Left and Right have little in common in America today, but a point of unity is Silicon Valley. Leftists, normally corporation-shy, adore tech corporations because they are in the vanguard of progressivism in enthusiastically subverting traditional mores. We’ve seen how willing the tech giants have been to flex their economic muscle to reverse democratic decisions made by stodgy voters in backwater states. Meanwhile the pro-capitalists of the Right praise tech’s commercial guile, thrilling to its innovation, rationality, pioneer spirit, and the vision of its geniuses (though as Peter Thiel and Palmer Luckey have found out, Silicon Valley isn’t thrilled by any of its own embracing conservative causes).
This reflexive and general love of all things Silicon Valley helps explain why the Wall Street Journal published a splashy article in 2013 celebrating an obscure blood-testing company, Theranos. The piece touted the company as revolutionary, the brainchild of a Stanford dropout, Elizabeth Holmes, who, at just 29, had all the hallmarks of being the next Steve Jobs. Holmes had invented, the article relayed, a consumer-friendly blood testing machine that with just a pinprick of blood could run a battery of tests faster than the off-putting needle and vial method.
Former Secretary of State George Shultz, a man highly respected by conservatives, had pushed for the article’s publication. He was a Theranos board member. Investors were soon swayed not just by Shultz but by other heavy hitters on the board: Henry Kissinger, Sam Nunn, William Perry, and James Mattis. Former Secretary of Defense Mattis said at the time that Holmes “has probably one of the most mature and well-honed sense of ethics—personal ethics, managerial ethics, business ethics that I’ve ever heard articulated.”
By 2015, the start-up was valued at $9 billion and Holmes was glorified by the media as the youngest ever self-made female billionaire.
But by late that year, the Journal had begun to publish a series of articles exposing the company’s fraudulent claims and the paranoia of its founder. That series was written by John Carreyrou, and he has now shaped them into a must-read book, Bad Blood. Tracking down the fraud makes for exciting reading but this account also forces one to ponder business in contemporary America: how companies come by their valuations, the motives of those who “big up” firms, and the ease with which management can use the law to bully staff and the media to protect a highly touted enterprise.
Bad Blood, which is being made into a film starring Jennifer Lawrence as Holmes, really races along—not least when the whistleblowers start to come forward, and it becomes a cloak-and-dagger affair. Ironically, one of the principal whistleblowers who comes forward is Shultz’s grandson.
From a height of 800 employees, Theranos dwindled to no more than two dozen, and finally closed entirely in September; Holmes is $25 million in debt; and she stands charged with federal crimes. What is formally left of the company is mired in lawsuits for defrauding investors. The deception was that the tests were run primarily on generic machines, mostly sold to Theranos by Siemens, and not on any proprietary technology. Tests done on Theranos’ own machines were wildly inaccurate yet the inaccurate results were knowingly given out to patients. When using the Siemens machines, which to be accurate need a vial of blood, Theranos diluted the small pinprick amounts of blood to get up to the volume needed for the Siemens to run, but again skewing results horribly.
About those investors: They included the family of Education Secretary Betsy de Vos, Rupert Murdoch, the Walton family of Walmart, Bob Kraft of the New England Patriots, and a raft of venture capitalists and fund managers. Spreading the word about the company, experienced investors (often heads of investment firms with billions under management) would relay to one another that Theranos machines were in Iraq being transported in the backs of Humvees.
Now, stop a second. Likely you are already thinking: “Why would the military have blood-testing equipment in the back of Humvees out on patrol?” Soldiers wear dog tags for a reason, and one is so medics know a wounded soldier’s blood type. There wouldn’t be a need to discern that information by testing the wounded, would there?
Answer: No, there wouldn’t. How is it those “master of the universe” investors didn’t employ basic reasoning when assessing such a claim? Were they too swept away by Holmes’s vision, a blood-testing machine styled like an iPhone, using micro amounts of blood, processing the sample in a few hours, and sending results by Wifi to doctor and patient?
Apparently so, because Silicon Valley at this point is not a place, it is a myth. Nor is it completely irrelevant to consider that investors meeting with Holmes were struck by the intense stare of her “big blue eyes”—her earnest vision of fear-free, accessible healthcare, and her buccaneering aggression to shake up and colonize a large, complex, and centrally important industry.
Many were also struck by the amount of security around the company buildings. Head of security was the man who had been General Mattis’ personal bodyguard in Iraq. Investors thought something terribly valuable must be in the buildings for so much security to be on hand. Rupert Murdoch, who claims to employ but one bodyguard, was astonished by the number of guards who travelled with Holmes to his ranch, but not skeptical enough to think twice about putting $125 million into the company. The Australian media magnate was an early investor in Uber and had seen his paltry $150,000 mushroom into $50 million. On the projections Holmes gave Murdoch, his $125 million was going to deliver him El Dorado.
Few seem to have wondered if her penchant for security was a case of “the theatre of success” or perhaps (and not necessarily contradictorily) an indicator that Holmes was a paranoid personality. Indeed it wasn’t just the investors but Holmes herself who succumbed to the myth. Many noticed and were astonished by her deep voice (which was affected) but seemingly not skeptical of her dressing like Steve Jobs, mimicking his speech patterns, hiring designers from Apple, or, like Jobs, driving a car with no license plates. (In California, if you change your car every six months no plates are necessary.) Holmes switched up her black Audi salon frequently and sat in the back with two security men up front.
Bad Blood is a genuinely riveting read, and there are more strands to the story than I have mentioned. It is one of the great modern fables that business is a matter of data and mathematics, shorn of all sentiment, with steely-eyed rationalists writing up and signing contracts solely on the basis of self-interest. If this were true, Theranos could not have happened.
Better that investors read this book and adjust their investment strategies accordingly.