The lesson of Theranos and the conviction of Elizabeth Holmes is that even big-name investors can be fooled.
The first investments beget further investments in what may appear to be the next big thing, as firms pile in out of FOMO — “fear of missing out.” Sober judgments about the technology underlying entrepreneurs’ promises? Don’t expect them.
Starting as long ago as the 1930s with the founding of Hewlett-Packard, but especially from the 1970s through the 1990s. That system worked to foster explosive growth and the creation of many of the signature companies of high technology — Intel, Apple and Google among them. How has that worked out? Uber lost $8.5 billion on $13 billion in revenue in the pre-pandemic year of 2019, and lost $1.5 billion on $11.7 billion in revenue in the first nine months of 2021, and still hasn’t shown that it has a path to profitability.
The first journalists to publicize Theranos in 2013 and 2014 made the fundamental error of taking Holmes at her own level of self-esteem.that “Theranos’s technology is automated, standardized, and attempts to subtract human error from the process,” which “means catching disease in its earliest stages before the onset of symptoms.”
Meanwhile, the investment ecosystem had been running at full speed. Among the very first to sign on was former Secretary of State George Shultz, who met Holmes while he was a fellow at the conservative Hoover Institution on the Stanford campus.