There’s a lot you can learn from the world of startups. You can help start your business off on the right foot, as well as find tools and people to help it expand further. What’s more, you can learn quite a bit from the market, and see where you can take things in the years to come. However, you can also learn what not to do – like what happened with Elizabeth Holmes and her business, Theranos.
This health technology company did very well in valuation over the years, after noting that it had found ways to push blood testing forward through simple pinpricks and other methods. She soon became one of the richest self-made female billionaires on the market, with a $9 billion value. But soon after, details leaked about potential fraud, not only removing her net worth, but also her very freedom.
Let’s take a closer look at the rise and fall of Elizabeth Holmes and Theranos, and what you can learn from her vast mistakes.
An Excellent Start For Theranos
After attending both the St. John’s School in Houston and the Genome Institute of Singapore, Holmes founded a new company, Real-Time Cures, in Palo Alto. Her job there was to “democratize healthcare,” renaming it to Theranos just a short time later.
After learning quite a bit from Apple founder Steve Jobs at the time, Holmes began to build initiatives through funding and expansion. She started off by raising an initial $6 million for the firm, based on various promises. However, after just six years’ time, she managed to acquire more than $92 million, which she promised to pour into medical technology.
That said, however, there were questions in regard to how Theranos ran. There was very little discussion on how the company ran, and it didn’t have any press releases or a company website until 2013. By that point, it partnered with Walgreens and Cleveland Clinic on various agreements. But even with so many promises and patents, there would soon be a turning point.
Enter the Downfall of Theranos
Basically, Holmes built a lot of promises she simply couldn’t keep. Along with worrying investors, Theranos was the subject of a lengthy investigation by Wall Street Journal reporter John Carreyrou. Holmes threatened legal action against the reporter, but the “bombshell article” eventually dropped in October 2015.
It provided a number of startling results from the investigation, including inaccurate results and even using other companies’ equipment for its own studies. Holmes denied all this, but the negative talk continued to circle.
Just months later, following an investigation into a faulty laboratory in California, the Centers for Medicare and Medicaid Services (CMS) banned Holmes from working with blood-testing services for two years. But Walgreens dropped its partnership, and many others soon began to swear off working with Theranos ever again.
But the real trouble came in 2018 when the SEC decided to step in and simply call out Theranos – and Holmes, in particular, on fraud.
The Might of the Law
Both Holmes and Theranos’ former president, Ramesh Balwani, ended up charged with fraud, with the SEC noting more than $700 million taken from investors over a false product. It also noted that it had made $100 million in revenue back in 2014 – when it was only $100,000. Holmes eventually settled, but she lost control of Theranos and her shares in the company.
Finally, the U.S. Attorney’s Office for the Northern District of California chose to act, indicting Holmes and Balwani on nine charges of wire fraud. As the case proceeded, Holmes stepped down from her CEO position at Theranos but remained on the board.
It would take four years for the court to settle its case. But, in the end, Holmes and Balwani were found guilty of these charges in early 2022, with their sentencing set for October. They could face up to twenty years in prison and a fine of $250,000 for each count of wire fraud.
What’s the Lesson To Learn From Theranos?
If something sounds too good to be true…that’s because it probably is. Holmes put her time and effort into a company that had very little to say, but a lot of money to go around. As a result, it was a rife case for fraud, and it eventually led to the jailing of both Holmes and her company president, and various precedents set against Theranos.
The lesson here? If you feel like there’s an easy way to make cash, just remember that it always comes back to bite you. Defrauding investors is a huge no-no, and there are rules in certain contracts that protect them from such a thing. If you are set to enter a startup, make sure you have the initiative to meet what you promise. Otherwise, you could wind up in a world of trouble as Holmes did.