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Question: could Holmes have avoided all of this by pivoting to something else and not losing investors money. It is extremely common for startups to exaggerate

Question: could Holmes have avoided all of this by pivoting to something else and not losing investors money. It is extremely common for startups to exaggerate their tech just to later pivot to something else without any repercussions.

ShamelessC 5y ago
If you have to ask yourself questions like these (as a founder) - you may very well end up in jail one day.
deleted 5y ago
[deleted]
neom 5y ago
I followed the case very closely, read the transcripts I could find daily etc. What Elizabeth did wasn't far from what many many many founders do. This was held to a legal standard, sure, but let's be real here... since when was the legal standard the SV standard? Is SV really the bastion of morality and legal ethics? Is that the new norm, good behaviour? Notably some investors refused to participate and iirc Draper basically said she flew too close to the sun, but it wasn't fraud. I'm sure it's going to be an unpopular opinion but personally if this is the new standard, the SEC should have a pretty long list of founders to try at this standard. The saddest thing of it all to me is that she was onto something, people are having success with her ideas today. She should have just not gone to market, she should have just quietly refined the tech behind the scenes, but as I said, she flew too close to the sun. Tesla and uber have literally killed people.
- miohtama 5y ago
  "Scaling too fast" has definitely a better vibe to it than "found guilty" :)
- dopamean 5y ago
  > What Elizabeth did wasn't far from what many many many founders do I'm not sure this is true. She told a lot of egregious lies to investors while trying to get money from them. She repeated those lies in the press and to anyone who questioned it. And I don't mean a lie like lying that your product is more effective than it is. I mean she told prospective investors about huge contracts with the defense department that did not exist. She told investors that her machines were being use in the battle field. These were lies that were never going to be true.
  - neom 5y ago
    That's not what she said at all. At least not from the near daily coverage and transcripts I watched[1][2][3][4] She said it was being trialed by the military, in reality what had happened was Mattis said he would be able to introduce the technology to the military. This type of "abstraction" is in very many pitches I've read over the years. [1]https://www.youtube.com/c/LawyerYouKnow https://www.youtube.com/c/LawyerYouKnow [2]https://www.youtube.com/channel/UCOShJ_GPEegXscrlKWfpwCA https://www.youtube.com/channel/UCOShJ_GPEegXscrlKWfpwCA [3]https://www.youtube.com/channel/UCiWXvA_5bzvOFdbS353Ll-Q https://www.youtube.com/channel/UCiWXvA_5bzvOFdbS353Ll-Q [4]https://www.youtube.com/channel/UCwCqasesYi60fSrOjlUSNzg https://www.youtube.com/channel/UCwCqasesYi60fSrOjlUSNzg
    - CRConrad 5y ago
      > This type of "abstraction" is in very many pitches I've read over the years. Nice of you to use quote marks... Because that's not at all what "abstraction" means.
    - PragmaticPulp 5y ago
      > She said it was being trialed by the military, in reality what had happened was Mattis said he would be able to introduce the technology to the military. This type of "abstraction" is in very many pitches I've read over the years. That's not an "abstraction". It's a lie, and therefore fraudulent. If you're seeing these sort of lies all over the place, you might be in a weird bubble. Startups are known for creative wordplay, but if you're straight up lying about something happening when it's not happening at all or even started, that's fraud.
      - neom 5y ago
        Feel free to add me on linkedin and share your deal flow! I'd genuinely love to see the startups you see and are invested in. When I was still in startups, I encountered more than one experience where various investors begged me to lie to them. In one instance because they wanted their IRR higher, and in another because they felt if a specific metric was inflated considerably more, it would be easier to execute something. I'm not kidding around either, that happened.
- kstrauser 5y ago
  > people are having success with her ideas today Citation needed. The whole concept has a critical flaw, as pointed out by her engineering staff and medical advisors: blood tests require a certain minimum volume of blood to work, and that's inescapable because blood components are discrete, not continuous. For example, a drop of blood is about .05mL, or about 1/20th of a milliliter. A common testing sample size in a normal lab is 3mL, or about 60x larger what Theranos claimed they could work with. Now, suppose you're testing for some cell that's may be present in concentrations of 10 per mL, or 1 per .1mL blood volume on average. In a conventional lab, then, you'd probably have about 30 of those in the 3mL sample. In a Theranos lab, even if it worked perfectly, you're equally likely to have either 0 or 1 present in the .05mL sample. In other words, you're 50% likely to get a false negative, even if the equipment is working perfectly, based purely on the tiny sample volume. By analogy, if you poll 100,000,000 Americans, you might get a pretty good idea of an election's result. If you poll 3, you have no idea, even if the poll is perfectly designed. Well, that's what Theranos was up against. NB: I'm not a lab tech, and the above is my understanding of it. That's my distillation of a lot of articles I read about Theranos, such as https://theconversation.com/the-rise-and-fall-of-theranos-so-many-lessons-in-a-drop-of-blood-57787 https://theconversation.com/the-rise-and-fall-of-theranos-so... .
  - megablast 5y ago
    No need to poll 100 million. 20,000 is pretty accurate.
    - kstrauser 5y ago
      OK, sure, but that doesn't change my point. You could run all of someone's blood through a scanner and then back into them to get a complete view, but a lab only samples a few mL of it.
    - dvhh 5y ago
      Usually your sample size would be a good indicator of the accuracy of your poll/test/experiment. Of course, like everything it could be biased by the used methodology.
  - 5y ago
- PragmaticPulp 5y ago
  > What Elizabeth did wasn't far from what many many many founders do. Hard disagree on that one. It's certainly not common nor acceptable to knowingly lie to investors like Holmes did. There is nothing normal or common about the type of fraud that Holmes perpetuated, despite attempts to downplay or normalize it. > I'm sure it's going to be an unpopular opinion but personally if this is the new standard, the SEC should have a pretty long list of founders to try at this standard. Can you name a single one? Or is this just cynical speculation? I've seen a lot of attempts to downplay Theranos' blatant fraud as an "everybody does it", but I haven't seen anyone calling out other companies who were caught committing fraud and everyone, including their investors, just shrugged it off. It's not normal.
  - neom 5y ago
    Of course I can name multiple, I've been involved in hundreds and hundreds and hundreds of millions of dollars in startups deals, I've spent over 15 years in the industry...
    - bern4444 5y ago
      Are you willing or can you share the names of some of these companies?
      - neom 5y ago
        No. I don't think what they did was wrong a), and, b) because it genuinely is prevalent. Maybe if the statue of limitations passed on some of the startups I've been involved in, I might consider it, but even then, doubtful.. It doesn't matter what was done, the startups were successful and the investors got paid back, so who is going to ask questions and why?
        CRConrad 5y ago
        Frankly, making an outrageous claim and then just blithely going "Nope, I'm not going to give even a single example" makes it sound like you are spouting just as much bullshit as Holmes did. Or alternatively, like you're just not understanding the difference between over-optimistic forecasts and claims of actual outcome. Which is it?
- hooande 5y ago
  No. It's one thing to say "My company is going to change the world" or "I am the best president of all time". It's different to repeatedly make a claim that is verifiably untrue, like "I have perfected cold fusion" or "I have a cure for all forms of cancer". The average startup founder doesn't do this, no sane person does this. > "The saddest thing of it all to me is that she was onto something, people are having success with her ideas today." This is a very poorly informed statement. Who bought the valuable IP that Theranos spent hundreds of millions of dollars developing? No one is "having success with her ideas" because the ideas didn't exist. That's why she's going to prison
  - hn_throwaway_99 5y ago
    Exactly. Many of her ideas are physically impossible because there is good evidence capillary blood isn't homogeneous enough to give accurate results for quantitative tests at the volumes Holmes was touting.
- lighttower 5y ago
  Underrated comment. The investors were investing in her because she was willing to take the risk of move fast and break things (where things in this case is the diagnostic accuracy of blood tests). She got nailed, ironically, not for hurting patients, but instead for harming the egos of the investors. As a participant in the startup investment world you are willing Participant of SUSPENSION OF DISBELIEF. This is roughly equivalent speak for REALITY DISTORTION FIELD. The point is you as an investor are a willing participant in believing that something more is possible than what has already been achieved. If you're a founder: you should be worried about being held to a legal standard of the representations and warranties. That section is in every share purchase agreement and it's the stuff that gets you sued. And sometimes, like in this case, it's WIRE FRAUD and it's criminal. Crazy. We need another section to replace REPS AND WARRANTIES.
  - neom 5y ago
    > We need another section to replace REPS AND WARRANTIES Ain't that the truth. Hand on heart: the number of decks I saw last year that have an INSANE 2 page legal disclaimer at the start AND finish of the deck is up ~90%, ninety percent. I knew people who used this as a signal of an inexperienced founder, over night it's the signal of an experienced founder.
- blackoil 5y ago
  Are there any public example of the claims you are making?
paxys 5y ago
A pivot wasn't necessary. She could have avoided it by recognizing when the writing was on the wall for the company and working towards a graceful shutdown rather than doubling and tripling down on their failures.
- mkl 5y ago
  That still would have cost investors most of their investment, and probably would have led to this same conspiracy and fraud outcome, since she lied to them to get their funding well before the company shut down. Maybe she could have afforded a bigger/better legal team that way though?
chansiky 5y ago
Based on what one of the engineers of edison were saying, if they could acquire more than a "drop of blood" for analysis, they would have been able to get more accurate results. You might be able to consider that a pivot, since she had been saying "drop of blood" the whole time. It was Holmes' unwavering attitude to imitate Steve Jobs that got in the way of her decisions, and I think more than a pivot of product, that a pivot away from this ideology could have saved Theranos. Willingness to give up on perfect design in order to acquire a working engineered product could have made a world of a difference.
bootlooped 5y ago
She did sort of try to pivot. https://www.wired.com/2016/08/theranos-chance-clear-name-instead-tried-pivot/ https://www.wired.com/2016/08/theranos-chance-clear-name-ins...

ShamelessC 5y ago

If you have to ask yourself questions like these (as a founder) - you may very well end up in jail one day.

deleted 5y ago

[deleted]

neom 5y ago

I followed the case very closely, read the transcripts I could find daily etc. What Elizabeth did wasn't far from what many many many founders do. This was held to a legal standard, sure, but let's be real here... since when was the legal standard the SV standard? Is SV really the bastion of morality and legal ethics? Is that the new norm, good behaviour? Notably some investors refused to participate and iirc Draper basically said she flew too close to the sun, but it wasn't fraud. I'm sure it's going to be an unpopular opinion but personally if this is the new standard, the SEC should have a pretty long list of founders to try at this standard. The saddest thing of it all to me is that she was onto something, people are having success with her ideas today. She should have just not gone to market, she should have just quietly refined the tech behind the scenes, but as I said, she flew too close to the sun. Tesla and uber have literally killed people.

miohtama 5y ago
"Scaling too fast" has definitely a better vibe to it than "found guilty" :)
dopamean 5y ago
> What Elizabeth did wasn't far from what many many many founders do I'm not sure this is true. She told a lot of egregious lies to investors while trying to get money from them. She repeated those lies in the press and to anyone who questioned it. And I don't mean a lie like lying that your product is more effective than it is. I mean she told prospective investors about huge contracts with the defense department that did not exist. She told investors that her machines were being use in the battle field. These were lies that were never going to be true.
- neom 5y ago
  That's not what she said at all. At least not from the near daily coverage and transcripts I watched[1][2][3][4] She said it was being trialed by the military, in reality what had happened was Mattis said he would be able to introduce the technology to the military. This type of "abstraction" is in very many pitches I've read over the years. [1]https://www.youtube.com/c/LawyerYouKnow https://www.youtube.com/c/LawyerYouKnow [2]https://www.youtube.com/channel/UCOShJ_GPEegXscrlKWfpwCA https://www.youtube.com/channel/UCOShJ_GPEegXscrlKWfpwCA [3]https://www.youtube.com/channel/UCiWXvA_5bzvOFdbS353Ll-Q https://www.youtube.com/channel/UCiWXvA_5bzvOFdbS353Ll-Q [4]https://www.youtube.com/channel/UCwCqasesYi60fSrOjlUSNzg https://www.youtube.com/channel/UCwCqasesYi60fSrOjlUSNzg
  - CRConrad 5y ago
    > This type of "abstraction" is in very many pitches I've read over the years. Nice of you to use quote marks... Because that's not at all what "abstraction" means.
  - PragmaticPulp 5y ago
    > She said it was being trialed by the military, in reality what had happened was Mattis said he would be able to introduce the technology to the military. This type of "abstraction" is in very many pitches I've read over the years. That's not an "abstraction". It's a lie, and therefore fraudulent. If you're seeing these sort of lies all over the place, you might be in a weird bubble. Startups are known for creative wordplay, but if you're straight up lying about something happening when it's not happening at all or even started, that's fraud.
    - neom 5y ago
      Feel free to add me on linkedin and share your deal flow! I'd genuinely love to see the startups you see and are invested in. When I was still in startups, I encountered more than one experience where various investors begged me to lie to them. In one instance because they wanted their IRR higher, and in another because they felt if a specific metric was inflated considerably more, it would be easier to execute something. I'm not kidding around either, that happened.
kstrauser 5y ago
> people are having success with her ideas today Citation needed. The whole concept has a critical flaw, as pointed out by her engineering staff and medical advisors: blood tests require a certain minimum volume of blood to work, and that's inescapable because blood components are discrete, not continuous. For example, a drop of blood is about .05mL, or about 1/20th of a milliliter. A common testing sample size in a normal lab is 3mL, or about 60x larger what Theranos claimed they could work with. Now, suppose you're testing for some cell that's may be present in concentrations of 10 per mL, or 1 per .1mL blood volume on average. In a conventional lab, then, you'd probably have about 30 of those in the 3mL sample. In a Theranos lab, even if it worked perfectly, you're equally likely to have either 0 or 1 present in the .05mL sample. In other words, you're 50% likely to get a false negative, even if the equipment is working perfectly, based purely on the tiny sample volume. By analogy, if you poll 100,000,000 Americans, you might get a pretty good idea of an election's result. If you poll 3, you have no idea, even if the poll is perfectly designed. Well, that's what Theranos was up against. NB: I'm not a lab tech, and the above is my understanding of it. That's my distillation of a lot of articles I read about Theranos, such as https://theconversation.com/the-rise-and-fall-of-theranos-so-many-lessons-in-a-drop-of-blood-57787 https://theconversation.com/the-rise-and-fall-of-theranos-so... .
- megablast 5y ago
  No need to poll 100 million. 20,000 is pretty accurate.
  - kstrauser 5y ago
    OK, sure, but that doesn't change my point. You could run all of someone's blood through a scanner and then back into them to get a complete view, but a lab only samples a few mL of it.
  - dvhh 5y ago
    Usually your sample size would be a good indicator of the accuracy of your poll/test/experiment. Of course, like everything it could be biased by the used methodology.
- 5y ago
PragmaticPulp 5y ago
> What Elizabeth did wasn't far from what many many many founders do. Hard disagree on that one. It's certainly not common nor acceptable to knowingly lie to investors like Holmes did. There is nothing normal or common about the type of fraud that Holmes perpetuated, despite attempts to downplay or normalize it. > I'm sure it's going to be an unpopular opinion but personally if this is the new standard, the SEC should have a pretty long list of founders to try at this standard. Can you name a single one? Or is this just cynical speculation? I've seen a lot of attempts to downplay Theranos' blatant fraud as an "everybody does it", but I haven't seen anyone calling out other companies who were caught committing fraud and everyone, including their investors, just shrugged it off. It's not normal.
- neom 5y ago
  Of course I can name multiple, I've been involved in hundreds and hundreds and hundreds of millions of dollars in startups deals, I've spent over 15 years in the industry...
  - bern4444 5y ago
    Are you willing or can you share the names of some of these companies?
    - neom 5y ago
      No. I don't think what they did was wrong a), and, b) because it genuinely is prevalent. Maybe if the statue of limitations passed on some of the startups I've been involved in, I might consider it, but even then, doubtful.. It doesn't matter what was done, the startups were successful and the investors got paid back, so who is going to ask questions and why?
      - CRConrad 5y ago
        Frankly, making an outrageous claim and then just blithely going "Nope, I'm not going to give even a single example" makes it sound like you are spouting just as much bullshit as Holmes did. Or alternatively, like you're just not understanding the difference between over-optimistic forecasts and claims of actual outcome. Which is it?
hooande 5y ago
No. It's one thing to say "My company is going to change the world" or "I am the best president of all time". It's different to repeatedly make a claim that is verifiably untrue, like "I have perfected cold fusion" or "I have a cure for all forms of cancer". The average startup founder doesn't do this, no sane person does this. > "The saddest thing of it all to me is that she was onto something, people are having success with her ideas today." This is a very poorly informed statement. Who bought the valuable IP that Theranos spent hundreds of millions of dollars developing? No one is "having success with her ideas" because the ideas didn't exist. That's why she's going to prison
- hn_throwaway_99 5y ago
  Exactly. Many of her ideas are physically impossible because there is good evidence capillary blood isn't homogeneous enough to give accurate results for quantitative tests at the volumes Holmes was touting.
lighttower 5y ago
Underrated comment. The investors were investing in her because she was willing to take the risk of move fast and break things (where things in this case is the diagnostic accuracy of blood tests). She got nailed, ironically, not for hurting patients, but instead for harming the egos of the investors. As a participant in the startup investment world you are willing Participant of SUSPENSION OF DISBELIEF. This is roughly equivalent speak for REALITY DISTORTION FIELD. The point is you as an investor are a willing participant in believing that something more is possible than what has already been achieved. If you're a founder: you should be worried about being held to a legal standard of the representations and warranties. That section is in every share purchase agreement and it's the stuff that gets you sued. And sometimes, like in this case, it's WIRE FRAUD and it's criminal. Crazy. We need another section to replace REPS AND WARRANTIES.
- neom 5y ago
  > We need another section to replace REPS AND WARRANTIES Ain't that the truth. Hand on heart: the number of decks I saw last year that have an INSANE 2 page legal disclaimer at the start AND finish of the deck is up ~90%, ninety percent. I knew people who used this as a signal of an inexperienced founder, over night it's the signal of an experienced founder.
blackoil 5y ago
Are there any public example of the claims you are making?

paxys 5y ago

A pivot wasn't necessary. She could have avoided it by recognizing when the writing was on the wall for the company and working towards a graceful shutdown rather than doubling and tripling down on their failures.

mkl 5y ago
That still would have cost investors most of their investment, and probably would have led to this same conspiracy and fraud outcome, since she lied to them to get their funding well before the company shut down. Maybe she could have afforded a bigger/better legal team that way though?

chansiky 5y ago

Based on what one of the engineers of edison were saying, if they could acquire more than a "drop of blood" for analysis, they would have been able to get more accurate results. You might be able to consider that a pivot, since she had been saying "drop of blood" the whole time. It was Holmes' unwavering attitude to imitate Steve Jobs that got in the way of her decisions, and I think more than a pivot of product, that a pivot away from this ideology could have saved Theranos. Willingness to give up on perfect design in order to acquire a working engineered product could have made a world of a difference.

bootlooped 5y ago

She did sort of try to pivot. https://www.wired.com/2016/08/theranos-chance-clear-name-instead-tried-pivot/ https://www.wired.com/2016/08/theranos-chance-clear-name-ins...