
Theranos’s Fate Rests with a Founder Who Answers Only to Herself - w1ntermute
http://www.nytimes.com/2016/04/25/business/theranoss-fate-rests-with-afounder-who-answers-only-to-herself.html
======
Roritharr
Theranos most valuable service to me was that they've shown me what a small
man I really am, considering that I enjoy reading about their failure much
more than reading about someone else's successes.

~~~
aaronbrethorst
If they'd operated with even the slightest veneer of humility, and if the
whole thing had not turned out to be such a house of cards, then you probably
would not have such intense feelings of schadenfreude. I think it's pretty
normal to feel some pleasure at the misery of others when those others have
made themselves out to be such Paragons of Virtue, Captains of Industry,
Movers and Shakers of 21st Century Health, and whatnot, and turn out to
completely full of it.

And, just to make sure it's clear that I'm not exaggerating, we're talking
about a company whose founder literally received something called the Horatio
Alger Award last year:

    
    
        She was the youngest person ever to be awarded
        the Horatio Alger Award in recognition of
        “remarkable achievements accomplished through
        honesty, hard work, self-reliance and
        perseverance over adversity.”
    

[http://www.nytimes.com/2015/10/30/business/the-narrative-
fra...](http://www.nytimes.com/2015/10/30/business/the-narrative-frays-for-
theranos-and-elizabeth-holmes.html)

~~~
marinabercea
When you think about it though, it's unlikely she nominated herself for the
award or asked for it. Can we really hold someone accountable for another
group of persons' actions?

With that in mind, I briefly researched the 'Horatio Alger Award', it's being
offered by the Horatio Alger Association of Distinguished Americans, a
nonprofit organization. I checked their site and merit of any kind is only
part of the story.

As I understood things, when you're awarded the title, you automatically
become a member and it's not possible to gain membership otherwise. This prize
ensures growth and continuity for the organization, along with potential
funding.

I read the 'Become a Member' pdf document from their site and while it appears
anyone can be nominated, as long as the nominee is 'on brand' with the
organization's ideals of remarkable achievements, the new member/awardee will,
in turn, have to support the association in as many ways as possible, either
by contributing to the program (activities with an administrative or
promotional purpose), AND/OR financially.

The form states that it 'must be completed and signed by the nominee and the
nominator. If the nomination is confidential, the form may be completed and
signed by the nominator only. By signing this form, the nominator and nominee
acknowledge their understanding and acceptance of the responsibilities
associated with membership in the Association.'

I think the more questionable thing here is possibly exploitation of the
desirability of status and prestige.

~~~
toyg
Most little-known prizes are basically scams, offering gloss and publicity to
companies in exchange for cash at one point or another (in Alger's case, after
the award). Everyone with half a clue knows it, so you end up picking the
awards that fit your particular agenda and the image you want to project. In
this case, Theranos' management wanted to look saintly; hence inevitable
schadenfreude.

------
Asparagirl
_" I think the board has complete confidence in Elizabeth Holmes as a founder
of the company, as a scientist and as an administrator,” he said._

A scientist?! Since when?

~~~
whyenot
She dropped out of Stanford's chemical engineering program. Surely that should
count for something!

~~~
freyr
All that says is she was admitted to Stanford as an undergrad, and lasted
there till she was 19. That alone doesn't make someone a scientist.

~~~
vehementi
Could anything she's done in the last 13 years qualify her as a scientist?
What does it take to be one?

~~~
joshmn
Only "official" per MW, but,

> a person who is studying or has expert knowledge of one or more of the
> natural or physical sciences.

Would she be able to test out of all her BA requirements from Stanford with
what she's learned?

~~~
freyr
She might test out of all the BS requirements.

------
kumarski
Here's the really big kicker that hits me in the face as I look at the
leadership team of Theranos.

It's a descriptive statement about the company:

Nobody on Theranos's board has a pharma, hematology, research, or diagnostics
background related to the line of business of Theranos.

This makes it that much more difficult to get the bottom of what they've
innovated, if anything at all.

~~~
willvarfar
They were all people with connections to the top of DoD. Presumably they were
100% aiming at a military contract?

~~~
raverbashing
This is the billion dollar question. Or at least was, before the company
started going down the drain

The _only_ person that had some knowledge of biology on board was Holmes. Now,
while the board usually doesn't deal with the technical minutia they should be
definitely keeping an eye on possible regulatory needs and associated risks

------
semi-extrinsic
From TFA:

"“For every Theranos, there’s a Facebook,” said Bryan Roberts, a partner at
Venrock, a leading venture capital firm."

Really? I thought unicorns were called unicorns because they're, well, _rare_?

Also interesting that we're now at the point where Theranos == failure.

~~~
daveguy
If we're at the point where Theranos == failure, then "For every Facebook
there are 10-100 Theranos" would be more accurate.

~~~
smitherfield
You can keep going on the orders of magnitude. There are only 3 "Facebooks:"
Facebook (market cap $318bn), Google ($504bn) and Amazon ($292bn).

~~~
cperciva
I'd include Apple on that list. Sure, the company was founded a long time ago;
but for practical purposes you might as well consider that Apple 1.0 (the
computer company) died and Apple 2.0 (the iGadget company) launched in 2001.

~~~
aaronbrethorst
I'd place the date for Apple 1.0's death at December 20, 1996, but agree with
you 100% on the iGadget part. [http://www.cnet.com/news/apple-acquires-next-
jobs/](http://www.cnet.com/news/apple-acquires-next-jobs/)

~~~
cperciva
Right, I was taking the release of the iPod as the date that Apple 2.0
launched; we can certainly say that Apple 1.0 died five years earlier and it
existed as a zombie company for five years.

~~~
Philadelphia
The iMac was the first big hit under Jobs 2.0. Then iTunes. Then the iPod.

~~~
aaronbrethorst
Absolutely correct. iMac proved to Apple employees, their investors, and their
faithful, oft-curbstomped users that Apple could still make something really
friggin' cool.

iPod changed the course of Apple's destiny. There's a reason that the company
was renamed from Apple Computer, Inc to Apple, Inc., and the first step
towards that transition was the iPod, not the iMac.

------
moonlighter
Takeaway for future founders incorporating:

\- Own a majority interest in your company.

\- Be the company's chairman/woman and CEO.

\- Issue dual-class shares ("supervoting shares") where class B shares carry
many more votes than ordinary class A shares so the board can't pull a Steve
Jobs on you.

~~~
LoSboccacc
Founders that need money to execute or risk folding rarely get to set their
conditions

~~~
daemin
What surprised me was that the company was founded 12 years ago. I had assumed
that since people were commenting on the founder as a "young, didn't complete
college, no real experience, etc" that the company was founded very recently.

Upon learning that, it seems to me that the company has grown more
organically, more like a bootstrapped business of sorts.

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jerryhuang100
i would argue that even by removing EH from the CEO role of T would not save T
as:

1) its core technology is basically non-existed, non-proven, non-peer-reviewed
and was never fully covered by its 20 or 30 something non-core patents. it
seems its core tech is all inside EH's head.

2) their company machinery is not healthy enough that "could be run by a
monkey" (quoting warren buffett, no offense to any one). even some guy hired
by EH for their biochem had to killed himself.

3) EH is the only hub node for the vast politicians on its board and its
political network.

~~~
moonlighter
"Non-peer-reviewed"? This is a private company with proprietary technology,
not the New England Journal of Medicine. Proprietary and peer-reviewed are
oxymoronic in this context.

~~~
jerryhuang100
in medical/scientific realm, claims are peer-reviewed to be valid.

~~~
crygin
Heh, this is, bluntly... untrue. In medicine, certain types of published
studies are sometimes peer-reviewed, and sometimes people care about that, and
that's about the extent of peer review as far as validity goes. _Drug studies_
are not peer-reviewed in any meaningful way, and that's about as statistically
strong a claim as exists in most of medicine. Medtech (implants, mechanisms,
Theranos-like processes, etc) are certainly never "peer-reviewed".

~~~
adenadel
That's only true if you don't consider FDA approval to be a form of peer
review.

~~~
TheOtherHobbes
Although in theory FDA approval should be equivalent to scientific peer
review, in practice it doesn't seem to be.

It's not unusual for independent testing to show effects significantly smaller
than those reported in the clinical trials that lead to FDA approval.

Sometimes the results approach placebo levels.

------
joshmn
The fact a board of politicians shows "complete confidence" of EH as a
founder, scientist and administrator means one thing. And that one thing isn't
good, unless you're on that board.

I feel bad for anyone that got roped into this mess and tried to do right by
it. That person(s) exist, and when this sideshow completes itself, they're
looking at a sweet 60 Minutes segment that I'll gladly make some popcorn for.

~~~
no_wave
That guy existed - his name was Ian Gibbons and he killed himself in 2013
apparently.

------
shoyer
Only Theranos insiders know if their technology is actually worth anything.
But supposing it is, I do think there is a narrow path to success with a new
CEO and a cultural reboot (including publishing their work this time). That
said, there are external factors (e.g., regulators, legitation) that could
sink them regardless of the best efforts of a new management team.

The need to clean house at the top to have any chance seems so obvious that
I'm surprised the board hasn't resigned yet. I suppose they are giving Holmes
the benefit of the doubt to come up with her own turn around plan first.

~~~
sixQuarks
It doesn't help that one of the founders committed suicide, I believe there
was a rumor stating the reason was because their product didn't work.

------
a_bonobo
>Ms. Holmes, a 32-year-old Stanford University dropout, owns a majority
interest in Theranos, a privately held company she founded in 2003.

So she was 19 years old when she founded the company? What was the product
back then?

~~~
joshmn
> So she was 19 years old when she founded the company? What was the product
> back then?

What the product is now.

I don't know her personally, but from what I've gathered she's always had a
very well-to-do network via her Father (?). Probably helped a bit.

~~~
w1ntermute
The product has actually changed quite a bit since Elizabeth founded Real-Time
Cures, as it was called back then. The initial goal was to create a
continuous, blood monitoring skin patch with a cellular connection.

------
J-dawg
I remember reading a similar article about Hampton Creek, the food startup.

How do VC's end up investing in stuff like this? That's not meant to be a
rhetorical question, I know nothing about investing. I'm genuinely interested
in how very smart people end up giving millions of dollars to fund vapourware.

What is the due diligence process? Don't VC's hire an independent expert in
the field to audit the core technology? I guess confidentiality is an issue,
but we have NDAs for that, right?

~~~
jacquesm
The problem here is that if one investor is 'in' the rest will assume they did
due diligence and will use this as social proof to invest as well, aka the
herd mentality in investing.

Quite a few VC's would never invest these kind of funds without a full process
DD (legal, financial, technical, commercial), but once you're vetted by one of
the top flight VCs and have received an investment from them a lesser party
could easily make a whole pile of (wrong) assumptions, especially if there are
links between the parties outside of the VC circuit.

What should be done is definitely not always what is actually done.

A simple reason for this is that if the DD fails the investor pays for the DD
from their own management fees, but if the deal goes through the company
invested in usually gets the invoice from all the DD parties (as per the terms
sheet, this is a very common clause). This puts a weird incentive on VCs to
let deals go through, they can't have too many DDs fail during the process or
it can actually materially impact their ability to work.

Imagine that if 2% (which is pretty much the going rate) of a small fund (say
50M) is what the VC company has to operate on for every year that it runs (so
1M) divided over all the partners and associates in the fund, renting a
building in some prestigious place, travel and so on has to bear the
additional load of several full process failed DDs (anywhere from 50K to 200K
each) it can _really_ hit hard if too many of them fail.

So if there is a way to avoid doing DD because a larger party is already 'in'
this is a quick way to validate and a very easy mistake to make. Of course -
given that that is what I sell - I would very much prefer it if every round
every investor would do their own due diligence but in practice you really
don't see that. The most common format is that in every round there is some
level of DD done (thoroughness roughly related to the size of the deal) and
then all the parties involved decide to invest (or not...) based on DD done by
one of them.

In the Theranos case I suspect the 'big names' blinded investors, which is
dumb on a very basic level. But it's their money and if they decide to throw
it away on a BS project that is their right. The bit that really bothers me is
how many good companies you could have funded instead of this one too-good-to-
be-true unicorn.

~~~
forgetsusername
> _In the Theranos case I suspect the 'big names' blinded investors, which is
> dumb on a very basic level. But it's their money and if they decide to throw
> it away on a BS project that is their right._

It's funny that you yourself were very high on Theranos in early articles on
this site, and specifically praised the obvious due diligence these companies
must have done.

~~~
jacquesm
I wasn't high enough to invest money in them and I would not have invested
money without doing DD (not that I would be let anywhere near that project
anyway).

The main point is that I (and many with me) are quite shocked that this amount
of investment was done without _anybody knowledgeable in the field_ apparently
doing DD on the company. That there is a mechanism that explains this is what
makes it interesting, especially given the size of the various investments.

There are a few more cases like this that are - in my opinion at least - more
interesting still because they are closer to fields that I know more about
than about bloodworks. And that's one of the main take-aways for me, investors
should invest in things that they understand _or_ they should hire their own
independent experts to verify that the technology is real, but in practice
even if they know this they do not always do it, even at the level of Theranos
(hard to imagine, but there is pretty solid proof by now).

That Theranos is - at this point this seems likely - a lemon is a very good
and extremely expensive lesson for anybody that wishes to invest looking at
the bona-fides of the other investors already on board. That should count for
exactly nothing. Good luck convincing the world of that but that is my
conclusion.

The way I read the Theranos story is that the dream didn't work out, that -
rather than welcome inquiry and fixing of the tech. They chose to become super
defensive and play silly games rather than to open up which suggests that
there is a level of self deception going on. And this is where it becomes very
hard to distinguish a scam from an accident and a fraud from simply one of
many failed investments.

If anything the _level_ rather than the principles here are what attracts
attention, you see this situation in the investment world with great
regularity at lower levels of investment and usually these take much less time
to play out.

I wonder if at some level Theranos and its executives still believe they can
'fix' the technology or if they have actually given up on that. This will be
the harder part for them, to acknowledge defeat and to own it.

It's a sad story, nothing to be gleeful about but at least for me there are
some very valuable lessons here. Social proof is no proof at all and each and
every investor that lost (or stands to lose) money in this whole saga will
have paid a very dear price to learn that lesson.

Next up: uBeam.

------
novalis78
Perfect setup for a conspiracy thriller: she appears on Bloomberg and mentions
that Americas biggest problem is not health insurance but health care cost.
The cronigarchie takes notice, swivels its massive canons and starts firing at
her for the past six months. Epic. Even the NYTimes, who has been - ironically
- somewhat at the forefront of investigating into medical billing fraud, still
wonders if 'there is truth to her technology'. Let's see how this unfolds.

------
1024core
How is this any different than Google, Facebook, etc.?

~~~
TrickedOut
Google, Facebook have working products people are willing to use and largely
based on open technologies, where the competitive advantage is speed to
market, network effects, and good execution.

------
LordHumungous
What's the endgame? Theranos spends the next five years burning a billion VC
dollars and then goes bankrupt?

