The dead unicorn: How Theranos went from a valuation of $4.5b to $0

The following is an edited excerpt from Bad Blood: Secret & Lies In A Silicon Valley Startup by John Carreyrou. The excerpt is provided by Knopf Publishing. You can buy a copy here.

The term “vapourware” was coined in the early 1980s to describe new computer software or hardware that was announced with great fanfare only to take years to materialize, if it did at all. It was a reflection of the computer industry’s tendency to play it fast and loose when it came to marketing. Microsoft, Apple, and Oracle were all accused of engaging in the practice at one point or another. Such overpromising became a defining feature of Silicon Valley. The harm done to consumers was minor, measured in frustration and deflated expectations.

By positioning Theranos as a tech company in the heart of the Valley, [founder and CEO Elizabeth] Holmes channeled this fake-it-until-you-make-it culture, and she went to extreme lengths to hide the fakery. Many companies in Silicon Valley make their employees sign non-disclosure agreements, but at Theranos, the obsession with secrecy reached a whole different level.

An obsession with secrecy

Employees were prohibited from putting “Theranos” on their LinkedIn profiles. Instead, they were told to write that they worked for a “private biotechnology company.” Some former employees received cease-and-desist letters from Theranos lawyers for posting descriptions of their jobs at the company that were deemed too detailed.

Theranos president Ramesh “Sunny”Balwani routinely monitored employees’ emails and internet browser history. He also prohibited the use of Google Chrome on the theory that Google could use the web browser to spy on Theranos’s R&D. Employees who worked at the office complex in Newark were discouraged from using the gym there because it might lead them to mingle with workers from other companies that leased space at the site.

In the part of the clinical lab dubbed “Normandy,” partitions were erected around the Edisons [Theranos’s blood-testing devices] so that Siemens technicians wouldn’t be able to see them when they came to service the German manufacturer’s machines. The partitions turned the room into a maze and blocked egress. The lab’s windows were tinted, which made it nearly impossible to see in from the outside, but the company still taped sheets of opaque plastic to the inside. The doors to the corridor that led to the lab rooms, and the lab rooms themselves, were equipped with fingerprint scanners. If more than one person entered at a time, sensors set off an alarm and activated a camera that sent a photo to the security desk. As for surveillance cameras, they were everywhere. They were the kind with dark blue dome covers that kept you guessing about which way the lens was directed.

All of this was ostensibly to protect trade secrets, but it’s now clear that it was also a way for Holmes to cover up her lies about the state of Theranos’s technology. Hyping your product to get funding while concealing your true progress and hoping that reality will eventually catch up to the hype continues to be tolerated in the tech industry.

A health company first

But it’s crucial to bear in mind that Theranos wasn’t a tech company in the traditional sense. It was first and foremost a health-care company. Its product wasn’t software but a medical device that analyzed people’s blood. As Holmes herself liked to point out in media interviews and public appearances at the height of her fame, doctors base 70 percent of their treatment decisions on lab results. They rely on lab equipment to work as advertised. Otherwise, patient health is jeopardized. So how was Holmes able to rationalize gambling with people’s lives?

One school of thought is that she became captive to Balwani’s nefarious influence. Under this theory, Balwani was Holmes’s Svengali and molded her – the innocent ingénue with big dreams – into the precocious young female startup founder that the Valley craved and that he was too old, too male, and too Indian to play himself. There’s no question that Balwani was a bad influence. But to place all the blame on his shoulders is not only too convenient, it’s inaccurate. Employees who saw the two interact up close describe a partnership in which Holmes, even if she was almost 20 years younger, had the last say.

Moreover, Balwani didn’t join Theranos until late 2009. By then, Holmes had already been misleading pharmaceutical companies for years about the readiness of her technology. And with actions that ranged from blackmailing her chief financial officer to suing ex-employees, she had displayed a pattern of ruthlessness at odds with the portrait of a well-intentioned young woman manipulated by an older man. Holmes knew exactly what she was doing, and she was firmly in control.

When one former employee interviewed for a job at Theranos in the summer of 2011, he asked Holmes about the role of the company’s board. She took offense at the question. “The board is just a placeholder,” he recalls her saying. “I make all the decisions here.” Her annoyance was so palpable that he thought he’d blown the interview. Two years later, Holmes made sure that the board would never be more than a placeholder.

In December 2013, she forced through a resolution that assigned 100 votes to every share she owned, giving her 99.7 percent of the voting rights. From that point on, the Theranos board couldn’t even reach a quorum without Holmes. When he was later questioned about board deliberations in a deposition, [former US Secretary of State and Theranos director] George Shultz said, “We never took any votes at Theranos. It was pointless. Elizabeth was going to decide whatever she decided.” This helps explain why the board never hired a law firm to conduct an independent investigation of what happened. At a publicly traded company, such an investigation would have been commissioned within days or weeks of the first media revelations. But at Theranos, nothing could be decided or done without Holmes’s assent. If anything, it was Holmes who was the manipulator.

One after another, she wrapped people around her finger and persuaded them to do her bidding. The first to fall under her spell was Channing Robertson, the Stanford engineering professor whose reputation helped give her credibility when she was just a teenager. Then there was Donald L. Lucas, the aging venture capitalist whose backing and connections enabled her to keep raising money. Dr. Jay Rosan and Wade Miquelon at Walgreens and Safeway CEO Steve Burd were next, followed by [retired US general] James Mattis, George Shultz, and [ex-US Secretary of State] Henry Kissinger (Mattis’s entanglement with Theranos proved no obstacle to his being confirmed as President Donald Trump’s secretary of defense). [High-profile lawyer] David Boies and [media mogul] Rupert Murdoch complete the list, though I’ve left out many others who were bewitched by Holmes’s mixture of charm, intelligence, and charisma. A sociopath is often described as someone with little or no conscience.

I’ll leave it to the psychologists to decide whether Holmes fits the clinical profile, but there’s no question that her moral compass was badly askew. I’m fairly certain she didn’t initially set out to defraud investors and put patients in harm’s way when she dropped out of Stanford 15 years ago. By all accounts, she had a vision that she genuinely believed in and threw herself into realizing. But in her all-consuming quest to be the second coming of Steve Jobs amid the gold rush of the “unicorn” boom, there came a point when she stopped listening to sound advice and began to cut corners. Her ambition was voracious and it brooked no interference. If there was collateral damage on her way to riches and fame, so be it.