Tag Archives: Elizabeth Holmes

What Can The Dropout Teach Investors?

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I’ve been riveted by The Dropout lately. Amanda Seyfried’s portrayal of the notorious Elizabeth Holmes transfixes me, from the baritone to the awkward dancing.

I particularly loved the scenes on Sand Hill Road when Holmes is pitching venture capitalists. Luckily for them, most passed.

Since I invest in startups, I wondered, how do we avoid the next Theranos? And what lessons can this flame out give us about investing in general?

Here is my current thinking:

1) If you don’t show it, you don’t have it. Beware any startup founder who won’t show you their tech or disclose financial information.

They may claim they’re protecting secrets from competitors, but more likely they’re covering up their problems.

I find the most successful founders are very open with investors. They want to share their awesome progress!

2) Beware unqualified teams in deep tech. Holmes made much of the fact that she was a college dropout, like Steve Jobs or Mark Zuckerberg.

But she obscured a critical point: Theranos was not a software company.

You can learn the basics of coding on your own in a few months. The same isn’t true for biology.

To pull off a revolution in blood testing, Holmes would’ve likely needed a PhD from a top school like MIT, Harvard, etc.

3) Don’t let big names on the board influence you. Henry Kissinger and General James Mattis sat on the board of Theranos.

Both are heavyweights in politics and government, but what’s their expertise in biotech? Uhh, they don’t have any.

Don’t just ask if the advisors and investors of a company are prominent. Ask if they’re qualified to do this exact job.

4) Founders who react badly to being challenged are bad founders. Both Holmes and Balwani surrounded themselves with sycophants and came down hard on anyone who questioned them.

They refused to hear about problems, so the problems only got worse.

If a founder can’t handle you or their team challenging them, they have no business in the job.

5) No FOMO. Holmes expertly used the fear of missing out to close investors and customers like Walgreens.

After all, we can’t let CVS have it first, can we?

Frauds from Adam Neumann of WeWork to Bernie Madoff were experts at leveraging this fear to override people’s better judgment.

Don’t give into it. You don’t have to hit every great investment opportunity to be a success.

In fact, you only have to hit one.

More on tech and finance:

The True Story Behind WeCrashed

The Lean Startup

FOMO: Investors’ Worst Enemy

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Photo: “Fortune Global Forum 2015” by fortuneglobalforum is marked with CC BY-NC-ND 2.0.

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How We Could’ve Known Theranos Was a Fraud

Investors lost over $9 billion on Theranos, the diagnostics testing company run by Elizabeth Holmes that was exposed as a fraud. Worse yet, patients received inaccurate test results, imperilling their health. But what if asking one simple question could’ve prevented all this?

In the book Editing Humanity, Keith Davies notes that Theranos’ technology had no foundation in peer-reviewed, published research. The always-astute John Ioannidis pointed this out as early as 2015. Theranos published a single paper in 2018, after the company was already exposed as fradulent and was near bankruptcy. Theranos made incredible claims for its technology, but without peer review by respected journal, there was no one to check if those claims were actually true. (Theranos had filed patent applications, but that doesn’t necessarily provide the same level of detail and review.)

This stands in contrast to many other biotech companies, such as several in the CRISPR area (Editas Medicine, Intellia Therapeutics, etc.) whose approach grows out of research published in major journals. Also, such companies have major scientists as co-founders, not a 19 year old unknown.

I am considering getting involved in early-stage biotech investment, so asking “What papers can you point me to that underlie your technology?” is a question I plan to ask in the future. That may be able to weed out some weaker companies and potential frauds.

For more background on Theranos, I strongly recommend the outstanding book Bad Blood by John Carreyrou. I listened to it as an Audible audiobook. It was read by Will Damron, whose voice is outstanding.

I also hear excellent things about the ABC News podcast series The Dropout, which details Holmes’ path from Stanford student to billionaire to accused criminal awaiting trial today. I haven’t listened to it yet, but I look forward to getting a chance soon!

“File:Elizabeth Holmes 2014 cropped.jpg” by Photo by Max Morse for TechCrunch TechCrunch is licensed under CC BY 2.0