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“She’s a Criminal Who Should Be in Prison”: V.C.s Trash Elizabeth Holmes, Theranos, and Its Shareholders

Maya Kosoff
There’s plenty of blame to go around as investors reflect on the slow-motion car crash of Theranos.

For a few cushy years, Theranos C.E.O. Elizabeth Holmes held a singular position in the Silicon Valley firmament. The world’s youngest self-made female billionaire, Holmes was lauded by the media as the second coming of Steve Jobs—an impression she cultivated by mimicking the Apple co-founder’s sartorial flair. That all came crashing down when Wall Street Journal reporter John Carreyrou quietly began to investigate the company, eventually revealing that Theranos had failed to get its own blood-testing device off the ground, and instead relied on standard industry equipment to analyze samples. After a series of damning headlines, federal investigations, and failed pivots, the Securities and Exchange Commission brought down the hammer this week, accusing the former wunderkind founder of “massive fraud” for raising more than $700 million from investors in a years-long scheme “in which they exaggerated or made false statements about the company’s technology, business, and financial performance.” (“The Company is pleased to be bringing this matter to a close and looks forward to advancing its technology,” Theranos said in a statement to the Hive on Wednesday, adding that both Holmes and the company complied with the S.E.C.’s investigation.)

Holmes settled with the S.E.C. without admitting any wrongdoing. (The Justice Department also launched an investigation into Theranos; the agency would not comment on whether its probe is ongoing). Still, plenty in Silicon Valley see what Theranos did as a blight on the industry itself. “It’s on her, it’s on the company, it’s on the investors, and the board members who didn’t ask any of the right questions,” one Silicon Valley investor told me. “Or, evidently, any questions at all.”

“I highly doubt Elizabeth Holmes set out to be a fraud—much in the same way that I don’t really think Bernie Madoff’s business plan from day one was to run a Ponzi scheme.”

Another tech investor was more direct. “The race to be the biggest, in an environment that rewards taking chances [and] breaking rules can tempt people to do things they normally wouldn’t do,” they said. “If what she’s been charged with is true, she’s a criminal who should be in prison. I highly doubt Elizabeth Holmes set out to be a fraud—much in the same way that I don’t really think Bernie Madoff’s business plan from day one was to run a Ponzi scheme. Does that even matter? All founders are faced with difficult choices, and the vast majority of them make the right call, erring on the side of transparency and honesty. To dismiss her wrongdoing is to discount all the founders who, knowing they had the wrong answer for an investor, made the hard choice to tell the truth, knowing it might be the final nail for their company.”

But for Theranos, there was always a fresh round of funding, often from an investor outside of Silicon Valley, wooed by the company’s benevolent promises, its rapidly inflating valuation, and the eternal hunt for the next successful unicorn. A handful of V.C.’s privately admitted that the tech-world hype cycle, in which they are complicit, was at least in part to blame. “I actually think that the V.C. business model has changed and encourages this type of behavior. I see companies raise massive amounts of funding without even having a product and raise additional rounds as they pivot the company with greater valuations, without having once sold anything or proven a market exists,” a third investor told me. Some seem to realize that young entrepreneurs hit the market and make the rounds on Sand Hill Road before their products are fully developed. “I find many investors encourage massive growth in the marketing side of a business outside of the product side, and what happens is products are being marketed as complete that don’t exist,” this same investor told me. “On top of that, it reduces the actual price of the product to a point that it squeezes out any margin—meaning even if the product and company are successful, they won’t turn a profit.”

Other investors noted the importance of the word “white” in “white collar criminal.” One investor pointed to Parker Conrad, who ran Zenefits, an insurance-sales start-up, and who was accused by the S.E.C. of violating federal securities laws (Conrad paid a $500,000 fine and did not admit or deny wrongdoing as part of his settlement). One year after leaving Zenefits, Conrad launched another H.R. onboarding start-up called Rippling. “I don’t think she’ll ever have that kind of second chance, a redemption,” the investor told me. “Not that she should. But why did he get one?”

Though Theranos’s undoing began more than two years ago, this final blow comes at a time of reckoning for Silicon Valley as a whole. Facebook, Twitter, and Google are struggling to dig themselves out from the rubble of a disastrous P.R. crisis, weathering the disillusionment of lawmakers and consumers following their manipulation by Russian operatives. Uber, once a $70-billion behemoth, was cut down to size after a series of public foibles caused C.E.O. Travis Kalanick to resign, and the company to publicly confront its toxic, sexist workplace. Holmes is hardly the first C.E.O. to let her company spiral out of control. But her grandiose promises to revolutionize an industry that affects people’s lives so intimately—and her equally dangerous fictions about the accuracy of her results—have made her a pariah on a plane of her own.

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