Jury selection begins Tuesday in the criminal trial of Elizabeth Holmes, the disgraced founder and former CEO of Theranos.
Why it matters: The case will draw a bright line between “fake it ’til you make it” and outright fraud.
Flashback: Theranos billed its tech as the holy grail of blood testing, making it possible to run hundreds of assays from just a pinprick.
- It once was valued at $9 billion and raised more than $700 million from investors like Tim Draper, Carlos Slim and Rupert Murdoch. Its board included former Henry Kissinger, Jim Mattis and George Shultz.
- The company struck partnerships with Safeway and Walgreens, and Holmes became a regular presence on national business magazine covers.
- But a series of exposés by the Wall Street Journal's John Carreyrou revealed that Theranos' tech didn’t work as advertised, that it secretly used commercially available blood analyzers, and that it falsified information shared with regulators.
- Since then, Holmes and the company have been sued by investors, Walgreens and the SEC. It’s also voided two years of test results and dissolved its operations.
Between the lines: The role of due diligence—or lack thereof—is a central point of failure in the Theranos story.
- Theranos had just a couple of experienced VC investors and only two board members with medical experience (albeit not in phlebotomy).
- Google Ventures founder Bill Maris once revealed that GV passed after a team member took a Theranos test at Walgreens (Holmes has disputed this).
- Holmes cleverly used one credible supporter’s backing to get the next one, and then the next one, all while evading close scrutiny (or even sharing audited financials).
- Notably, the company told prospective investors in 2014 that the company was on track to break even and generate $100 million in revenue. It brought in little more than $100,000 for that period.
The bottom line: Theranos is the biggest fraud to have ever come out of Silicon Valley, dwarfing other tales of malfeasance. It not only took investors for hundreds of millions of dollars, but it also put thousands of people's health at risk.