founders secret keepers

The Theranos saga is coming to a close, but the tech founder’s myth lives on

Investors have also fallen for the genius founders' trap with FTX, Nikola, and other startups

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A Moriarty twist to Holmes’ tale.
A Moriarty twist to Holmes’ tale.
Photo: Kimberly White (Getty Images)

It started with a quick finger-prick blood test, and it’s probably ending in a long prison sentence.

Touted as the “next Steve Jobs,” Theranos founder Elizabeth Holmes claimed to have developed a blood analyser that could carry out multiple tests in a fast and cost-efficient way. She got star investors on board and forged partnerships with major drugstores to roll out patient service centers. But a closer look revealed several gaps in the business model. Holmes’s fall from grace, which has been playing out in the public eye over seven years, will finally near its end with her sentencing tomorrow (Nov. 18).


On Jan. 4, Holmes was found guilty of conspiracy and wire fraud to the tune of $140 million. A Department of Justice investigation found that Holmes knew the Theranos analyzer had “accuracy and reliability problems, performed a limited number of tests, was slower than some competing devices, and, in some respects, could not compete with existing, more conventional machines,” but misled investors and potential investors anyway. She also resorted to using conventional machines bought from third parties to perform much of Theranos’s blood testing.

On the business side, the revenues and profits projected were vastly inflated, Holmes lied about the company’s tech being used in the battlefield, and the tech was falsely presented to have been validated by various major pharmaceutical companies.


“The Theranos story is an important lesson for Silicon Valley. 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,” Jina Choi, director of the SEC’s San Francisco regional office, said at the time charges were filed.

During Holmes’s trial, her lawyers argued that she didn’t intend to deceive people, but instead had a strong sense of belief in her tech, adding that her “failure is not a crime.” That argument ultimately failed in court, but Theranos was far from the first or last startup built on what it could be versus what it is. Tech founders and their promises have time and again managed to convince investors to put their money and faith in them—including a new crop of blood-testing startups.


From Palo Alto to (possibly) prison: Brief history of Theranos’ Holmes

2003: 19-year-old Holmes founds Theranos.

2004: Holmes drops out of Stanford and turns her full attention to her startup.

2013: Theranos goes mainstream, attracting public attention with press releases and media features. It also announces its Walgreens partnership.


2014: Theranos reaches its peak valuation, $9 billion.

Oct, 2015: Wall Street Journal’s John Carreyrou pens exposés alleging incompetence within the management, constraints to the capability of the tech, and public deception. The stories spark government investigations.


Nov. 2015: Safeway ends its partnership with Theranos after spending $350 million to build clinics in more than 800 of its stores.

June 2016: Walgreens ends its association with Theranos. The drugstore chain had paid the startup $140 million, of which $100 million was an “innovation fee.”


March 2018: The Securities and Exchange Commission (SEC) charges Theranos founder and CEO Elizabeth Holmes, and its former president Ramesh “Sunny” Balwani (also Holmes’ ex-boyfriend), with raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance. The settlement in the civil case strips her of voting control of Theranos, bans her from being an officer or director of any public company for 10 years and requires her to pay a $500,000 penalty. The criminal case continues.

June 2018: A federal grand jury indicts Holmes and Balwani on two counts of conspiracy to commit wire fraud and nine accounts of wire fraud, alleging they defrauded investors as well as patients and doctors. Holmes finally steps down as CEO.


Sept. 2018: Theranos winds down.

Sept. 2021: Holmes’s trial begins.

Jan. 2022: Holmes is found guilty of defrauding investors and convicted on three counts of wire fraud and one count of conspiracy to commit wire fraud, for which she faces a maximum sentence of 20 years in prison, and a fine of $250,000, plus restitution. She is acquitted on all counts of defrauding patients.


Sept. 2022: Holmes requests a retrial, claiming a key witness for the prosecution, former Theranos lab director Adam Rosendorff, apologized for the role he played in her conviction. A judge denies it.

Nov. 2022: Prosecutors ask for a 15-year prison sentence for Holmes.

Dec. 7, 2022: The expected sentencing date of Balwani, who has been found guilty of 12 felony counts of conspiracy and fraud in a separate trial.


How did Elizabeth Holmes manage to fool investors?

Holmes’ product may have been more fluff than substance, but the funding that backed it wasn’t. Theranos raised over $1.3 billion in its history. It counted several big-name investors in its roster including medtech investor Tim Draper, former education secretary Betsy DeVos, media mogul Rupert Murdoch, the Walton family of Walmart and Oracle founder Larry Ellison.


In the Theranos quarters, Holmes was an aggressive mercenary, weeding out anyone who questioned her vision and her tech. To investors, she painted a picture where skeptics were wrong about the potential of her firm. Billionaire investor Tim Draper still stands by her, saying she “didn’t lie” to him. Meanwhile, marketing and media campaigns helped legitimizing the “photogenic, telegenic woman” with a mission to change the medical testing industry.

When all else fails, young founders can claim naiveté. Even now, in an 82-page sentencing memorandum, Holmes’ lawyers are urging the judge to “examine Ms. Holmes the human being,” reminding the world that the now 37-year-old started Theranos as “teenager who had four quarters of college and some laboratory research experience under her belt but no business or management experience.” Over 130 letters have been penned by “individuals who actually know Ms. Holmes,’’ making a case for more lenient sentencing.


Despite Theranos sounding a loud warning over the dangers of falling for charming founders and promising but untested technologies, the saga hasn’t stopped other ambitious young individuals with fake-it-till-you-make-it attitudes winning over investors.

🤑 The latest glaring example is Sam Bankman-Fried’s FTX, which the young billionaire went from defending, to trying to sell, to declaring bankrupt in the span of a few days. It cost investors hundreds of millions, and set in motion the scrutiny and potential downfall of several other crypto companies. (At the time of writing, Bankman-Fried had not been charged with any crime.)


🚘 Electric vehicle company Nikola’s founder Trevor Milton was found guilty of securities and wire fraud last month. Hindenburg Research unveiled absurdities like Nikola rolling a hydrogen truck down a hill and claiming it was being driven, and claiming to produce hydrogen at 81% less cost than its peers when in fact it hadn’t produced any at any price.

😋 Vegan Mayo brand Hampton Creek was caught making its employees pose as agnostic customers to inflate sales numbers for its merchandise


👨‍⚕️ Eight in ten insurance brokers at human resources company Zenefit were unlicensed

🏷️ Jessica Alba’s Honest Company came under fire for fraudulent labeling 

Some ways to avoid falling into the genius founders’ trap, especially in tech, is to scientifically test them, get them peer-reviewed, and turn a blind eye to celebrity endorsements. In short, step up skepticism. But given the infancy and transient nature of tech firms, there’s no foolproof way to get this right.


Watch this: The fictionalized Theranos story

In March 2022, Hulu released the series The Dropout, starring Amanda Seyfried, who won an Emmy for her portrayal of Holmes. Seyfried’s portrayal was so good that Jennifer Lawrence dropped out of playing Holmes in an upcoming Adam Kay movie around the saga.

The Dropout | Trailer | Hulu

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