In 2015 Elizabeth Holmes, founder of the Palo Alto, CA-based company Theranos, topped the Forbes list of the richest self-made women in the United States, with a net worth of US$4.5 billion. At just 30 years old, Forbes said this also made her the world’s youngest self-made woman billionaire.
With a marked personal style, Holmes has blonde hair and big blue eyes that hardly ever blink, and a surprisingly deep voice. She was often seen dressed in a black turtleneck inspired by her idol Steve Jobs, the late co-founder and chief executive of Apple. As Jobs had revolutionized the world of computers, Holmes wanted to revolutionize the world of medicine.
Holmes was born in 1984 in Washington, D.C, but her family moved to Houston when she was young. According to the book Bad Blood: Secrets and Lies in a Silicon Valley Startup by John Carreyrou, Holmes had an “intense competitive streak” from a young age. She quickly became a straight-A student, and even started her own business: she sold C++ compilers, a type of software that translates computer code, to Chinese schools.
At the age of 19, Holmes dropped out of the prestigious Stanford University where she had studied chemical engineering to start her own biotechnology company. In 2003, she used her tuition money as seed funding for a consumer healthcare technology start-up, which was originally called Real-Time Cures.
The goal, in her words, was to “democratize healthcare.” Holmes, who says she was driven by her fear of needles, sought to perform a huge number of medical tests using only a few drops of blood, and much more quickly and cheaply than conventional laboratories. The tests would be done using a machine called “Edison.” This was a device that looked similar to a printer and was claimed to be able to perform complex medical tests in a short time, requiring only a finger prick. Holmes said tests would be able to detect conditions such as cancer and diabetes.
With this startup, which promised to improve the health of a huge number of people, Theranos began to rake in millions of dollars in funding. She started raising money from prominent investors like Larry Ellison, founder of the computer technology company Oracle, and Tim Draper, the father of a childhood friend and the founder of prominent venture capital firm Draper Fisher Jurvetson. The company raised more than $700 million through venture capital and private investors. Vanity Fair reports that she took investors’ money on the condition she wouldn’t have to reveal how Theranos’ technology worked.
Holmes became the subject of media attention. She posed for the covers of both Forbes and Fortune magazines in 2014. The next year, she was named one of the nine new Ambassadors of Global Entrepreneurships by the White House, and also spoke on panels with Alibaba’s Jack Ma — the Chinese business magnate — and former U.S. President Bill Clinton. Among her investors were Rupert Murdoch, the Australian-born American business magnate, and Henry Kissinger, a former U.S. Secretary of State and member of the Theranos’ board of directors. Such was the success of the company that it achieved a reported valuation of more than $9 billion at its peak in 2013 and 2014.
In addition to her apparent confidence, one of the advantages that Holmes had that reportedly helped her investors trust her and her project, was that she was the daughter of Christian Holmes IV, who once worked for Enron, a famous company that declared bankruptcy in 2001, causing a financial scandal. Her mother, Noel Holmes, worked at the Capitol as an assistant to a congressman. Her grandfather, Christian Holmes, was a surgeon and engineer, as well as Dean of Medicine at the University of Cincinnati, where there is a hospital bearing his name.
Although the company operated quietly and in complete secrecy for many years, generating a lot of curiosity about its operations and about Holmes, what was known was that the blonde businesswoman was austere, did not take vacations and ate in the office to encourage her employees’ work ethic.
Those who knew what was really happening inside Theranos were her employees, who at its height numbered 800. Everyone who worked there signed a confidentiality agreement preventing what was happening behind the scenes from being revealed. A method reportedly used by Holmes to ensure that none of her employees could leak information was to separate them into small groups that functioned independently without communication between them. This way, nobody had complete knowledge of what was happening or how advanced the Edison machine was. Only Holmes and the former president and chief operating officer of Theranos, Ramesh Balwani, knew what was really happening: The machine was unable to do what Holmes promised with just a few drops of blood. It could not predict the development of certain diseases and would not be as economical as she had claimed.
In 2015, when Holmes topped Forbes’ list, the Wall Street Journal conducted a secret, months-long investigation into Theranos led by journalist – and later, author – John Carreyrou, reportedly after he received a tip from a medical expert who thought that Theranos’s blood testing device seemed suspicious. By speaking with ex-employee whistleblowers and obtaining company documents, Carreyrou uncovered the fraud, and subsequent investigations revealed Theranos’ laboratories did not meet the minimum safety and hygiene standards required by law.
It was later revealed that when Holmes found out about the publication of this article, she met with Rupert Murdoch, one of her investors who is also the chief executive of News Corp, which owns the Wall Street Journal, and asked him not to publish the story, claiming that the data collected was incorrect. Murdoch reportedly replied that he trusted the work of his journalists, and the bombshell article was published in October 2015. Murdoch’s investment in Theranos was $125 million. Upon learning of the fraud, he sold his shares for just one dollar and withdrew from the business.
The article detailed how the Edison device gave inaccurate results, and revealed the company had been using commercially available machines manufactured by other companies for most of its testing. Holmes denied all the claims, calling the Journal a “tabloid,” and promising the company would publish data on the accuracy of its tests.
As the scandal continued to unfold, Holmes faced mounting legal issues. In 2016, she was banned by the Centers for Medicare and Medicaid Services (CMS) from owning, operating or directing a blood-testing service for two years.
Then, in 2018, the U.S. Securities and Exchange Commission (SEC) charged Holmes and Balwani with fraud for allegedly taking over $700 million from investors while promoting a false product. Holmes was fined $500,000 and had to agree to be barred from serving as a senior executive or director at a publicly traded company for 10 years. Both former executives pleaded not guilty.
In April 2018, Theranos announced its plans to lay off 105 employees, leaving it with only a handful of remaining staff. Most of these remaining employees were let go in August 2018. The company then announced in September 2018 that it was beginning the process of formally dissolving, with its remaining assets to be distributed to creditors.
In June 2018, following a two-year investigation by the U.S. Attorney’s Office for the Northern District of California, a federal grand jury indicted Holmes and Balwani on nine counts of wire fraud and two counts of conspiracy to commit wire fraud. Both pleaded not guilty. Prosecutors alleged that both former executives had engaged in two criminal schemes: one to defraud investors and the other to defraud doctors and patients.
The trial began in August 2021, and on January 3, 2022, Holmes was found guilty of four counts of defrauding investors through three counts of wire fraud and one count of conspiracy to commit wire fraud. However, she was acquitted of four counts of defrauding patients.
While awaiting her sentence, Holmes was granted release on a $500,000 bail, secured by her property. She faced a maximum sentence of 20 years in prison and a fine of $250,000, in addition to restitution, for each count of wire fraud and conspiracy to commit wire fraud. On Nov. 18, 2022, U.S. District Judge Edward Davila sentenced Holmes — once one of Silicon Valley’s most promising leaders — to a little more than 11 years in prison.
The enormity of the scandal within Silicon Valley was such that it even made it to the small screen, with an HBO documentary called “The Inventor: Out for Blood in Silicon Valley,” directed by Alex Gibney, who had previously exposed the secrets of Scientology in “Going Clear,” and examined Steve Jobs in “The Man in the Machine.” In the documentary, Gibney focuses on Holmes, with whom he conducts interviews, and viewers get a glimpse of her enigmatic and unique personality. Furthermore, her story made its way into literature, with the publication of Carreyrou’s book in 2018. The book became a best-seller and is currently being adapted into a movie.
Lessons for Business Executives
There are several lessons that can be learned from Holmes’ downfall. One is the importance of being truthful and upfront with investors, customers and other stakeholders about the capabilities and limitations of a company’s products or services.
Another lesson is the importance of due diligence and skepticism in investing. Many investors, including high-profile individuals and organizations, were taken in by Holmes and Theranos’ claims, despite red flags and lack of concrete evidence to back up the claims. This serves as a reminder to always be critical and skeptical when evaluating potential investments, and to thoroughly investigate and research a company before investing.
But ultimately, the story demonstrates the importance of maintaining ethical standards and integrity in business.