The story of Elizabeth Holmes and Theranos, her bashful startup that dared to ‘change the world’, will certainly go down as one of greatest investment con acts ever played.

She raised over $700 million from seasoned venture capitalists by bullshitting about a magical blood testing machine named ‘Edison’ that could test for everything from syphilis to the West Nile virus with only a pinprick of blood and for only 99 cents! A fairy tale for the ages.

A mere $500k fine for bilking investors of $700 million — white gloves for white collar at its finest.

The Securities Exchange Commission (SEC) has now formally charged Holmes with “an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance” to raise money from investors.

In classic SEC toothless fashion, they have settled with Holmes for $500,000 and returning the shares she accumulated during the fraud, and oh yes, as a part of the settlement neither Holmes nor Theranos admits guilt. Hard jail time for growing a single marijuana plant in many states vs. a $500k fine for bilking investors of $700 million — white gloves for white collar at its finest.

 

Elizabeth Holmes: The Sociopath That Silicon Valley Built

Without a doubt Ms. Holmes is next-level crazy. She invented this Peter Pan stylized character that toiled many hours as a child in a black turtleneck thinking of ways to rid this cruel world of venous blood sampling.

She wanted to be loved, she wanted to change the world, she wanted to be Jesus redux.

This isn’t her script, this is the script of the valley. Inventions can’t just solve discreet problems, they need to alter humanity for the better as we know it. Mark Zuckerberg isn’t just the creator of a me too social message board, he’s purpose driven to heal America and help users have more ‘meaningful social’ interactions.

 

Startup Fake It Till You Make It Checklist

It’s one thing to get a life coach to tutor you for $950/hour on how to get into the ivy league school of your choice. Holmes took it up several notches diarizing and executing every cliche prerequisite for valley stardom. We itemize below:

The Gullible and the Reckless

The Elizabeth Holmes narrative of a young female billionaire on a social mission was a literal layup for any and all media, no fact checking needed, just fawning and pillow fluffing please.

The brilliant investigative journalism by the Wall Street Journal’s John Carreyrou ultimately uncovered the entire Theranos fraud, which does beg the question: Why did the buck stop with a tenacious journalist? What investment due diligence was conducted by the venture capitalists who poured $700 million into the fictitious ‘Edison’ machine?

Google Ventures took a pass on Theranos in 2013. A simple visit to Theranos’ Walgreens outpost revealed the promise of a single pinprick of blood for an array of tests simply didn’t exist. Theranos required a full venous blood draw. This type of fundamental due diligence didn’t require a PhD in biochemistry, and the fact that there had been absolutely no red flags for the invested VCs is deeply troubling.

Source: Walgreens

Walgreens Falls for Theranos’ Growth Honey Trap

Burning investor funds is one thing, however exposing the general public to shoddy science is far more reprehensible. According to the Wall Street Journal, Walgreens entered its partnership with Theranos to put thousands of blood-testing centers in its drugstores without validating the technology.

This is the classic corporate ‘growth honey trap’, a sleepy but profitable company’s lust for growth leads itself to a one-sided partnership/investment with a sexier more tech savvy startup. This ‘growth honey trap’ was executed to perfection by Vice Media on Rogers and A&E.

It’s usually always bad news for the investor, Walgreens saw its $140 million investment vaporized along with its share price underperforming the S&P 500 by whopping -58% since the WSJ story broke on October 16th, 2015.

Walgreens Share Price

Source: Yahoo Finance