstrations misrepresenting

projected revenues and fabricating

stories that theranos's device had been

deployed in military combat zones

by 2013 prosecutors say the two

knowingly promoted and delivered tests

likely to contain inaccuracies and

falsely represented to investors that

the test did not require fda approval a

point home has contested along with

pleading not guilty to criminal charges

when i started we were they had scrapped

the edison device so we were working on

the next generation

you know black box

it was 2015 a month before carrier

revealed what jocelyn bailey and other

theranos employees already knew

more than 90 percent of walgreens-based

tests used neither the mini lab nor tiny

blood samples and instead came from

traditional larger volume blood draws

processed by traditional analyzers made

by siemens

bailey's job was to develop immunoassays

a common type of blood test intended to

run inside the mini lab

did you know about the siemens machines

being used while you were working there

yeah yeah we knew i think it it was it

was communicated to me yeah our team

knew about it

i don't know if everyone knew

we knew that finger sticks had been cut

or had been cut real recently from the

clinics some of those original claims

were known you know it hurts but we we

knew it and we were in the lab trying to

make it better the revelations turned

fortune's cover story on its head

it became clear that they couldn't

accomplish the tests that they wanted to

using the edison machine then in fairly

short order it unraveled when some of

the technicians blew the whistle on her

one whistleblower tyler schultz a

theronos employee and grandson to board

member george schultz disclosed the

shortcoming to the wall street journal

and filed a complaint with new york

state's department of health saying the

company had manipulated proficiency

testing a process meant to promote test

accuracy

at a minimum if the theranos walgreens

2013 press release and home statements

to media were to be believed with as

little as a few drops of blood its

device should have been able to

accurately process multiple if not more

than 200 common diagnostic tests

did it make you

question the technology

or not necessarily you definitely

realize that 220 assays on a single drop

of blood on the same machine that you

developed that's that's not feasible and

so you realize if their goal was to have

it in all these wellness centers and

have the price be cheap and all this

kind of stuff

you understood why they were using these

commercial analyzers you didn't realize

i guess the extent of how much they had

pitched their own machine and how the

public was understanding that everything

was being done on our technology

when reporters pressed homes on the

inconsistencies she admitted that only

one finger stick test was commercially

available using the mini lab

a single assay for herpes virus hsv-1

[Music]

the rest holm said remained in r d or

awaited approval

in 2016 the centers for medicare and

medicaid notified theranose of

laboratory deficiencies posing immediate

jeopardy to patient health

the agency sanctioned the company and

agreed to a settlement banning homes

from owning or operating a clinical lab

for two years

the agreement forced the company to

shutter its walgreens and laboratory

operations

holmes defense wasn't enough to quiet

her most formidable critics

a flood of lawsuits followed arizona's

attorney general investors and the sec

claimed fraud walgreens sued for breach

of contract and the justice department

filed criminal charges for conspiracy

and wire fraud

did holmes ever explain to you

why she

maybe embellished what her product could

do

no

although she didn't have to

you know it's not uncommon for

entrepreneurs in particular to talk

in the present tense about the future

my product can do this your products

aren't built yet you know your product

is a bunch of concept

uh but nonetheless the tendency is to

say my product can do this or my service

can unify people but no that's i mean so

it's a way of essentially describing a

future vision

and elizabeth was very good at that

aside from the doj's criminal action and

a civil suit filed by theranos customers

holmes settled the lawsuits out of court

the company paid walgreens around 25

million dollars to settle its breach of

contract claim and separately agreed to

pay nearly five million dollars to

arizona customers

a five hundred thousand dollar fine was

paid to settle the sec's claims of fraud

among other stipulations holmes

relinquished her controlling stake in

theranos and diverged from belwani who

continued to defend the sec's claims

catherine said his clients recouped

their investments

still

most of the 900 million dollars homes

raised came from investors who took no

legal action against her

so they all

sort of circled the wagons

around theranos and and didn't go after

them

in fact they did reach an agreement not

to go after

early on

that overwhelming capitulation by the

very investors who prosecutors say were

victims of fraud begs closer examination

of silicon valley status quo

and the contributing roles of the

parties that power its big ideas

[Music]

of course i have to blame

sonny belwani and uh elizabeth holmes i

mean they're the primary too i mean they

they're they they're the uh

the co-conspirators who who created this

this mess you can't do it alone she was

and as a singular figure and she does

bear responsibility i mean even as young

as she was

she bears responsibility for what

happened under her watch oh look there's

so many other people went along with her

you know so many other people wanted it

to happen you know she will say in her

defense you know it wasn't me alone and

that's true it's true of every

entrepreneur it's never them alone where

do you put sonny belwani in all of this

i think he's really critical he's the in

some ways the bad cop to her good cop

and we often in in the case of tech

companies there's you know many

instances of the man behind the curtain

or the part of the more silent partner

and you saw that at apple with steve and

steve you see this at microsoft with

paul allen you know writing basic and

bill gates

[Music]

i'm not sure the investors were wrong

because i'm not sure they ever

fulfilled their own obligations and

responsibilities venture capital and the

rule of thumb of vc is that out of 10

investments you'll have three that fail

you'll have three that kind of go

you know fine

and you'll have one or two that actually

make you money and sometimes make you a

lot of money and what makes the risk

worth it is when you hit you hit big the

investment money was good eventually

because it gives

runway for scientists so she did a good

job at getting some runway later

but the first round of the technology

obviously

was a massive failure and was

terrible for patients

but she did a good job at

setting a vision for scientists to work

towards to allow like a lot of companies

don't have that much funding

in private company investing the

prospect of this investor has to fill

out
a very detailed form that says i

understand the risks i understand that

you know i may not get any return on

this i understand furthermore this will

not affect my net worth they're

accredited they're accredited

sophisticated actually i think it's the

term but

i nobody did i mean they all filled that

form but nobody did the work i didn't

see them storming the gates and going

after the board saying hey guys you know

you got to in fact the board was telling

elizabeth you don't have to do that

which i think she got bad advice

in announcing its settlement with holmes

the sec posed theranose as a lesson for

entrepreneurs

warning that innovators who seek to

revolutionize and disrupt an industry

must tell investors the truth about what

their technology can do today

not just what they hope it might do

someday

i believe

that the sec did not have jurisdiction i

i think the sec has got a great role to

play in public markets and all kinds of

other things like that but i'd hate to

see them get deep into the venture

community in the startup world it's a

fine line between that and you know the

mom and pop business believe it or not

there are some people who say that

elizabeth holmes is being held to

a public company standard do you think

that that's a valid argument i think

there's some merit in that one of the

things

the last particularly the last decade of

silicon valley and the decades since the

great recession

that has been different has been the

private markets have dominated more than

the public markets companies would go

public they'd have to go public i mean

intel went public when it was three

years old netscape went public when it

was less than two the way you raised

capital was on the public markets and

with that came accountability and now in

the last decade you have it's harder to

go public all right new regulations post

recession um it's a heavier lift and

there's been all of this private capital

just sloshing through the global markets

looking for a home and then you have

this kind of

flywheel of storytelling and buzz about

oh this is the next big thing and

everyone's like i want to get in on that

then you're allowed in kind of relative

you're protected from the scrutiny of

public markets does that mean that you

can get away with fraud no

investors are right to be you know

calling her to account

warmanhoven said early investors had

every opportunity to do just that

they did nothing in terms of

trying to ascertain

the current status of the product or the

risks to completion or

or anything else whose fault is that i

think it's the investor's fault yeah you

invest in something you want to know how

your investment is doing and i think

it's also a symptom of the founder

culture that has really

you know really took hold of the valley

exactly during the time that theranos

was growing

the first meeting i was in was with all

the major investors and they hadn't had

any meetings with the company

since the round had closed and uh you

know maybe an occasional phone call or

something but nothing nothing is a group

nothing but i got a status report which

i found staggering and weren't demanding

it they didn't seem to to press hard

before the investment and they still

didn't seem to press hard after the

investment from my viewpoint it was

really out of character for a startup

investor not

not to be all over it you know if you

were a venture capitalist and you put in

100 million you would you would be there

every week how we doing

are we on track you know

so those documents do not exist not in

the not in the hands of the investors i

mean they were available internally

internal documents may have exposed the

chasm between theranos's aspiration and

ability

though holmes told the sec its investor

pitch left room for improvement

we

we didn't intend these documents to be

stand alone and and

sitting here now i know we could have

been much better at the way we prepared

materials and did you talk about

specifically the technology

and blood draw and what was in place at

that time versus what was aspirational

was there a clear delineation between

those two

we tried to do that

when we look at theranos investors

many of them not necessarily your

clients

but certainly perhaps a vc fund we would

expect to be seasoned investors who can

properly vet a company a startup like

theranose in this case probably what you

would consider a seasoned investor like

tim draper perhaps larry ellison and

oracle

they invested early when it was just a

concept and a lot of vcs will invest

even when it's not proven theranos

got well beyond that and then started

raising funds massive amounts of funds

uh

over 700 million from other investors

the amounts of money that a certain

class of what i call mega vcs with

untold unprecedented amounts of capital

available to invest starting with a

japanese company softbank and some of

the sovereign wealth funds in the middle

east who are looking for

what to do after the oil begins to to

peter out are able to and are bringing

amounts of money that have just never

been seen before there's no independent

validation that's what concerns me now

when we look at some of these you know

mega-funded uh companies like wework and

uber that it hasn't been vetted as much

as you would normally hope and expect

from at least an independent venture

capital uh set of players and uh that

adds to the board and the ceo and and

here we are and they go dig in inside

the company and get the facts start with

channing robertson start with the head

of engineering you know and start asking

questions

[Music]

in addition to homes it was channing

robertson who in 2016

gave warman hoeven confidence to join

theranos's board even after media and

lawyers had accused holmes of fraud

and he had just

concluded organizing two

we call it blue ribbon panels one that

looked at the

science of the the biochemistry inside

the box and another one looking at the

mechanical nature of the box to make

sure it was all viable and doable

and they both came back very positive so

i didn't get in deep to understand how

far they were from go to market but i

did have enough confidence that the

fundamentals were sound he

clearly thought that she was special and

when she felt like starting a company

he's the one she went to he was

being paid quite uh quite handsomely to

work for work for her and had a desk in

their offices and he claimed that he

didn't know about that technology and he

claimed that he didn't know about the

fact that

that things didn't work he claimed he

didn't know things were being run on it

on third-party equipment i don't know

what the heck was going on with him why

he wouldn't ask these questions why he

claims to have been completely in dark

and he's the one that brought her around

got her credibility and was paint

handsomely

annually

one former board member reportedly did

ask the hard questions

according to abc avi tavanian software

engineer and former right-hand man to

steve jobs was asked to resign in 2007

following his ultimatum that homes be

replaced as ceo
the way that startup boards are usually

they're made up of venture investors and

they're made up of other people with

domain expertise and you know at the

early stage later stage corporations may

you know look for look even more widely

for people who have domain expertise in

politics and statecraft sure because

they have domain expertise in

understanding how to how large

organizations can run and interact with

the rest of the world something's off

from the very early stage

i would say there was a lack of

scientific mentorship overall um

it was the assay teams and that was it

there was little other science guidance

given to the actual scientists so even

channing robertson was not interacting

with your group no he he wasn't present

as far as i could tell

that did set theranos apart from the

very beginning and it was a red flag to

other potential venture investors in the

tech and particularly the biotech space

it's a biotech company that doesn't have

the personnel or the procedures in place

that a biotech company would need to

have even at the very beginning stage to

develop product

in 2016 theranos finally impaneled a

medical board and under new leadership

holmes presented a scaled-back version

of its updated device the minilab to the

american association for clinical

chemistry

there's clearly been a lot of interest

in your company

i would argue that a lot of that comes

from the fact that there were these

claims that were made that were very

broad early on 70 tests the whole you

know panoply of of lab tests from a

couple drops of blood and the evidence

that you presented fell far short of

that so

how should we think about that

well

i think

we fully understand in picking this

place to come to introduce it that we

have a lot of work to do to engage with

this community and i mean i can tell you

i wish that i had started earlier in the

context of building the scientific and

medical board that we've had the

privilege to build

under legal pressures and burning cash

the effort would prove too late

should the board have looked at its own

composition and said perhaps we don't

have the level of expertise that's

required for

a revolutionary healthcare company yes

but

you know you're asking people to admit

their own uh weaknesses you know let's

give credit to elizabeth holm she was

quite the charmer and she and people

just felt great and important you know

in their own minds i'm sure they thought

they were providing good sage council

but yes of course that should be a part

of the equation as well

stanford medical school professor dr

phyllis gardner reportedly critiqued

fingerstick draws as an impossible

source from which to glean accurate

results for hundreds of tests

she described theranos investors as

crazy and its board members as old men

whose brains had gone to their groin

yet the suggestion that holm's concept

was nothing more than fantasy

fails to account for a flood of

diagnostic startups surfacing in her

wake

take genolite and its maverick analyzer

that's fda approved and on its way to

running more than 100 common tests from

a tiny drop of blood

over here is our proprietary technology

so this is a machine we just got cleared

from the fda and

what it's really good at is running

analyzing blood proteins

nobody else has a machine that can

analyze uh a large number of blood

proteins in 15 minutes on the whole

blood in a physician setting

so that's that's our ambition the

maverick can perform much of what homes

envisioned

the device features a proprietary

optical silicon sensor that detects

color changes in light when it's exposed

to targeted blood molecules for now

blood comes from a low volume draw taken

from a patient's arm

and next is the fda's decision for the

maverick to perform about 200 common

diagnostic tests from a finger stick it

is a politically charged topic to

operate off of a finger stick what

you'll see when we take the blood out of

the tube is we're going to take a tiny

fraction of one drop of blood so we've

validated that our machine works on less

than a drop of blood we're going to add

less than a drop of blood to it less

than a drop

yeah so it's um it's about four percent

of one drop that we use

in late 2020 the maverick was also

granted emergency use authorization to

diagnose sars cov2 also known as covid19

it's one of 28 approved coronavirus and

flu tests that can all be performed from

a finger stick

eventually how many tests are you hoping

that genolite will be capable of

performing on one device that list is

well under 200 tests it's really about

100 tests

comprise the vast majority of that and

there's only a few of those that we

can't do we can get to 95 percent of all

commonly ordered tests in 15 minutes

so what do you have to say to

the critics who

said theranose's vision was science

fiction well i think you just saw it

happen in the other room so this is what

the future looks like a small sample of

blood can perform hundreds of tests

exactly

while not every test can be accomplished

using a tiny drop of blood the

advancements show homes may have had the

right concept

and the right story without enough

technology at the right time

there's you know difference between the

idea and the execution you know clearly

but decentralization of diagnostics and

getting more data in the hands of

doctors when they're making decisions is

vital beyond genolite investment in

miniaturized diagnostics hardly dried up

when cerenos was forced to close its

doors

similar startups have been proving the

concept as anything but science fiction

there's a felis a sequoia-backed in-home

blood testing device touting technology

to detect white blood cell count viral

infections and cancer from a single drop

and truvian's portable benchtop analyzer

takes five drops of blood to deliver

multiple assays within 20 minutes

if the latest technology is living proof

that holm's concept was sound

where exactly was her achilles heel

if she had dialed it back

and was straightforward about using

commercial analyzers and was

straightforward that you know this is

about access this is about getting

patients blood draw somewhere else and

like that kind of stuff and said that

and we're working on our finger stick

technology we're working on this um then

you know we could have gotten there most

likely

this is an epic fail of a perceived a

self-inflicted need for speed that

proved to be you know very dangerous and

fatal to the company and we could have

had an entirely different story and on

top of this we have to do it at

breakneck speed and this was a case

where literally and figuratively speed

kills

it's easy to blame

the people involved it's easy to say oh

you investors you should have known

better like you should have bought

looked more closely

but the hype machine is powerful

the magazine covers are powerful maybe

if enough people don't want to dig deep

enough because we all want to believe

we'll prop them up we'll put them on the

cover of magazines and they can just

plow forward and maybe eventually

they'll make it or maybe not but there

definitely is a public hunger

for

that kind of

celebrity

nearly a year before the journal's

expose john ianitas published a critique

of theranos and other well-funded

healthcare startups for a lack of

peer-reviewed data

and for keeping their intellectual

property too close to the vest

theranus had published practically

nothing that they had a couple of papers

but they were not relevant to their

technologies so there are

several

unicorns out there with very high

valuations with

very little or no evidence that is

supported by peer-reviewed publications

why is peer review publication so

important in your opinion this is how

science is run this is

how we can

put trust that something has merit that

something is real that something can be

scrutinized by other scientists and be

proven

or at least sustain

some criticism
and show that that it is relatively

bulletproof

home sleight of hand didn't go entirely

unnoticed

fortune's editorial team did note limits

to their account

have this sentence in the original piece

that was published in june of 2014 it

said quote precisely how theranose

accomplishes all of these amazing feats

is a trade secret so what does a

journalist do from there it's difficult

to cover proprietary technology what do

we really know about facebook's

algorithms and how far can we go in

there well some of it is ultimately a

trade secret so it's an unproven

proprietary technology particularly as

it pertains to something as sensitive as

health care that we probably should have

been

more skeptical about or had more

questions about and i think it's a great

lesson

just because someone is claiming they're

doing it doesn't mean that the media and

the investment community and everyone

else should just believe them and it's

often harder for the media because they

don't have the same amount of time or

the necessarily the technical depth

whether it's the media investors or

customers everyone needs to do the work

and make sure that what they're doing is

they're getting into bed with someone

who's doing a good job

and look it's not just the media the

media consists of the people who produce

it and the people who read it right and

then when it all comes crashing down we

rush out to buy the books we rush out to

watch the documentaries we sort of

salivate over the oh you know

look at all what what a fraud you know

those silly people and so

we kind of delight in the failure

stories as well as successes and it does

become hard to put it in context and see

the broader facts and say well

this was a manifestation of a bigger

you know a bigger problem

while theranos's purported trade secrets

were walled off from journalists and

outsiders

another party aside from investors in

the board had power to probe deeper

according to walgreens in march 2010

homes in belwani pitched theranos

devices to walgreens company executives

as viable and consumer ready and said

its technology had been comprehensively

validated by 10 of the 15 largest

pharmaceutical companies

do you place any blame there i place

huge blame with walgreens but it's more

on the negligence side i don't believe

that walgreens knew what was going on

but they should have known what was

going on it's almost inconceivable to me

that they didn't know that things were

being run on third-party tests

somehow things got embellished

there was never any concept anywhere in

reality that they could do 150 tests

with one drop of blood it was they could

do different panels of tests

with each other drop of blood part of it

was how elizabeth talked but probably

what people want to hear

you know wow

this is this is amazing you know but the

truth was rather than getting three or

four vials of blood taken it would be a

very small sample and in fact the sample

could be normally a finger brick and you

could just get the drop of blood let's

say off your thumb or whatever and have

no need to
to poke a vein so there's a lot of good

things to it but

somehow

the one drop of blood that's what got

put in the machine but you know to do

the whole panel do that i mean 150

probably would have taken 25 30 drops of

blood

in a deposition before the sec holmes

admitted that fairness had kept

walgreens in the dark over fda concerns

that the nanotainer had been

underclassified

yet she maintained the move away from

finger stick tests was no secret

walgreens

was operating with us in the store so

they would have

known locally that we were doing

venipuncture to the extent we were doing

a puncture do you have a general sense

of what walgreens was concerned about

following the publication of the article

um i i think there were multiple issues

one was they were reacting to the press

in general um but then the other was

that we hadn't disclosed the engagement

with fda

with them to them yet

before it was in the press

holmes argues that because the fda

engagement had to do only with

nanotainers and because it began months

and in some cases years after soliciting

investors

it can have no bearing on the

government's claims of fraud

once they

the walgreens conclude we can't get this

deployed in the store from theronow's

viewpoint they just should have said

time out what you want to do doesn't fit

our architecture our product strategy

nothing but that's really kind of where

they took the left turn that

sent them right in the ditch

red flags did spook world renowned

medical center cleveland clinic

it bailed on a partnership after

theranos left its due diligence requests

ignored

and walgreen's competitor safeway also

withdrew its plans for a pilot program

was that the value add for theranos was

140 million dollars up front it got him

on the map in a hurry but the walgreens

deal gave it credibility

and so

you know it helped them basically raise

the money they were looking for you know

that kind of proposal something that

size of magnitude should have been

reviewed the board in depth and

you know there were enough people on the

board to say wait a minute you know

this is not us

in deposition testimony board member

schultz and retired u.s navy admiral

gary ruffhead said they did not question

holmes or anyone else at theranos once

public concerns were raised about

theranos's use of third-party technology

the board had some very competent people

and experienced people good operating

people in some ways and they should just

call to halt i'm not sure it was ever

fully discussed at the board and

elizabeth is ceo right had the right to

turn it down or to take it to the board

and what about sonny belwani what was

his role as you understood it i never

met sonny

he'd been

dismissed from the company before i

showed up elizabeth was the chief

architect and she led most of the

engineering program but sonny led all

the rest of the operations

veterans of silicon valley startups know

that faking it can be fair game

many of these companies start an idea

they think that they have it actually

they don't but they hope that they will

develop the working idea while they're

they're pursuing it and they have that

expectation that that let's go ahead and

it will kind of kind of

get itself together and it will be

successful this is not fraud i mean you

know this could be seen as visionary

the distinction between fraud and

visionary is very subtle here

these high-risk high-reward gambles have

been taken by some of the most famous

visionaries

and even the inventor who inspired

holmes first prototype thomas edison he

was the original fake it till you make

it guy now he was different than

elizabeth holmes in that he ultimately

did make it he was an inventor who got

it right and along the way when he was

having trouble with the incandescent

light bulb he didn't let anybody in on

that he faked demonstrations and he was

not so dissimilar from other famous

people in silicon valley like say steve

jobs who was a notorious liar

but also a great storyteller so she is

in that tradition and that's what makes

elizabeth holmes interesting

wishing out and out fraud

or was she you know just in the great

tradition of thomas edison and steve

jobs you know faking it until she made

it and it could sort of be a little bit

both

she's part of a tradition of fake it

till you make it which to some extent is

celebrated in silicon valley but not so

much when it comes to medical devices

that can actually affect the health of

people is there a certain point with

respect to theranose where you say

that's where things went wrong i think

that there was a gradient going uh down

the tubes

and

it's it's hard to say which specific

decision was the the worst i believe

that here my my response would be biased

i think the

the decision to move to patients was

probably the

the worst

without having something that was mature

because once you move to patients then

you're exposing people to risk

in pushing a soft baked health care

pitch homes isn't alone

in its early days silicon valley biotech

company 23andme was ordered by the fda

to immediately discontinue marketing its

widely publicized cheek swap test after

making unsubstantiated claims that the

company could identify risk levels for a

number of diseases

a consumer class action lawsuit followed

and the company settled with complaining

customers

diagnostic startup u-biome was dropped

from cvs after federal investigators and

an fbi raid of its san francisco

headquarters

in 2021 the company's co-founders

jessica richmond and zachary apt were

accused by the sec of defrauding

investors and indicted by the doj for

money laundering and securities fraud

even the fda and experienced

mega-corporations have been known to get

it wrong the international consortium of

investigative journalists found in 2018

that over the prior decade 80 000 global

deaths and nearly 2 million injuries

were linked to faulty medical devices

take fda approved vaginal mesh and

planted in approximately 10 million

women worldwide before the agency banned

u.s sales over risks including organ

perforation protrusion and death

its manufacturers among others boston

scientific johnson and johnson coloplast

and c.r bard

and healthcare giant bayer was forced by

the fda to restrict sales of its

permanent birth control device escher

after reported complications involving

device migration and death

this widespread in precision is evidence

that as the next biotech billion is

already being raised and spent

from startups to multinationals there's

much to be learned and improved

elizabeth homes was made possible by a

broader culture and her downfall and the

attention given to it is also a

reflection of the broader culture you

know there still are investors out there

hunting down you know who's the next

bright young person

man or woman who's going to have the

world changing product

i think that we have a lot to learn

from

understanding what happened with

fairness but i wouldn't like us to

lose the the bigger picture the bigger

picture being that there's hundreds of

companies out there that may be like

theranos eventually

many of them

how do investors who

want and care about getting accurate

information out of a very opaque company

where should they look you know i'll

tell you it's it

all this stuff scares me and then

there's a lot of stuff in silicon valley

actually technical stuff chip companies

telecom

even medical stuff that people

understand i urge people to make sure

they understand and it's

you know sometimes it's not 100 possible

you can make a rule with yourself so i

don't really understand it i'm not going

to invest it

whether founders can back up what they

boast

may depend on how vigorously interested

parties demand to look behind the

curtain

i mean there are several checks and

balances and it could be the press it

could be the board it could be investors

theranos was a case where all of

those entities let down their guard

because

the story was so great and they believed

in the mission and they believed that

success would be around the corner until

it was there's a cautionary tale to be

looking a little deeper into the

underlying economics i think boards

clearly have to be more vigilant than

they've been

i mean ask if it is a secret but 90 of

the time i think in silicon valley

they're going to tell you it's a secret

now a lot of these biotech startup

companies their ip is very important to

them and they want to protect it there's

indeed some tension between ip

and peer review disclosure with patents

it's possible to protect ip and at the

same time allow someone to disclose

sufficient information

even with patents and peer review

biotech founders and their funders may

need to take a few leaps of faith

you always think when you start a new

science project you don't know what the

unknowns are and so that naivete of not

knowing what roadblocks you're going to

hit what you're going to have to solve

along the way i think that's has a long

way to go well with being an innovator

right the naivete joke is a really

important piece of innovation yeah

you need money in science you need a lot

of it um but and you don't know if it's

going to work but you need guidance we

don't want to get rid of visionary

people we don't want to get rid of

people who really take a shot at a very

high risk idea we don't want them to

think that if they do that they're just

going to end up in jail

we want them to take the best shot but

we also want to have some transparency

about what is being done

just how much transparency is demanded

of future visionaries may also depend on

how much light the justice department

shines on private markets by way of

homes in belwani a lot of entrepreneurs

would love to have that much money

why do you think that theranos chose

not to just keep its head down

and keep the research going once you've

gone public and you've got this dialogue

and and mantra and there's all this

momentum that you have to maintain it's

very hard to turn that off and go into

stealth mode again for for a period of

time so there was really you know that's

a big part of it i think elizabeth had a

great big dream i don't think there's

any governors put on her

no speed limits and but that's the case

a lot of people

some work out some don't she made some

bad decisions too you know i mean she's

not home free but i always felt like she

was fully committed to try to deliver

the product

and make the company successful and to

do that with all the energy she had she

gave it a roll

to a certain way like i said you know i

know people can laugh when they say

she how is she a victim

do you see elizabeth holmes at all as a

victim of this culture

i think to some degree she is i mean

look she was and is so young

there's two ways that we can look at

fairness

one way is to say that it is a bad apple

and that

the people involved the ceo or whoever

else were psychopaths

and bad people

and they were cheating and it's all

fraud and everyone else is wonderful and

perfect in a way there's some sort of

recall bias to use a scientific term if

elizabeth holmes had managed to pull

this off and and get the technology up

and running and develop something that

worked

everybody would consider her a hero

you know the the most famous person of

the 21st century probably

[Music]

if i were fired or i had to start this

company over

a lot of times in order to figure out

how to get this right i would and i

would just do the same thing over and

over again

[Music]

do

[Music]

you