The rise and fall of Silicon Valley's Elizabeth Holmes
I read a great story this week that perfectly illustrates Silicon Valley's approach to investment. "There's more shame in not investing in the next big thing here than there is in investing in something that fails," a former Palo Alto-based moneyman said.
I wonder if he's still feeling so cocksure this week after waking up to the news about Elizabeth Holmes, the one-time Silicon Valley darling and billionaire founder of US health technology start-up Theranos.
The 34-year-old had been the poster girl of the health tech industry after saying her company had developed a portable blood analyser that could test for conditions including cancer and diabetes with just a few drops of blood from a finger-prick.
We all know people who are left shaking like a leaf at the prospect of a needle being inserted into their vein so this painless alternative attracted a lot of interest – and a lot more investment.
The problem is the technology was flawed and reports Stateside this week were far less flattering as it emerged Holmes had been charged with fraud for deceiving investors about the company's technology.
So what does 'Theranos-gate' tell us about investment in the healthcare technology sector?
That was the question I put to one of UK's most prominent investment and funding figures who spoke to me on condition of anonymity.
He admitted that the scale of Holmes' alleged fraud is unusual but stressed that "all investors really understand the companies and sectors they’re involved in, particularly when it comes to biotech, health tech and life sciences".
"There are lots of snake oil salespeople out there promising technology and products with ‘life-changing’ potential – and there just aren’t as many experts that you can check with," he said.
“It's important to be optimistic but check the facts and do your due diligence. It’s clear that investors got ahead of themselves in this case."
A quick look at the history of Theranos shows he's not wrong. Founded in 2003 when Holmes was just 19, the business promised to revolutionise blood testing and medical diagnostics.
Not only was the company’s product revolutionary and life-changing, it was also commercially ready – except that it wasn’t. But that didn’t stop investors reportedly shelling out over $700m (£500m) to keep the business afloat.
The Securities and Exchange Commission (SEC) has now charged Theranos, Holmes and former president Ramesh Balwani with "massive fraud".
The agency said the company and Holmes repeatedly made false claims about its technology, long-term financial prospects and even its commercial partnerships – including the claim that its products had been used by the US army in Afghanistan.
To settle the case, Holmes has agreed to reduce her equity stake in Theranos, give up control of the company and pay a sum of $500,000. She’s also been given a 10-year ban on working at public companies.
One SEC official said the Theranos story should be seen as "an important lesson for Silicon Valley".
"Innovators who seek to revolutionise and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday," said Jina Choi, director of the SEC’s San Francisco regional office.
And what of Elizabeth Holmes? It’s fair to say that she's been keeping a low profile. Her personal Twitter account (pictured above) has not been updated since December 2015, while Theranos last posted in January 2018.What's clear is that that old adage 'if it sounds too good to be true, it probably is' has never rung more true but the fact that actress Jennifer Lawrence is reported to be set to star as Holmes in a new film about Theranos means this story is not going away.