[Music] asking yourself whether you're wrong is a really good thing if you really feel strong conviction that you're doing the right thing then keep going that ideology is shared by some of the world's most ambitious creators who flock to northern california with a dream they seek like-minded encouragement to Move fast and break things and even fake it until they make it those principles can come at a cost always for investors often for entrepreneurs and their employees and sometimes for the public at large and for one entrepreneur once lauded the world's youngest self-made female billionaire the
cost could add up to years in federal prison this is silicon valley a hub of Innovation that's often coupled with sleight of hand i'm alexis keenan and this is yahoo finance presents [Music] nearly a billion dollars gone bust swallowed by the opaque silicon valley biotech startup theranos whose founder elizabeth holmes faces years in prison for a pitch pushed to extremes i knew that i could do something that would be different than what everybody Else is doing she said her technology would revolutionize healthcare miniaturizing a suite of common blood tests down to a few drops the
technique would democratize diagnostics driving down cost to make tests so affordable that consumers could access periodic snapshots of their personal health over time it was a story that holmes told with unwavering conviction if you watched a movie And you took one frame out of that movie you said okay elizabeth tell me the story i would never be able to tell you that story but if you gave me a series of frames i could begin to piece together a story the concept captivated investors and media and turned homes into a startup sensation Though her stardust began
to settle when the wall street journal exposed frames of her story as technology overhyped the reckoning fueled a barrage of scathing news reports a new york times bestseller and a feature documentary leaving homes accused of fraud of peddling impossible science and portrayed a vixen her confident charm and even physical appearance were cited to explain why Distinguished advisors and hopeful investors in a male-dominated field bought what she was selling yet not everyone is convinced that holmes was just a persuasive pretty face or that her methods to materialize her vision should be viewed in black and white
this is going to sound a little strong but to a certainty she's a victim because she didn't know what she didn't know and She relied on people who gave her bad advice or mismanaged it i think even for theranos i'm not 100 convinced that it is fraud although that i mean we have lots of leads that many many many things were wrong the first crazy concept that we had that people said absolutely could not be done especially when i tried to raise money for the first time to start the company was wanting to Change the
way lab testing was done if you're going to start a company the first question is why right for me it was this is a change in the world that i want to see the change was never realized at least not by theranos instead the company imploded under a raft of lawsuits regulatory actions and sec fines all targeting homes for promising more than she could prove Yet holding homes to both criminal charges and such intense media scrutiny could ultimately be what makes her unique as a silicon valley entrepreneur and may overshadow her pioneering role in an
emerging biotech field the biggest concern i've had with the media was in immediately after um theranos started falling apart was there was a rumble of people saying well this was such a bad idea this could never happen or actually really i think Elizabeth's vision is was phenomenal right and i share the same vision so i really resonate with that i think it it is a good idea and it needs to be um it needs to happen it's all doable i mean that's the other thing there wasn't any engineering problem that couldn't be resolved by the
time i came to the company there was refinements i think with a different board maybe with a different co with somebody at a Coacher and help developer as a ceo and a spokesperson i think a lot of this could have been avoided in a culture that handsomely rewards innovators while embracing this fake it till you make it ethos who deserves to shoulder the blame prosecutors say it's holmes and her former boyfriend and theranos coo sonny belwani for allegedly operating the once-hyped blood testing company as a Criminal scheme that defrauded investors doctors and patients others including
one of theranos's earliest critics say the answer is not as clear and take into account a system known to conflate optimism with reality i suspect that there's many other companies that don't really have the ideas that they propose that they do that they have they're still working on them They haven't tested them out they are probably over optimistic and maybe most of these ideas would fail i don't think that terence is an exception in that regard if theranose is no exception how strongly will criminal accusations hold up and where will jurors draw the line between
an entrepreneur's push for disruption and fraudulent deception [Music] but i'm sure the courts are going to Place a different standard on than i do but my standard is if an entrepreneur makes a claim and you want to invest it's your obligation to go validate all the claims she's made she may have made exorbitant statements but those could have all have been corroborated before the money was invested and in fact if somebody had done the work to try to corroborate them they would have found out They're really exorbitant they're wishful and uh and they're futuristic and
they don't represent the present if you invested based on those claims you would have said okay that's fraud if holm's strategy was to temporarily fake it how different were her tactics from her silicon valley peers when did the alleged charade begin Why did financial backers keep her company afloat for more than a decade and what lessons should future investors learn the answers lie in a tangle of conflicting symptoms that can give investors reason for confidence as well as caution in the traditions of seed capital rich silicon valley [Music] disruption often begins Like this an aspiring
creator claims their vision for a new reality then sets out to piece together the missing parts to their puzzle what we wanted to change was the fact that when you find out you're sick you're already too sick in many cases to be able to really change the course of the disease the way you change that is you have to reinvent every element of the system which means you have to Reinvent the test you have to reinvent the devices you have to reinvent the software you have to reinvent the locations through which the testing is provided
the pricing so this was not a short-term business plan and there's one place perhaps more than anywhere else in the world that fosters the rapid incarnation of these bold ideas this is the valley of dreams right it's it's a unique situation there's no other Place in the world where somebody with a big idea can come and have access to capital have access to all of the corporate services you need to get it off the ground so people come here with big dreams and i think elizabeth had a great big dream region of resources in its
early days known as the santa clara valley was formed by generations of tech pioneers whose ideas were brought to life with the help of deep pockets Silicon valley was just another little agricultural valley in california through the middle part of the 20th century and the thing that changed it all was world war ii and the cold war the government did something that it hadn't done before in the big way it got into the research and development business and particularly put immense amount of money into research and electronics and computing it was decades before the blockbuster
Successes of valley tech icons steve jobs bill hewlett and david packard when the valley's founding fathers put the federal government's money to use the startup that brought silicon into silicon valley was a short-lived operation called shockley semiconductor and the person who founded it was william shockley he was a co-inventor of the transistor a veteran of telecom behemoth bell labs Shockley realized the power of silicon to miniaturize transistors that by the mid 1950s helped power the world's first microchips and so the valley gets more and more significant in the landscape of tech by 1957 shockley's team
founded its own startup fairchild semiconductor instead of turning to the federal government the group made a radical move and looked to the private market securing funding courtesy of east coast Investment banker arthur rock arthur rock later becomes one of the most legendary venture capitalists in silicon valley history that same year the microchip earned a reputation as indispensable as the soviet union launched its sputnik satellite the first artificial earth satellite beating the us into orbit this basically lights washington dc's hair on fire and all of this money starts getting invested in Rockets and missiles and technologies
to get things and people out into space and ultimately to the moon in shooting for the moon the influence of santa clara valley technology and the investment dollars it attracted were forever altered the region had officially left behind its agricultural roots to become a tech and investment hub a next generation would prove what Silicon could do not just for big business and government but for the individual who has all the computers the establishment the government big corporations key players to that independent movement were two fairchild alums bob noyce and gordon moore who in the late
1960s founded intel to build memory chips they too tapped venture capitalist arthur rock whose 2.5 million dollar Stake advanced the uniquely american concept of partnering wealthy investors with tech entrepreneurs the concept would carry into the next millennia to prop up countless enterprising founders including elizabeth holmes so once you have a computer on a chip you can build a wooden box about around it and it's a desktop computer and it's under your control it's not under the university's control or the pentagon's control and Look it's vietnam it's watergate this is an anti-establishment moment in american culture
that movement gave rise in the mid-1970s to computer enthusiasts steve wozniak and steve jobs with noyes's help jobs in wozniak secured funding for a first personal computer the apple through investor mike marcola and later through sequoia capital that would evolve into one of the region's most profitable vcs The venture capital becomes an important glue between the generations right who are the leading venture capitalists of today there are people who were that you know had these massive exits in the 90s who in turn were funded and mentored by people who had massive exits in the 80s
and 70s these generational networks reinforce silicon valley's tightly knit circles and its backlash against corporate business as usual You can't have total corporate misbehavior in order to be successful but the same time there's this encouragement and cultivation and tolerance of behavior that might get you kicked out of a traditional company silicon valley has a strong sense of itself from the very beginning as not being like other companies this is a different sort of business we think different we do things differently and we have amazing results as a result Even investors have been known to play
by their own rules the venture campus themselves did not want to suit their nose and there's a reason for that it's because they all live in silicon valley and if they sue a company that they've invested in um they're they're not going to get the next deal plaintiff's attorney reed catherine represented individual investors who did sue theranos claiming Fraud two late stage minority backers who bought company shares indirectly and complained they relied on false claims the sole venture capital firm to sue theranos was one of its largest investors partner fund management it brought two lawsuits
that ended in settlement it's very important for the venture capitalists to be able to get the next deal to get the next google to get to be Able to be one of the first to invest that was a already a well-established part of valley culture by the time steve jobs comes along there were lots of arrogant jerks in the semiconductor industry and part of the the culture of the chip makers the semiconductor makers was if someone was producing amazing technology you were kind of going to let them get away with murder [Music] in hindsight a
predictable setting for The whirlwind ascent of elizabeth holmes and for her meteoric fall [Music] when we began theranos what we focused on was creating a customized medicine tool that could be used in the home the ability to begin bringing monitoring as we call it into the home we believe could fundamentally change the way that both patients are treated as well as drugs are developed that was elizabeth holmes in 2005 One of the few times early on that she spoke publicly about her ambitions i think it all starts with a very unique kind of founder who
truly has a passionate burning conviction that they've come up with an idea that will change the world and they have the soaring ambition to just be driven to want to make it happen as fast as possible convictions spurred homes to drop out of stanford university In 2003 the 19 year old traded in life as a full-time undergrad for life as a full-time ceo i'd always believed that the purpose of building something building a company is to make a difference in the world and i got to the point in which i i found what i felt
like i was born to do as if ripped from a playbook for silicon valley super stardom homes early college Departure followed in the footsteps of oracle's larry ellison and apple's steve jobs another homes era dropout included facebook's mark zuckerberg who in 2004 cut his time short at harvard there was a lot of money left over from the dot-com boom you have paypal being acquired by ebay turning the founders of paypal who become known as the paypal mafia into multi-millionaires and that includes people like peter thiel elon Musk reid hoffman um jeremy stoppelman like all these
people who go on to found other companies in the valley who didn't graduate college and left college at 19 years old we had bill gates we have steve jobs we have mark zuckerberg holmes filed her first patent around the same time she sidestepped her college career a wearable monitor with skin piercing microneedles to detect biological red Flags and deliver therapeutic drugs by the next year in 2005 investment capital was rolling in and how much money have you raised thus far in venture capital funds we raised just over 6 million and then we've also raised money
from private investors factoring for inflation the figure dwarfed even apple computers first money raised in 1977 a 250 000 investment much of which was Structured as a loan with many fewer strings attached investors bet big on homes that's in the beginning it was don lucas very seasoned venture capital guy i'm sure he i don't know the details but i know don's reputation will not know he probably did excellent due diligence well the first guy really was don lucas senior who had originally been an investor in oracle but at this point in time i think he
was sort of not fully Paying attention to what's going on however well vetted the apparent confidence was contagious billionaire venture capitalist tim draper backed homes as did billionaire oracle co-founder larry ellison what was fundraising like finding the right people to invest in you i think is everything to find the right people holmes didn't need to look far draper had been a family friend and Other deep pocketed investors traced directly to home's alma mater stanford's biggest most important product isn't tech it's people look through the whole genealogy of silicon valley starting with hewlett and packard who
were stanford students there in the 30s and you have access to incredible resources professors business people coming to campus modern stanford has become this town square for billionaires right it's this place where you rub Shoulders with incredibly successful people and they're telling you this is how you can be like me the exclusive access held another secret to home's initial success prominent backers gave rise to an impressive board including former u.s secretaries of state henry kissinger the late george schultz and former secretaries of defense william perry and general james mattis like the only person missing from
your Board is the pope how did that happen was it like i'm just gonna write to henry kissinger these kind of caliber of people who are in the public eye but probably not so easy to ring up in our case those were people who i had the privilege of getting to know and in many cases working with for in some cases a couple years before we asked them to join the board once one got on board and was sold by the others were sold by Him they're all related to the hoover institution for the most
part which is stocked with former heads of state and very powerful people people who've had incredible political careers and military careers who also have in turn connections to the business community and instill credibility on a very young untested person for all its privilege the early board was mostly devoid of expertise in diagnostic testing biochemistry and molecular biology At least in its initial composition practically they had no scientists who were relevant to the topic of what that startup was about they had powerful people who could really sway power across many constituents and probably facilitate investors to
send their money to theranos and open lots of doors and gain publicity but they had no science they had no signs and they had no board to tell them that they have no science one exception was holmes college mentor And first director then stanford chemical engineering dean and professor channing robertson i think he gave the credibility that these investors needed i hired the person that i was working for at stanford and um that's a wonderful story isn't it yeah huh it was great like entrepreneurs before her holmes tweaked her concept along the way within two
years of leaving stamford her patent Applications included a portable analyzer that would quickly and inexpensively test biological fluids including blood i got interested in blood and lab testing because it's a tool and the ability to dramatically reduce the sample volume that's required for doing lab testing traditionally and dramatically reduce the cost holm's portable analyzer first became Known as the edison and later as the minilab in its first iteration the device would cater to pharmaceutical companies to test adverse drug reactions in clinical trials later versions would serve doctors and patients replacing the bulk of traditional lab
testing all together instead of having to go To a lab in order to give blood we're actually going to begin to make it possible for people to do lab testing in the places they need care instead of large needles vials of blood and days-long processing times holmes envisioned that doctors and patients could draw just a few drops of blood using a finger stick sample stored in the company's proprietary nanotainer and get immediate results for an array of common blood tests the product Is meant for an individual to actually conduct a blood test ultimately at home
and the box is about the size of a printer desktop printer so it's probably maybe 18 inches long and 15 inches wide and 12 inches tall home's pivot to engineer a desktop analyzer came with a mountain of electrical chemical and bioengineering challenges the vision was so ambitious that critics including theranose employees said it Couldn't be done added hurdles came from richard fuse a homes family friend 30 plus years her senior who filed a patent to seize upon an overlooked element in the would-be analyzer's supply chain holmes later sued fuse accusing him of creating the patent
with stolen theranos ip by 2010 five years into her pursuit there was light at the end of the tunnel after struggling to stay afloat holmes reported to the sec that theronos had Sold 45 million dollars in private company shares and the 12 million line of credit came from holmes then significant other sunny belwani a dot-com-era millionaire who homes had recently hired as theranos's coo so i actually think the impact of what we are doing to put the diagnosis right there where the patient is this invention is going to be way up there we will have
the same impact on human health and medicine as the discovery of Antibiotics had belwanian homes first became friends in 2002 belwani was 37 and holmes 19. the two became a couple after holmes left stanford she didn't choose sonny really the board made her go hire somebody and sonny looked good on paper the couple was criticized for going to great lengths to keep their romantic relationship a secret that was that was ridiculous this is Part of the navy tank the way that the company found out that she and sunny were having a relationship she changed her
home mailing address to be his she never told the board and once we began to see the documents and and the communications between them it became very clear in an unfruitful deposition catherine pressed holmes to explain can you tell me whether or not you had a romantic Relationship with sonny bellani again due to the pending charges by the department of justice i am instructing elizabeth to invoke her fifth amendment rights and not answer did you ever get an answer to those questions no she pled the fifth the partnership continued until 2016 when belwani left the
company the dynamic is likely to come into focus in belwanian homes now Separately scheduled trials according to court documents holmes intends to introduce evidence concerning her mental state during her time as ceo in 2013 holmes and belwani struck an equally puzzling business partnership theranos announced a major deal with drugstore giant walgreens to deploy the device in its palo alto and arizona stores despite the device's design for home and doctor's office use Under a 140 million dollar contract walgreens would become the exclusive pharmacy to offer theranose tests and someday in more than 8 000 u.s stores
walgreens got enamored with the notion of putting one on every store so that you as a customer can come in and have your blood test done while you shop in a carefully worded press release the company said consumers can now complete any clinician-directed lab test with as little as a few drops of blood with Results available in a matter of hours it went on to say that blood samples would be drawn either from a tiny finger stick or a microsample using traditional methods the walgreens partnership made holmes a darling of business and tech media her
story catapulted to the covers of magazines and to the front pages of newspapers under homes in belwani's management in 2014 Theranos's funding spiked to 400 million she was on every cover looking her steve job best everyone called her the next steve jobs and it was just wonderful i mean i i don't know a ceo who wouldn't kill to have that kind of positive publicity wired first reported cerenosis analyzer could perform hundreds of blood tests and as many as 30 from a single drop homes soon boasted to fortune that 70 different tests were possible from a
Finger stick sample and that theranos offered more than 200 common tests the bold claims elevated holmes to her first cover feature i was the editor tim was the story editor and roger parloff was the writer and we were excited about it it sounded you know just like everyone else said back then i mean this was like the next big thing you know and there was a lot of enthusiasm about it and a lot of interest certainly It's already a good-sized company with 500 employees who was represented by david boyes who at that time was sort
of the preeminent attorney in the country and it had backing from larry ellison and betsy devos techcrunch also interviewed holmes in the peak of her company's ascent this is the amount of blood that's needed to draw to do a test a lot of private companies were getting a Significant amount of funding so i think it was valuations were just high across the board and there was a sense there was a lack of circumspection i guess around what was going on in the industry forbes followed suit publishing a cover feature of its own they were kind
of saying she may be the next big thing like visionary guru silicon valley big deal young a lot of ceos sometimes they can be very controlling and she just had none of that i think even at That point forbes was already telling me that she was apparently america's youngest self-made female billionaire the coming out party lasted nearly two years as holmes purported to disrupt the multi-billion dollar diagnostics industry dominated by companies like quest labcorp siemens and abbott meanwhile walgreens customers relied on cerenos branded tests and the company's valuations soared to 9 billion the company grew
to more than 800 people On its payroll including former apple osx developer avi tavanian eventually asked to resign from the theranos board and chief scientist ian gibbons a 30-year biochemistry expert who in 2013 took his life after receiving a subpoena to testify in the patent dispute with home's former family friend there's a little bit of irony in the photograph now it's like the fire like the firehouse catching on fire what you're seeing in that photograph it's Exactly what is not supposed to happen by that time u.s attorneys say holmes was peddling a fraud the accusation
was first waged in an october 2015 wall street journal expose reporter john kerry rue skewered holmes claims that her technology could accurately process hundreds of tests using the finger stick technique it really wasn't until john carried through the story in the wall street journal came out that We had an understanding that there was less here than met the eye whistleblowers who informed carrieroo's reporting compounded the damage claiming the analyzer returned enough false positive and false negative results that the company was forced to run all but one test on traditional equipment made by the very companies
homes aimed to disrupt even if you could test blood on third-party equipment they were diluting That blood on equipment that was not made for diluting that blood their defense was well we did have the technology and it wasn't that on our box but it was on third-party equipment in their testing and in their quality assurance and all the things you're supposed to do at a lab they were if the numbers didn't work out they were they were playing with the samples they used and It's questionable at the heart of the justice department's indictment are accusations
that holmes and belwani lied about theranose technology to dupe investors and business partners into forking over cash and to do patients into paying for walgreens-based tests claims further examined in carrier's non-fiction book bad blood and an alex gibney's documentary the inventor Well the question is did she know she was perpetuating a fraud or was there something more mysterious going on i think she is afflicted with what the police call noble cause corruption meaning simply put it's like the end justifies the means holmes and belwani's knowledge will be key to their defense given prosecutors burden to
prove intent a non-negotiable element required to obtain a conviction Well that's what makes this a difficult story to draw conclusions about in terms of investment fraud because i don't think anyone disbelieved this story including elizabeth holmes at the outset by 2010 seven years after home started theranos is when u.s attorneys say she and belwani began a conspiracy that by 2015 would include lying to investors about the range and accuracy of tests faking product demonstrations misrepresenting Projected revenues and fabricating stories that theranos's device had been deployed in military combat zones by 2013 prosecutors say the two
knowingly promoted and delivered tests likely to contain inaccuracies and falsely represented to investors that the test did not require fda approval a point home has contested along with pleading not guilty to criminal charges when i started we were they had scrapped the edison device so we were working on The next generation you know black box it was 2015 a month before carrier revealed what jocelyn bailey and other theranos employees already knew more than 90 percent of walgreens-based tests used neither the mini lab nor tiny blood samples and instead came from traditional larger volume blood draws
processed by traditional analyzers made by siemens bailey's job was to develop immunoassays A common type of blood test intended to run inside the mini lab did you know about the siemens machines being used while you were working there yeah yeah we knew i think it it was it was communicated to me yeah our team knew about it i don't know if everyone knew we knew that finger sticks had been cut or had been cut real recently from the clinics some of those original claims were known you know it hurts but we we Knew it and
we were in the lab trying to make it better the revelations turned fortune's cover story on its head it became clear that they couldn't accomplish the tests that they wanted to using the edison machine then in fairly short order it unraveled when some of the technicians blew the whistle on her one whistleblower tyler schultz a theronos employee and grandson to board member george schultz disclosed the shortcoming to the wall street journal And filed a complaint with new york state's department of health saying the company had manipulated proficiency testing a process meant to promote test accuracy
at a minimum if the theranos walgreens 2013 press release and home statements to media were to be believed with as little as a few drops of blood its device should have been able to accurately process multiple if not more than 200 common diagnostic tests Did it make you question the technology or not necessarily you definitely realize that 220 assays on a single drop of blood on the same machine that you developed that's that's not feasible and so you realize if their goal was to have it in all these wellness centers and have the price be
cheap and all this kind of stuff you understood why they were using these commercial analyzers you didn't realize I guess the extent of how much they had pitched their own machine and how the public was understanding that everything was being done on our technology when reporters pressed homes on the inconsistencies she admitted that only one finger stick test was commercially available using the mini lab a single assay for herpes virus hsv-1 [Music] the rest holm said remained in r d or awaited approval In 2016 the centers for medicare and medicaid notified theranose of laboratory deficiencies
posing immediate jeopardy to patient health the agency sanctioned the company and agreed to a settlement banning homes from owning or operating a clinical lab for two years the agreement forced the company to shutter its walgreens and laboratory operations holmes defense wasn't enough to quiet Her most formidable critics a flood of lawsuits followed arizona's attorney general investors and the sec claimed fraud walgreens sued for breach of contract and the justice department filed criminal charges for conspiracy and wire fraud did holmes ever explain to you why she maybe embellished what her product could do no Although she
didn't have to you know it's not uncommon for entrepreneurs in particular to talk in the present tense about the future my product can do this your products aren't built yet you know your product is a bunch of concept uh but nonetheless the tendency is to say my product can do this or my service can unify people but no that's i mean so it's a way of essentially describing a future vision And elizabeth was very good at that aside from the doj's criminal action and a civil suit filed by theranos customers holmes settled the lawsuits out
of court the company paid walgreens around 25 million dollars to settle its breach of contract claim and separately agreed to pay nearly five million dollars to arizona customers a five hundred thousand dollar fine was paid to settle the sec's claims of fraud among other stipulations holmes Relinquished her controlling stake in theranos and diverged from belwani who continued to defend the sec's claims catherine said his clients recouped their investments still most of the 900 million dollars homes raised came from investors who took no legal action against her so they all sort of circled the wagons around
theranos and and didn't go after Them in fact they did reach an agreement not to go after early on that overwhelming capitulation by the very investors who prosecutors say were victims of fraud begs closer examination of silicon valley status quo and the contributing roles of the parties that power its big ideas [Music] of course i have to blame Sonny belwani and uh elizabeth holmes i mean they're the primary too i mean they they're they they're the uh the co-conspirators who who created this this mess you can't do it alone she was and as a singular
figure and she does bear responsibility i mean even as young as she was she bears responsibility for what happened under her watch oh look there's so many other people went along with her you know so many other people wanted it To happen you know she will say in her defense you know it wasn't me alone and that's true it's true of every entrepreneur it's never them alone where do you put sonny belwani in all of this i think he's really critical he's the in some ways the bad cop to her good cop and we often
in in the case of tech companies there's you know many instances of the man behind the curtain or the part of the more silent partner and you saw that at apple with steve and Steve you see this at microsoft with paul allen you know writing basic and bill gates [Music] i'm not sure the investors were wrong because i'm not sure they ever fulfilled their own obligations and responsibilities venture capital and the rule of thumb of vc is that out of 10 investments you'll have three that fail you'll have three that kind of go you know
fine And you'll have one or two that actually make you money and sometimes make you a lot of money and what makes the risk worth it is when you hit you hit big the investment money was good eventually because it gives runway for scientists so she did a good job at getting some runway later but the first round of the technology obviously was a massive failure and was terrible for patients But she did a good job at setting a vision for scientists to work towards to allow like a lot of companies don't have that much
funding in private company investing the prospect of this investor has to fill out a very detailed form that says i understand the risks i understand that you know i may not get any return on this i understand furthermore this will not affect my net worth they're Accredited they're accredited sophisticated actually i think it's the term but i nobody did i mean they all filled that form but nobody did the work i didn't see them storming the gates and going after the board saying hey guys you know you got to in fact the board was telling
elizabeth you don't have to do that which i think she got bad advice in announcing its settlement with holmes the sec posed theranose as a lesson for Entrepreneurs warning that 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 i believe that the sec did not have jurisdiction i i think the sec has got a great role to play in public markets and all kinds of other things like that but i'd hate to See them get
deep into the venture community in the startup world it's a fine line between that and you know the mom and pop business believe it or not there are some people who say that elizabeth holmes is being held to a public company standard do you think that that's a valid argument i think there's some merit in that one of the things the last particularly the last decade of silicon valley and the decades since the Great recession that has been different has been the private markets have dominated more than the public markets companies would go public they'd
have to go public i mean intel went public when it was three years old netscape went public when it was less than two the way you raised capital was on the public markets and with that came accountability and now in the last decade you have it's harder to go public all right new regulations post Recession um it's a heavier lift and there's been all of this private capital just sloshing through the global markets looking for a home and then you have this kind of flywheel of storytelling and buzz about oh this is the next big
thing and everyone's like i want to get in on that then you're allowed in kind of relative you're protected from the scrutiny of public markets does that mean that you can get away with fraud no Investors are right to be you know calling her to account warmanhoven said early investors had every opportunity to do just that they did nothing in terms of trying to ascertain the current status of the product or the risks to completion or or anything else whose fault is that i think it's the investor's fault yeah you invest in something you want
to know how your investment is doing and i think It's also a symptom of the founder culture that has really you know really took hold of the valley exactly during the time that theranos was growing the first meeting i was in was with all the major investors and they hadn't had any meetings with the company since the round had closed and uh you know maybe an occasional phone call or something but nothing nothing is a group nothing but i got a status report which I found staggering and weren't demanding it they didn't seem to to
press hard before the investment and they still didn't seem to press hard after the investment from my viewpoint it was really out of character for a startup investor not not to be all over it you know if you were a venture capitalist and you put in 100 million you would you would be there every week how we doing are we on track you know So those documents do not exist not in the not in the hands of the investors i mean they were available internally internal documents may have exposed the chasm between theranos's aspiration and
ability though holmes told the sec its investor pitch left room for improvement we we didn't intend these documents to be stand alone and and sitting here now i know we could have Been much better at the way we prepared materials and did you talk about specifically the technology and blood draw and what was in place at that time versus what was aspirational was there a clear delineation between those two we tried to do that when we look at theranos investors many of them not necessarily your clients but certainly perhaps a vc fund we would Expect
to be seasoned investors who can properly vet a company a startup like theranose in this case probably what you would consider a seasoned investor like tim draper perhaps larry ellison and oracle they invested early when it was just a concept and a lot of vcs will invest even when it's not proven theranos got well beyond that and then started raising funds massive amounts of funds uh Over 700 million from other investors the amounts of money that a certain class of what i call mega vcs with untold unprecedented amounts of capital available to invest starting with
a japanese company softbank and some of the sovereign wealth funds in the middle east who are looking for what to do after the oil begins to to peter out are able to and are bringing amounts of money that have just never been seen before there's no independent Validation that's what concerns me now when we look at some of these you know mega-funded uh companies like wework and uber that it hasn't been vetted as much as you would normally hope and expect from at least an independent venture capital uh set of players and uh that adds
to the board and the ceo and and here we are and they go dig in inside the company and get the facts start with channing robertson start with the head of engineering you know and start asking Questions [Music] in addition to homes it was channing robertson who in 2016 gave warman hoeven confidence to join theranos's board even after media and lawyers had accused holmes of fraud and he had just concluded organizing two we call it blue ribbon panels one that looked at the science of the the biochemistry inside The box and another one looking at
the mechanical nature of the box to make sure it was all viable and doable and they both came back very positive so i didn't get in deep to understand how far they were from go to market but i did have enough confidence that the fundamentals were sound he clearly thought that she was special and when she felt like starting a company he's the one she went to he was being paid quite uh quite handsomely to Work for work for her and had a desk in their offices and he claimed that he didn't know about that
technology and he claimed that he didn't know about the fact that that things didn't work he claimed he didn't know things were being run on it on third-party equipment i don't know what the heck was going on with him why he wouldn't ask these questions why he claims to have been completely in dark and he's the one that brought her around Got her credibility and was paint handsomely annually one former board member reportedly did ask the hard questions according to abc avi tavanian software engineer and former right-hand man to steve jobs was asked to resign
in 2007 following his ultimatum that homes be replaced as ceo the way that startup boards are usually they're made up of venture investors and They're made up of other people with domain expertise and you know at the early stage later stage corporations may you know look for look even more widely for people who have domain expertise in politics and statecraft sure because they have domain expertise in understanding how to how large organizations can run and interact with the rest of the world something's off from the very early stage i would say there was a lack
of Scientific mentorship overall um it was the assay teams and that was it there was little other science guidance given to the actual scientists so even channing robertson was not interacting with your group no he he wasn't present as far as i could tell that did set theranos apart from the very beginning and it was a red flag to other potential venture investors in the tech and particularly the biotech space it's a biotech company that doesn't have The personnel or the procedures in place that a biotech company would need to have even at the very
beginning stage to develop product in 2016 theranos finally impaneled a medical board and under new leadership holmes presented a scaled-back version of its updated device the minilab to the american association for clinical chemistry there's clearly been a lot of interest in your company I would argue that a lot of that comes from the fact that there were these claims that were made that were very broad early on 70 tests the whole you know panoply of of lab tests from a couple drops of blood and the evidence that you presented fell far short of that so
how should we think about that well i think we fully understand in picking this Place to come to introduce it that we have a lot of work to do to engage with this community and i mean i can tell you i wish that i had started earlier in the context of building the scientific and medical board that we've had the privilege to build under legal pressures and burning cash the effort would prove too late should the board have looked at its own composition and said perhaps we don't have the level of expertise that's Required for
a revolutionary healthcare company yes but you know you're asking people to admit their own uh weaknesses you know let's give credit to elizabeth holm she was quite the charmer and she and people just felt great and important you know in their own minds i'm sure they thought they were providing good sage council but yes of course that should be a part of the equation as well Stanford medical school professor dr phyllis gardner reportedly critiqued fingerstick draws as an impossible source from which to glean accurate results for hundreds of tests she described theranos investors as crazy
and its board members as old men whose brains had gone to their groin yet the suggestion that holm's concept was nothing more than fantasy fails to account for a flood of diagnostic startups surfacing in her Wake take genolite and its maverick analyzer that's fda approved and on its way to running more than 100 common tests from a tiny drop of blood over here is our proprietary technology so this is a machine we just got cleared from the fda and what it's really good at is running analyzing blood proteins nobody else has a machine that can
analyze uh a large number of blood Proteins in 15 minutes on the whole blood in a physician setting so that's that's our ambition the maverick can perform much of what homes envisioned the device features a proprietary optical silicon sensor that detects color changes in light when it's exposed to targeted blood molecules for now blood comes from a low volume draw taken from a patient's arm and next is the fda's decision for the Maverick to perform about 200 common diagnostic tests from a finger stick it is a politically charged topic to operate off of a finger
stick what you'll see when we take the blood out of the tube is we're going to take a tiny fraction of one drop of blood so we've validated that our machine works on less than a drop of blood we're going to add less than a drop of blood to it less than a drop yeah so it's um it's about four percent Of one drop that we use in late 2020 the maverick was also granted emergency use authorization to diagnose sars cov2 also known as covid19 it's one of 28 approved coronavirus and flu tests that can
all be performed from a finger stick eventually how many tests are you hoping that genolite will be capable of performing on one device that list is well under 200 tests it's really about 100 tests Comprise the vast majority of that and there's only a few of those that we can't do we can get to 95 percent of all commonly ordered tests in 15 minutes so what do you have to say to the critics who said theranose's vision was science fiction well i think you just saw it happen in the other room so this is what
the future looks like a small sample of blood can perform hundreds of tests exactly While not every test can be accomplished using a tiny drop of blood the advancements show homes may have had the right concept and the right story without enough technology at the right time there's you know difference between the idea and the execution you know clearly but decentralization of diagnostics and getting more data in the hands of doctors when they're making decisions is vital beyond genolite investment in Miniaturized diagnostics hardly dried up when cerenos was forced to close its doors similar startups
have been proving the concept as anything but science fiction there's a felis a sequoia-backed in-home blood testing device touting technology to detect white blood cell count viral infections and cancer from a single drop and truvian's portable benchtop analyzer takes five drops of blood to deliver multiple assays within 20 minutes If the latest technology is living proof that holm's concept was sound where exactly was her achilles heel if she had dialed it back and was straightforward about using commercial analyzers and was straightforward that you know this is about access this is about getting patients blood draw
somewhere else and like that kind of stuff and said that and we're working on our finger stick technology we're working on this um then You know we could have gotten there most likely this is an epic fail of a perceived a self-inflicted need for speed that proved to be you know very dangerous and fatal to the company and we could have had an entirely different story and on top of this we have to do it at breakneck speed and this was a case where literally and figuratively speed kills it's easy to blame The people involved
it's easy to say oh you investors you should have known better like you should have bought looked more closely but the hype machine is powerful the magazine covers are powerful maybe if enough people don't want to dig deep enough because we all want to believe we'll prop them up we'll put them on the cover of magazines and they can just plow forward and maybe eventually they'll make it or maybe not but there Definitely is a public hunger for that kind of celebrity nearly a year before the journal's expose john ianitas published a critique of theranos
and other well-funded healthcare startups for a lack of peer-reviewed data and for keeping their intellectual property too close to the vest theranus had published practically Nothing that they had a couple of papers but they were not relevant to their technologies so there are several unicorns out there with very high valuations with very little or no evidence that is supported by peer-reviewed publications why is peer review publication so important in your opinion this is how science is run this is how we can Put trust that something has merit that something is real that something can be
scrutinized by other scientists and be proven or at least sustain some criticism and show that that it is relatively bulletproof home sleight of hand didn't go entirely unnoticed fortune's editorial team did note limits to their account Have this sentence in the original piece that was published in june of 2014 it said quote precisely how theranose accomplishes all of these amazing feats is a trade secret so what does a journalist do from there it's difficult to cover proprietary technology what do we really know about facebook's algorithms and how far can we go in there well some
of it is ultimately a trade secret so it's an unproven proprietary technology particularly as It pertains to something as sensitive as health care that we probably should have been more skeptical about or had more questions about and i think it's a great lesson just because someone is claiming they're doing it doesn't mean that the media and the investment community and everyone else should just believe them and it's often harder for the media because they don't have the same amount of time or The necessarily the technical depth whether it's the media investors or customers everyone needs
to do the work and make sure that what they're doing is they're getting into bed with someone who's doing a good job and look it's not just the media the media consists of the people who produce it and the people who read it right and then when it all comes crashing down we rush out to buy the books we rush out to watch the documentaries we sort of Salivate over the oh you know look at all what what a fraud you know those silly people and so we kind of delight in the failure stories as
well as successes and it does become hard to put it in context and see the broader facts and say well this was a manifestation of a bigger you know a bigger problem while theranos's purported trade secrets were walled off from journalists and outsiders Another party aside from investors in the board had power to probe deeper according to walgreens in march 2010 homes in belwani pitched theranos devices to walgreens company executives as viable and consumer ready and said its technology had been comprehensively validated by 10 of the 15 largest pharmaceutical companies do you place any blame
there i place huge blame with walgreens but it's more on the negligence side i don't believe That walgreens knew what was going on but they should have known what was going on it's almost inconceivable to me that they didn't know that things were being run on third-party tests somehow things got embellished there was never any concept anywhere in reality that they could do 150 tests with one drop of blood it was they could do different panels of tests with each other drop of blood part of it was how elizabeth talked but probably What people want
to hear you know wow this is this is amazing you know but the truth was rather than getting three or four vials of blood taken it would be a very small sample and in fact the sample could be normally a finger brick and you could just get the drop of blood let's say off your thumb or whatever and have no need to to poke a vein so there's a lot of good things to it but Somehow the one drop of blood that's what got put in the machine but you know to do the whole panel
do that i mean 150 probably would have taken 25 30 drops of blood in a deposition before the sec holmes admitted that fairness had kept walgreens in the dark over fda concerns that the nanotainer had been underclassified yet she maintained the move away from Finger stick tests was no secret walgreens was operating with us in the store so they would have known locally that we were doing venipuncture to the extent we were doing a puncture do you have a general sense of what walgreens was concerned about following the publication of the article um i i
think there were multiple issues one was they were reacting to the press in general um but then the other was That we hadn't disclosed the engagement with fda with them to them yet before it was in the press holmes argues that because the fda engagement had to do only with nanotainers and because it began months and in some cases years after soliciting investors it can have no bearing on the government's claims of fraud once they The walgreens conclude we can't get this deployed in the store from theronow's viewpoint they just should have said time out
what you want to do doesn't fit our architecture our product strategy nothing but that's really kind of where they took the left turn that sent them right in the ditch red flags did spook world renowned medical center cleveland clinic it bailed on a partnership after theranos left its due diligence requests Ignored and walgreen's competitor safeway also withdrew its plans for a pilot program was that the value add for theranos was 140 million dollars up front it got him on the map in a hurry but the walgreens deal gave it credibility and so you know it
helped them basically raise the money they were looking for you know that kind of proposal something that size of magnitude should have been Reviewed the board in depth and you know there were enough people on the board to say wait a minute you know this is not us in deposition testimony board member schultz and retired u.s navy admiral gary ruffhead said they did not question holmes or anyone else at theranos once public concerns were raised about theranos's use of third-party technology the board had some very competent people and experienced people good operating People in some
ways and they should just call to halt i'm not sure it was ever fully discussed at the board and elizabeth is ceo right had the right to turn it down or to take it to the board and what about sonny belwani what was his role as you understood it i never met sonny he'd been dismissed from the company before i showed up elizabeth was the chief architect and she led most of the Engineering program but sonny led all the rest of the operations veterans of silicon valley startups know that faking it can be fair game
many of these companies start an idea they think that they have it actually they don't but they hope that they will develop the working idea while they're they're pursuing it and they have that expectation that that let's go ahead and it will kind of kind of get itself together and it will be Successful this is not fraud i mean you know this could be seen as visionary the distinction between fraud and visionary is very subtle here these high-risk high-reward gambles have been taken by some of the most famous visionaries and even the inventor who inspired
holmes first prototype thomas edison he was the original fake it till you make it guy now he was different than elizabeth holmes in that he ultimately Did make it he was an inventor who got it right and along the way when he was having trouble with the incandescent light bulb he didn't let anybody in on that he faked demonstrations and he was not so dissimilar from other famous people in silicon valley like say steve jobs who was a notorious liar but also a great storyteller so she is in that tradition and that's what makes elizabeth
holmes interesting wishing out and out fraud Or was she you know just in the great tradition of thomas edison and steve jobs you know faking it until she made it and it could sort of be a little bit both she's part of a tradition of fake it till you make it which to some extent is celebrated in silicon valley but not so much when it comes to medical devices that can actually affect the health of people is there a certain point with respect to theranose where you say That's where things went wrong i think that
there was a gradient going uh down the tubes and it's it's hard to say which specific decision was the the worst i believe that here my my response would be biased i think the the decision to move to patients was probably the the worst without having something that was mature Because once you move to patients then you're exposing people to risk in pushing a soft baked health care pitch homes isn't alone in its early days silicon valley biotech company 23andme was ordered by the fda to immediately discontinue marketing its widely publicized cheek swap test after
making unsubstantiated claims that the company could identify risk levels for a number of diseases a consumer class action lawsuit followed And the company settled with complaining customers diagnostic startup u-biome was dropped from cvs after federal investigators and an fbi raid of its san francisco headquarters in 2021 the company's co-founders jessica richmond and zachary apt were accused by the sec of defrauding investors and indicted by the doj for money laundering and securities fraud even the fda and experienced Mega-corporations have been known to get it wrong the international consortium of investigative journalists found in 2018 that over
the prior decade 80 000 global deaths and nearly 2 million injuries were linked to faulty medical devices take fda approved vaginal mesh and planted in approximately 10 million women worldwide before the agency banned u.s sales over risks including organ perforation protrusion and death its manufacturers among others boston Scientific johnson and johnson coloplast and c.r bard and healthcare giant bayer was forced by the fda to restrict sales of its permanent birth control device escher after reported complications involving device migration and death this widespread in precision is evidence that as the next biotech billion is already being
raised and spent from startups to multinationals there's much to be learned and improved Elizabeth homes was made possible by a broader culture and her downfall and the attention given to it is also a reflection of the broader culture you know there still are investors out there hunting down you know who's the next bright young person man or woman who's going to have the world changing product i think that we have a lot to learn from understanding what happened with Fairness but i wouldn't like us to lose the the bigger picture the bigger picture being that
there's hundreds of companies out there that may be like theranos eventually many of them how do investors who want and care about getting accurate information out of a very opaque company where should they look you know i'll tell you it's it all this stuff scares me and then There's a lot of stuff in silicon valley actually technical stuff chip companies telecom even medical stuff that people understand i urge people to make sure they understand and it's you know sometimes it's not 100 possible you can make a rule with yourself so i don't really understand it
i'm not going to invest it whether founders can back up what they boast May depend on how vigorously interested parties demand to look behind the curtain i mean there are several checks and balances and it could be the press it could be the board it could be investors theranos was a case where all of those entities let down their guard because the story was so great and they believed in the mission and they believed that success would be around the corner until It was there's a cautionary tale to be looking a little deeper into the
underlying economics i think boards clearly have to be more vigilant than they've been i mean ask if it is a secret but 90 of the time i think in silicon valley they're going to tell you it's a secret now a lot of these biotech startup companies their ip is very important to them and they want to protect it there's indeed some tension between ip And peer review disclosure with patents it's possible to protect ip and at the same time allow someone to disclose sufficient information even with patents and peer review biotech founders and their funders
may need to take a few leaps of faith you always think when you start a new science project you don't know what the unknowns are and so that naivete of not knowing what roadblocks you're going to hit what you're going to have to solve Along the way i think that's has a long way to go well with being an innovator right the naivete joke is a really important piece of innovation yeah you need money in science you need a lot of it um but and you don't know if it's going to work but you need
guidance we don't want to get rid of visionary people we don't want to get rid of people who really take a shot at a very high risk idea we don't want them to think that if they do that they're just Going to end up in jail we want them to take the best shot but we also want to have some transparency about what is being done just how much transparency is demanded of future visionaries may also depend on how much light the justice department shines on private markets by way of homes in belwani a lot
of entrepreneurs would love to have that much money why do you think that theranos chose not to just keep its head down And keep the research going once you've gone public and you've got this dialogue and and mantra and there's all this momentum that you have to maintain it's very hard to turn that off and go into stealth mode again for for a period of time so there was really you know that's a big part of it i think elizabeth had a great big dream i don't think there's any governors put on her no speed
limits and but that's the case a lot of people Some work out some don't she made some bad decisions too you know i mean she's not home free but i always felt like she was fully committed to try to deliver the product and make the company successful and to do that with all the energy she had she gave it a roll to a certain way like i said you know i know people can laugh when they say she how is she a victim do you see elizabeth holmes at all as a Victim of this culture
i think to some degree she is i mean look she was and is so young there's two ways that we can look at fairness one way is to say that it is a bad apple and that the people involved the ceo or whoever else were psychopaths and bad people and they were cheating and it's all fraud and everyone else is wonderful and Perfect in a way there's some sort of recall bias to use a scientific term if elizabeth holmes had managed to pull this off and and get the technology up and running and develop something
that worked everybody would consider her a hero you know the the most famous person of the 21st century probably [Music] if i were fired or i had to start this company over A lot of times in order to figure out how to get this right i would and i would just do the same thing over and over again [Music] do [Music] you
