Elizabeth Holmes: Silicon Valley’s world of lies and secrets uncovered by Theranos fraud scandal

For years Elizabeth Holmes was Silicon Valley’s darling, a woman who couldn’t be wrong.

The start-up which he founded, Theranos, attracted hundreds of millions of dollars in investment.

However, the company he had built was based on fantasy science.

The technology Theranos was producing, supposedly to detect hundreds of diseases with a blood prick, seemed incredible. And it was.

Millions of dollars were wasted And some of those who used the company’s tests, including a cancer patient, say they were misdiagnosed.

This Monday, years after the collapse of Theranos, Holmes was found guilty of wire fraud and conspiracy to defraud, in a trial in California.

To someone outside of Silicon Valley, the story sounds absurd. How did so many people fall?

Yet in Silicon Valley, many believe that Theranos, far from being an aberration, speaks of systemic issues with startup culture.

Pretend until you make it

In Silicon Valley, promoting too promising a product is not unusual, and Holmes was clearly very good at it.

Retired from Stanford University, he was, by all accounts, articulate, confident and good at presenting a vision —A mission, as she described it — to revolutionize disease diagnostics.

Skeptical experts told him that his idea was just that, an idea, and that it would not work.

But he projected an unshakable confidence that his technology would change the world.

“It’s embedded in the culture,” said Margaret O’Mara, author of The Code: Silicon Valley and the Remaking of America.

“If you have a young company in development, with a product that barely exists, a certain amount of arrogance is expected and encouraged,” he said as well.

Particularly at an early stage, when a company is in its infancy, investors tend to focus on people and ideas rather than looking for solid technology.

General wisdom holds that technology will come with the right concept and the right people to make it work.

Holmes was brilliant at selling that dream, practicing a very Silicon Valley practice: “pretend until you make it.”

His problem was that he couldn’t get it to work. His lawyers have argued that Holmes was simply a failed businesswoman, but not a con artist..

The problem in Silicon Valley is that the line between fraud and simply playing with the culture of pretense is very thin.

“Theranos was an early warning of a cultural shift in Silicon Valley that has allowed promoters and scoundrels to prosper,” said big-tech investor Roger McNamee, who did not invest in Theranos.

He believes that the culture of secrets and lies in Silicon Valley, a culture that allowed Theranos technology to go un scrutinized, is “absolutely endemic.”

Ambition can be good. Promising a better future and then trying to make that vision a reality, computers and smartphones emerged.

But for investors, trying to separate the charlatans from the revolutionaries is an ever-evolving challenge.

In August, Manish Lachwani, CEO and founder of the HeadSpin app, was arrested for allegedly defrauding investors. For people who risk money, there are great fortunes to make and lose.

Keeping secrets

In Silicon Valley, intellectual property is highly protected. The “coke recipe,” the secret sauce, is often what gives a company value, and new technology companies are particularly sensitive to their ideas being copied or stolen.

Secrecy is important for these companies to be successful, but that culture of secrecy can also be used as a smokescreen.especially when even employees and investors do not understand or have access to the technology itself.

This is what happened on Theranos. Journalists, investors, politicians, you name it, were told that the science was there. However, when they asked questions, they were told that the technology was so secret that it could not be fully explained, analyzed, or tested.

Walgreens, a major Theranos customer, was exasperated at the lack of information provided by the company on how the system worked.

There are many Silicon Valley companies that I have reported that do not fully explain how their technology actually works. They claim to have “proprietary” systems that cannot yet be disclosed or peer-reviewed.

The system is based on trustBut it is fundamentally at odds with the culture of “pretend” and creates the perfect environment for scandals of the Theranos type, where claims that are not true are not questioned.

Using the CIA manual

A system that places such an emphasis on secrecy needs many attorneys. Companies don’t want their employees to walk away with their ideas. Nondisclosure Agreements (NDAs) are endemic in the startup world, and are by no means limited to technology.

But Silicon Valley’s culture of secrecy is especially difficult for whistleblowers..

After the collapse of the company, former Theranos employees spoke of intense pressure to withdraw negative public comments or remain silent altogether. The firm hired aggressive, expensive, and very active attorneys to protect Theranos’s reputation.

This is not uncommon in Silicon Valley, says Cori Crider of Foxglove, a group that helps whistleblowers speak out.

“I’ve spent more than a decade working on national security and very often I feel like the people of Silicon Valley are playing with the CIA manual on these things,” he said.

“They have achieved Scare People and make them think that they have no right to raise legitimate questions, “he said.

If the founders and CEOs aren’t honest, employees should feel comfortable raising the alarm. Too often they don’t.

Money and ambition

In the midst of the uproar, it can be easy to forget that many investors looked at Theranos and passed by, especially those with a health background.

However, Notable investors included individuals and groups with no health background, like media mogul Rupert Murdoch.

For these investors with capital, their decision to bet is usually based on the assumption that smaller financiers have already done their research on the technology they are investing in.

“They are taking third party validationO’Mara said.

Again, it is a system based on trust: investors trust that those before them know what they are doing. The problem here is that, with so much money around, that is not a fact.

In the end, they caught Theranos. As a healthcare technology company doing real-life diagnostics, the results and regulators would eventually prove it to be real or false.

But with many Silicon Valley companies selling the supposedly new and cutting edge in much less strictly regulated fields, scrutiny is looser.

Today, the culture of “pretend until you make it” lives on, as is the repressive culture of secrecy and aggressive use of NDAs for employees. It is a model that has its advantages and helps to produce extremely valuable and sometimes innovative companies.

But it also means the ingredients are still in place for another Theranos-type scandal.

* This note was originally published on September 13, 2021 and updated on January 3, 2022 with the guilty verdict against Elizabeth Holmes.