In 2003, a Stanford University student, Elizabeth Holmes, had an idea to develop a wearable patch that could adjust the dosage of drug delivery and notify doctors of variables in patients’ blood. She began working on lab-on-a-chip technology for blood testing with the intention of founding a firm that would make blood tests more affordable, easy, and accessible to customers.
Her idea seemed too good to be true. Simply walk into your local pharmacy, give a few drops of blood by a prick of the finger, and get swiftly and inexpensively checked for hundreds of illnesses. As it turned out, it was not true at all. She duped the entire world for many, many years, amassing billions of dollars for herself for a product that simply didn’t exist. Now, Holmes is on trial in federal court in San Jose, CA.
After nine weeks of testimony in Elizabeth Holmes’s fraud trial, there are more and more concerns about the dangers and obligations that investors face when investing in high-growth start-ups like Theranos. Before collapsing in 2018, Theranos raised $945 million in funding from investors, valuing the company at $9 billion and making Holmes a billionaire. Holmes has entered a not guilty plea. She faces a sentence of 20 years in jail if convicted. Prosecutors allege that the two knew Theranos couldn’t deliver because the equipment simply didn’t function, yet they proceeded to raise millions of dollars from investors and sell the product to physicians and customers despite this.
Theranos had announced a collaboration with Walgreens drugstores back in 2013. They intended to build a series of Theranos Wellness Centers inside Walgreens stores, where customers could go in and have a few drops of blood drawn, which would be 1/1,000 of a regular draw. Their high-speed, low-cost laboratory equipment would give results in only a few hours. But there was one major issue: the company’s technology didn’t work. Only one test, for the herpes simplex 1 virus, was authorized by the FDA.
Lisa Peterson, an investment manager at RDV Corporation, an investment business that represents Michigan’s affluent DeVos family, recently described how the organization came to invest in Theranos — and ultimately lose — $100 million. During a tense cross-examination, Holmes’ attorneys attempted to portray Peterson as a careless steward of capital who failed to conduct adequate due diligence before investing in a small start-up.
The trial and testimony is still ongoing, with an uncertain future. But no matter what may happen to Elizabeth Holmes’ sentence, it is evident that Theranos was a dysfunctional company and that Holmes’s days as a billionaire are over.