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Why Elizabeth Holmes, Theranos saga has cast a 'long shadow' on female-led startups

The trial of Theranos CEO Elizabeth Holmes officially begins next week — and there’s more at stake than the fate of a disgraced biotech entrepreneur, and a company that’s now become synonymous with fraud.

Indeed, there’s at least some element of Silicon Valley that’s also being put on trial, and at least a few entrepreneurs believe the fallout could outlast the trial headlines, particularly for female startup founders.

The tech sector’s mantra of “move fast and break things,” made famous by Facebook’s Mark Zuckerberg, will be on full display. And a culture that rewards risk-taking with staggering wealth — even as it glosses over spectacular failure — is also under the microscope, some say.

“There isn’t room for error when we’re talking about patients’ lives and the ‘act fast and break things’ mantra, while it may be successful in certain areas of tech, just simply doesn’t apply to medical science,” Heather Bowerman, CEO of medical company DotLab, told Yahoo Finance.

Watch Yahoo Finance's new Elizabeth Holmes documentary here

Holmes’ foray into disruptive healthcare, which aimed to revolutionize blood testing, culminated in the implosion of her company. She’s now facing years in prison after Theranos was revealed to have burned through billions in funding, while misleading both patients and investors about the efficacy of its ambitious technology.

Holmes was charged with multiple counts of wire fraud and conspiracy to commit wire fraud in 2018. Each count carries up to 20 years in prison, $250,000 in fines, plus restitution. Holmes has pleaded not guilty.

While Zuckerberg has moved on from his signature mantra, Holmes’ rise and fall indicates that the healthcare startup industry should also drop the mantra, Bowerman insisted — and perhaps build on Theranos’ original vision, however flawed the execution was.

“We should build boards full of healthcare experts which Theranos did not do. We should be raising money on the backs of our scientific work,” the CEO said.

“So now that that is widely understood not just among health care venture capitalists but also generalist funds, that really is a silver lining,” Bowerman added.

Raising venture capital in Holmes’ ‘long shadow’

Theranos founder Elizabeth Holmes arrives at the Robert F. Peckham Federal Building to attend a federal court hearing in San Jose, California, U.S. May 4, 2021.  REUTERS/Kate Munsch
Theranos founder Elizabeth Holmes arrives at the Robert F. Peckham Federal Building to attend a federal court hearing in San Jose, California, U.S. May 4, 2021. REUTERS/Kate Munsch (Kate Munsch / reuters)

Several female biotechnology founders have argued that the scandal surrounding Holmes has made accessing venture capital funds more challenging. Bowerman said it’s made the already difficult task of starting up a company even more challenging.

“It makes it harder when the most visible female founder in our space is one who’s associated with fraud,” said Bowerman. She founded DotLab in 2016, a year after a scathing WSJ report exposed Elizabeth Holmes’ Theranos.

“The scientific bar, the technological bar was raised because of the fraud that looks like it was carried out at Theranos,” she added.

Bowerman raised about $13 million for DotLab, a molecular diagnostic company which developed a blood test to diagnose endometriosis, a painful disease that affects 1 in 10 women of childbearing age. “We’re working on a disease that is so incredibly prevalent, yet understudied,” said Bowerman.

And the Holmes scandal “meant raising venture capital money later on our development timeline, particularly compared to diagnostics companies led by male founders,” Bowerman added.

Her firm eventually got the money it needed, “but it was when we had publications, a robust data package of our scientific work. It was much later that we were able to add the rocket fuel to our business because of this long shadow of Elizabeth Holmes,” she told Yahoo Finance.

Meanwhile, recent data suggests fewer female entrepreneurs are obtaining the funding they need. The share of VC funding going to women-led startups dropped from 2.8% in 2019 to 2.3% in 2020, according to one Harvard Business Review study.

“The reality is that women who could benefit from cutting edge treatments aren’t receiving them on the timelines that could otherwise be possible,” said Bowerman.

“That’s because often it’s the female-led companies that work on the technologies and services that could ultimately benefit women,” she added.