At the London Startup Bookclub we recently read, Bad Blood: Secrets and Lies in a Silicon Valley Startup by the prize-winning investigative journalist John Carreyrou. It is the full inside story of the breathtaking rise and shocking collapse of Theranos, the multibillion-dollar biotech startup. John first broke the story and pursued it to the end, despite pressure from its charismatic CEO and threats by her lawyers.
For those who do not know the story, here is a brief summary. At its height in 2014, blood-testing startup Theranos was regarded as one of Silicon Valley’s unicorn startups, valued at $9 billion. Its founder, Elizabeth Holmes was hailed a genius, the world’s youngest female self-made billionaire with a networth of $4.5 billion. At the age of 19 in 2003, Elizabeth had dropped out of Stanford University to start Theranos. Theranos was to revolutionize the medical industry with a machine that would make blood testing significantly faster and easier. On the promise that her device could conduct a wide range of medical tests on just one drop of blood, she successfully managed to raise more than $700 million for Theranos. However it all came tumbling down when the shortcomings and inaccuracies of the company's technology were exposed, and Theranos and Holmes were charged with fraud for "deceiving investors by making it appear as if Theranos had successfully developed a commercially-ready portable blood analyzer." Theranos’ technology simply did not work nor did it exist.
Elizabeth Holmes’ story was/is riveting, she achieved what many women founders failed to do then, before and now. Women founders struggle to pull in a fraction of the funding that Elizabeth Holmes was able to secure for Theranos, more so when there is no evidence of a working product. In 2018, only 2.2% of $130 billion venture capital went to female founded startups. Female founders combined together received $10 billion less in funding than one e-cigarette company, Juul, raised by itself. And the $2.88 billion raised by female founders was split across 482 teams! In 2018, female founders received the exact same percentage that Fortune reported for 2017.
According to the Harvard Business Review, male and female entrepreneurs get asked different questions by venture capitalists and this has implications on how much funding they get. In the review, it said, venture capitalists “tended to ask men questions about the potential for gains and women about the potential for losses.” Male founders were asked about their vision and mission for their company whilst women founders were asked about how they are planning to mitigate the risk of failure. This is because VCs do not see women’s companies as having the same potential as male founded companies. However, Elizabeth Holmes seems to have enjoyed the benefits of a line of questioning typically afforded to male entrepreneurs. Elizabeth was therefore extremely successful at raising money for Theranos from prominent investors like Oracle founder Larry Ellison and Tim Draper, Rupert Mudorch and the founder of prominent VC firm Draper Fisher Jurvetson.
Additionally, lack of a working product did not stop Elizabeth Holmes from gracing the cover of countless magazines and securing dozens of glowing write-ups. At high-profile conferences Holmes was held up as a model for what happens when ambitious business women gain an unprecedented level of investment, trust and support. She had successfully generated the support of a lot of powerful men. Despite failing to provide evidence of a working product or audit trails of new deals Theranos had secured, Elizabeth recruited to her board the former U.S. Secretary of State George P.Shultz, Henry Kissinger (former U.S. Secretary of State), William Perry (former U.S Secretary of Defense), Richard Kovacevich (former Wells Fargo Chairman and CEO) , Riley Bechtel (chairman of the board and former CEO at Bechtel Group) and many more. Through her charisma, chutzpah, secrecy, dictatorial corporate management, and the amazing credulity of board directors and investors, Elizabeth managed to get away with faking it for long enough to build a multibillion dollar corporation.
Elizabeth’s fraud charges could be very devastating to women founders. Given the insatiable demand for Theranos content, we now have a best selling book, an HBO documentary, an ABC podcast called The Dropout and Jennifer Lawrence is reportedly going to star in the feature film version of this “true crime meets tech” tale. When people think of women founders, they will think of Elizabeth Holmes, they will not think of the likes of Dame Stephanie “Steve” Shirley, founder of Xansa; Judit Faulkner, founder and CEO of Epic Systems; Lynda Weinman, founder and CEO of Lynda.com now LinkedIn Learning; Shira Goodman, CEO of Staples.com; Helen Greiner, co-founder of iRobot and Kelsey Wirth – Co-founder, Align Technologies. Because the charges against Elizabeth Holmes and the spotlight it has created, is there a probability that women will be further disadvantaged when they are building companies and find it harder to access investment that is the lifeblood for tech startups?