Fake Blood

Was blood-testing company Theranos an ambitious startup gone very wrong—or was it an elaborate scam? John Carreyrou’s new book, “Bad Blood,” examines Silicon Valley’s most notable recent flameout.

Founder and CEO of Theranos Elizabeth Holmes
Founder and CEO of Theranos Elizabeth Holmes

Truth be told, every startup is a bit of a con. It’s a bet on somebody’s theory of a new business, enthusiastically pitched to sound like the Next Big Thing. But that pitch is based largely on guesses about what customers will pay for and what products can realistically be delivered, all buttressed by financial projections that everybody knows are basically fiction. Hence the infamous Silicon Valley mantra: “Fake it ‘til you make it.”

Most startups, based on these tenuous underpinnings, fail. But what happens when the hustle spirals out of control, when the pitch is so alluring that all reason is shoved aside, when investors keep piling on money, when big companies that should know better rush to join as partners, when the press accounts get more and more breathless, when nobody — well, almost nobody — realizes that the whole thing is a multibillion-dollar house of cards?

It’s not clear that Elizabeth Holmes set out to con the investors, employees and customers of her company, Theranos, when she dropped out of Stanford to pursue her dream of incredibly simple blood testing technology. But John Carreyrou’s terrific new book on the Theranos debacle, “Bad Blood,” makes an argument that, at best, Holmes got swept up in believing her own hype — or, as they say in Silicon Valley, breathing her own fumes. Or eating way too much of her own dog food. At one point, she boasted to employees that Theranos’ technology was “the most important thing humanity has ever built.”

"Bad Blood: Secrets and Lies in a Silicon Valley Startup," by John Carreyrou, 352 pages, Knopf (2018), $27.95.
"Bad Blood: Secrets and Lies in a Silicon Valley Startup," by John Carreyrou, 352 pages, Knopf (2018), $27.95.

But Theranos was actually a Potemkin village that Carreyrou, a longtime investigative reporter for the Wall Street Journal, documents in meticulous and at times chilling detail: technology that resembled an eighth-grade science fair project, blood tests that never quite worked or never produced the same results twice, employees who blew whistles that went unheard (and often got them fired).

Nonetheless, investors and partners — almost all older men — were totally enthralled by the blonde, red-lipsticked Holmes, who was so intent on becoming the next Steve Jobs that she copied his black turtlenecks and mastered his reality-distortion field shtick. Except that her idol’s technology and products actually worked.

Holmes’ pitch began with her claim that she’d grown up phobic about needles and blood. Her proposed solution was a small, simple device that could take blood testing out of labs and perform hundreds of tests based on a single pinprick of blood from a patient’s finger. One problem: That’s a virtually impossible scientific and medical task, for a variety of reasons. Nevertheless, with minimal scientific training of her own and very little actual medical expertise within the company, Holmes chased this dream, telling ever larger lies along the way.

She attracted an impressive board of directors made up of people like political and government bigwigs Henry Kissinger, George Shultz and current Defense Secretary James Mattis—but, crucially, virtually no one with a significant medical background who might have asked tough questions. She raised nearly $1 billion — at one point, barely 30, she was personally worth at least $5 billion on paper, the first self-made female billionaire in history — from investors like media baron Rupert Murdoch and Oracle CEO Larry Ellison. But perhaps tellingly, virtually none of the major Silicon Valley venture capital firms would go near her.

Holmes signed up partners like Walgreen’s and Safeway to market her products, with almost no due diligence on their parts — when they asked to see details of the technology, she put them off with excuse after excuse. She crowed that Theranos blood-testing was being used in the field by the U.S. military — not true. She pointed to a Johns Hopkins study that seemed to endorse her — false. She claimed to have collaborated with several leading pharmaceutical companies — they’d never heard of her. When Vice President Joe Biden visited the company as a symbol of American innovation in 2015, he was given a tour of a gleaming laboratory — a fake, built especially for his visit.

Carreyrou began looking into Theranos shortly after Biden’s visit, spurred by a tip. He quickly found a raft of former employees (including board member Shultz’s own grandson) who had quit in disillusionment and frustration. His account of his dogged reporting makes up the second half of the book, and it’s a good tale of journalistic enterprise.

While Theranos employees played an internal video game that involved shooting at a virtual version of Carreyrou (really), the company mounted a vicious legal attack on his journalism. Led by power lawyer David Boies and apparently involving surveillance of Carreyrou and his sources, the idea was to intimidate the reporter into backing off the story. At one critical moment, Therano appealed to its largest investor, Murdoch, the owner of the Journal, to ask him to spike Carreyrou’s reporting. Murdoch, in a notable demonstration of journalistic integrity, refused to interfere — and wound up writing off his $125 million investment in Theranos.

While it’s a good story based on excellent reporting, “Bad Blood” isn’t perfect. It could have used more detail on how Holmes raised her money, and it really needed some context on how the Theranos saga fits within Silicon Valley’s risk-taking, high-wire startup culture. It also would have been helpful to know more about how Theranos stacks up against other cases of corporate malfeasance — Enron is mentioned in passing, but that’s about it.

Still, “Bad Blood” is a good read and very well timed: As it went to press this spring, the Securities and Exchange Commission brought and settled fraud charges against Theranos, Holmes and her boyfriend/co-founder, Ramesh “Sunny” Balwani. And just after the book was released, federal criminal fraud charges were filed against Holmes and Balwani. The erstwhile entrepreneur could wind up in jail for a long time.

But you never know. Word is that Holmes is circulating another startup pitch around Silicon Valley. Sometimes you fake it, sometimes you make it.


Three Books About Business Roller Coasters

  • “The Fanciest Dive” by Christopher M. Byron (1986): Like Theranos, a startup — in this case a magazine launched by Time Inc. — goes completely wrong, often hilariously. Essential cautionary reading for any entrepreneur.
  • “The Big Store: Inside the Crisis and Revolution at Sears” by Donald R. Katz (1987): A clumsy CEO tries to transform stodgy Sears for a new era of retailing. You know how it comes out.
  • “Micro serfs” by Douglas Coupland (1995): This fictional account of a Silicon Valley startup is a bit dated, but it still captures details of the froth and excitement of startupland very well — and it’s wrapped around a sweet love story.
    Mark Potts was the founding managing editor of Alta.
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