Blood from a stone: the cautionary tale of a dropout billionaire
By 31 she had built a $9bn company, but as filmmaker Alex Gibney says, Elizabeth Holmes's success was constructed on a giant lie
When 19-year-old Elizabeth Holmes dropped out of her degree in chemical engineering at Stanford University, she used her remaining tuition money to found a technology company focused on consumer healthcare. By the age of 31 she had become the youngest female self-made billionaire in America.
Her company, Theranos, was valued at $9bn, with a raft of high-profile investors including Rupert Murdoch, who put in $125m, Betsy DeVos, now the US secretary of education, and Henry Kissinger, the former secretary of state. Holmes’s lifestyle befitted that of the prodigious young entrepreneur: she flew everywhere by private jet, flanked by security staff, and employed a personal publicist who secured her a range of high-profile magazine covers including Forbes, Fortune and T, the style magazine of The New York Times.
By June 2016, however, Theranos and Holmes were valued at zero. The claims she had made for her “invention”, the Edison – a blood-testing machine heralded as a revolution in healthcare – were exposed as lies and her entire company as an elaborate scam.
Young, attractive and charismatic, Holmes built a powerful mythology that proved irresistible to the investor community. Much of that mythology, however, was made up of bizarre behaviours. She wore the same outfit every day (black trousers and a black polo neck jumper, à la Apple creator Steve Jobs), claimed to sleep for only four hours a night, and lived in an flatso spartan that her fridge contained nothing but bottled water; she ate all her meals at the lab, she claimed.
She allegedly lowered her everyday speaking voice – apparently to project gravitas – so dramatically that it no longer sounded female; and she bought a husky, which she took to the Theranos offices every day, but which, she told everyone, was a wolf.
So colourful and compelling is the Silicon Valley saga that there’s a Hollywood film in the pipeline, directed by Adam McKay (The Big Short, Vice) with Jennifer Lawrence cast as Holmes. Before that, however, the story of Holmes and her dramatic rise and fall has been turned into a documentary, The Inventor: Out for Blood in Silicon Valley. It is directed by Alex Gibney, who made his name documenting deception with such films as Enron: The Smartest Guys in the Room, which was nominated for an Academy Award, The Armstrong Lie, about disgraced cyclist Lance Armstrong, and Going Clear: Scientology and the Prison of Belief.
“She created an image for herself that attracted a lot of money,” says Gibney of Holmes, when we meet in a hotel room in Los Angeles before the film’s US premiere. “But it was an image that was not based upon any tangible sense of value.”
To put it bluntly, the machine she had invented, the Edison, didn’t work. Sold as a quicker, cheaper and less painful way to take and test patients’ blood, the machine was apparently capable of carrying out an array of laboratory tests, up to 200, using just a few drops of blood drawn from a finger prick.
“She was a very compelling storyteller,” says Gibney. She brokered agreements with health insurance giants such as Capital BlueCross and the Cleveland Clinic to use Theranos technology, and had a deal with Walgreens, the US pharmacy giant owned by the same parent company as Boots, to conduct in-store testing on the Edison. The problem was, the staff in her laboratory in Newark, California, who were receiving the samples from Walgreens and other trials, were using the Edison to carry out only 15 of the 240 tests the company offered; the rest were being done on industry-standard equipment – even while Holmes was seeking approval from the US Food and Drug Administration (FDA) to test for infectious diseases such as hepatitis C, syphilis and even Ebola.
When inspectors visited the site, staff falsified results. Unsurprisingly, it became a workplace beset by paranoia, secrecy and strict non-disclosure agreements. Some who felt uncomfortable with the deception began to leave, including Tyler Shultz and Erika Cheung, both of whom would become whistle-blowers and feature in Gibney’s documentary. Another former employee leaked 75 hours of in-house footage, filmed at Holmes’s direction, to Gibney.
“She was obsessed with creating a mythic story for herself,” Gibney says. “She thought: if only a camera had been in the garage with Woz [Steve Wozniak, the co-founder of Apple] and Jobs back in the day ... this is my garage, so we should film this stuff.”
He draws parallels with the recent documentaries about the organisers of the ill-fated Fyre Festival in the Bahamas, which also featured extensive in-house footage. “These people are so consumed with self-regard that they are filming their own biography as it’s happening; they don’t see that the downfall is coming.”
Perhaps the most shocking aspect of the story is the enormous investments Holmes elicited from powerful, high-profile figures, whom one would imagine would do due diligence (or have staff to do due diligence for them). “Rupert Murdoch invested $125m in Theranos and never looked at an audited financial statement,” says Gibney. “We like to think that business is a rational calculation of risk and reward, but a lot of it is about the gut. It is just about people saying: trust me. There is a whiff of the casino about some of the investing in Silicon Valley.”
Whistle-blower Cheung also believes there is a disparity between the number of wealthy investors looking for start-ups to back and the relatively small number of high-calibre firms. “Good entrepreneurs are harder to come by than access to capital,” she says. “So [venture capitalists] don’t dig into these companies as much as they should, because they’re scared of that founder deciding to go with another investor or VC firm.”
In 2015, after two years of dogged research by John Carreyrou, a journalist for The Wall Street Journal, the paper published an extensive investigation into Theranos, and the company’s house of cards began to collapse. An emergency inspection by regulators found the results of blood tests to be wildly inaccurate, and they revoked the lab’s licence. In 2018, Theranos was dissolved and Holmes and Sunny Balwani, her chief operating officer, were charged with nine counts of fraud. If found guilty, they could each face up to 20 years in prison.
“While Americans like to say we don’t trust things as a matter of course, I think our character is actually to be extremely trusting,” says Gibney. “Blind faith seems to be a real component – that’s one of the things that got Donald Trump into the White House – and the Theranos tale is a cautionary tale that we should, yes, have trust but also verify.
“You would have thought that Walgreens would have said: ‘You know, we really want to look inside the box that we’re eventually going to put in every one of our drugstores all across the nation and the world’,” he says. “But they so desperately wanted to believe that they did not look inside the box.”
– © Telegraph Media Group Limited