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Elizabeth Holmes, the chief executive officer and founder of Theranos, a health care technology company, listens as Deputy Secretary of Defense Ash Carter speaks at Stanford University in Palo Alto, Calif., April 17, 2013. (DoD photo by Glenn Fawcett/Released)
Elizabeth Holmes, CEO and founder of Theranos, in 2013. (DoD Photo / Glenn Fawcett)

It’s probably one of the most salacious stories to ever emerge from Silicon Valley. Unicorn startup Theranos, once valued at over $9 billion and seen as the hottest thing going, came tumbling down when founder Elizabeth Holmes was outed for defrauding investors and selling a medical device that doesn’t work.

The Wall Street Journal investigative reporter John Carreyrou broke the Theranos scandal with this report in 2015. Theranos claimed that it would revolutionize the medical industry with its tiny pin-prick blood tests covering a large span of conditions.

In reality, the company didn’t even have a product that worked and was faking test results. It seems unthinkable, but Theranos and Holmes got away with the lying to investors, to companies like Walgreens and Safeway that signed on to feature the tech in their clinics, and to the general public for years.

Bad Blood: Secrets and Lies in a Silicon Valley Startup is an extension of Carreyrou’s initial reporting at the Journal. It’s a page-turner filled with office politics, power struggles, corruption, abuse, on and on, making this book a must-read and a cautionary tale of what not to do for startups.

The book is set to be a film starring Jennifer Lawrence as Holmes, directed by Adam McKay who brought us The Big Short on the 2007-08 financial crisis. I interviewed Carreyrou about the bestselling book during his public appearance at Elliott Bay Book Co. in Seattle on Saturday Oct. 13. Continue reading for highlights.

So it began when Elizabeth Holmes was at Stanford and had this idea for a medical device that would revolutionize healthcare, testing blood for every disease, but she has no medical background, or a prototype, or anything. How did you get involved?

John Carreyrou: The first time she came onto my radar was in late 2014 when I read the profile in The New Yorker, and there were a couple of things that struck me as odd. One was definitely this notion that she dropped out at 19 with no medical or science training to speak of, and had gone on to break ground in scientific research that would revolutionize medicine.

There’s this troupe who drop out of school and start companies, like Bill Gates and Mark Zuckerberg who, according to legend, at 10 taught himself to code on his dad’s computer. That’s feasible. With coding you can follow manuals and teach yourself a program, but that generally doesn’t work for medicine. You don’t teach yourself medicine in the basement of your parents’ house.

My intuition told me there was something strange going on. I may not have done anything about it unless I’d gotten a tip a few weeks later.

From a blogger who noticed some discrepancies and said, ‘This seems fake.’

A pathologist in the Midwest moonlighted as writer for his pathology blog. He read the same New Yorker story and knowing a thing or two about blood tests was immediately skeptical that she could write so many blood tests off such a tiny sample.

Author John Carreyrou. (Michael Lionstar Photo)

He was contacted by Richard Fuisz, a colorful character, who had once been Elizabeth’s neighbor of her parents in D.C. In a crazy twist, Fuisz had filed a patent after Elizabeth founded Theranos, and she had taken umbrage at this patent and sued him, so they had battled it out in court over this patent for three years. Fuisz, who is a doctor, medical inventor and entrepreneur, was convinced Theranos was a scam. He saw the article because he’d been obsessively following Theranos, and he told the blogger, “You’re on to something. You have to keep digging.”

You interviewed 150 people, including 60 employees. The story is built by telling it from the employees’ point of view.

Holmes was not going to play ball. I tried to interview her for six months before my first investigative piece was done in the Journal. She would talk to every other reporter, but not to me. When I went on book leave in 2016, I still was trying to interview her, and she wouldn’t even talk to me.

I had to figure out how to tell the story. I decided to triangulate with all the employees. I didn’t want to rehash the Journal articles about the downfall of Theranos, so I decided that I would go back and interview all the employees, including at the beginning of the company’s life, and use them to construct each chapter.

It also helped show the company’s brutal culture.

The prologue is a scene in November 2006, Theranos is barely 2 years old, and Elizabeth is 21. The CFO finds out that the product demonstrations are being faked, and he confronts her and tries to make her realize that this is tantamount to securities fraud, and she fires him on the spot. The point of that is that the unethical behavior and corner-cutting started very early.

Specifically, they went live in 2013 in Walgreens with these finger tests that were supposedly innovative, but they were hacked together by third-party analyzers. The blood tests were completely unreliable, and they were putting public health in jeopardy. That’s when it crossed into criminal fraud.

She fooled a lot of intelligent people, not only Walgreens and Safeway: Larry Ellison and Rupert Murdoch were investors, and Henry Kissinger and George Schultz were on her board.

There were two types of investors, those who came in early on in the first two years, who include Larry Ellison and Tim Draper. They were not defrauded. They invested in a startup that was 1 or 2 years old. They knew what the odds are, and the odds of success are very low.

The ones defrauded came late in the game and actually poured in most of the money. She raised most of the money, about $715 million of the billion dollars, in 2014 and 2015. The reason those investors, which included Murdoch, who is the controlling shareholder of my newspaper, and Betsy DeVos, Mexican mogul Carlos Slim, members of the Walton family; the reason they all put money in is because CEO Sunny Balwani and Elizabeth solicited them with the idea that in the last 10 years they’d succeeded in implementing Elizabeth’s vision, and the proof was that they’d gone live in Walgreens with a product.

In that late round, they should have done due diligence and didn’t, but assumed that Walgreens wouldn’t be exposing its customers to danger. They were wronged because Walgreens didn’t do its due diligence either. Apparently, this thing guides decisions in business, the “fear of missing out.” Walgreens feared if they ended the partnership, Theranos would turn around and do a deal with CVS, their arch rival.

Let’s talk about the appeal of Holmes. She is a very interesting person, and it helped sway people to her side.

She is very, very smart and very charismatic. She also has this contrived persona. By 12 years in, late 2013 and early 2014, when she started gracing magazine covers, she wore black turtlenecks because Steve Jobs was her idol. She had lowered her voice artificially. If you go to YouTube and see her interviews, she has this very strange, deep voice, and she has these big blue eyes. I’ve seen clips and I’m amazed at how long she can keep them open without blinking, like Kaa in The Jungle Book.

I think gender definitely played a role here. There is a pattern in the Theranos story, that one-by-one she won the backing of these men, generally older men. … It’s an open question to me whether she would have as successfully rallied this support if she’d been a young man.

And it was not all her doing. By 2014, there was this great appetite to see a woman succeed like all these other men had: Steve Jobs, Larry Ellison, Bill Gates, Larry Page and Sergey Brin, Mark Zuckerberg. All of sudden, you had this woman who was going to be the first tech woman billionaire founder. It made it difficult for me when these first stories were coming out. A lot of people were really disappointed letting go of the dream.

I noticed there wasn’t one woman on a high level she had fooled, right?

She had no women on her board, she was the only one, and she hadn’t brought up any women in the company. Anyone who had power in the company was a man. At the end of her period of fame, she had framed herself as a role model for young women in the sciences, and really that was just lip service. That was an act, because when you look at her actions, she hadn’t brought up any women with her.

This story also speaks to FOMO in Silicon Valley, people looking for that female founder and next big fish. Everyone wants to be on board for the next Slack, the next Uber.

I saw (the) last tech boom in the late ’90s, and when that bubble popped and the stock market came crashing down. One of them survived, Amazon; you might have heard of it? But I have a feeling we are still in the midst of this second bubble, and it hasn’t really deflated yet.

I think there is a lot more skeptical coverage now of Silicon Valley since the Theranos scandal was exposed. Some have gotten bad press, I’m thinking Facebook for its role and the way it was exploited in (the) election, but I’m in New York and I go to the Bay Area several times a year, and I’m still stunned every time I go that this bubble is still going, and people are still drinking the Kool-Aid, and these companies are reaching crazy valuations.

One of the things that contributed to making Elizabeth Holmes possible is this myth of the all-knowing, all-seeing startup founder. I think, unfortunately, we have Steve Jobs to blame for it. He’s become such a lion of American capitalism in Silicon Valley, that that ecosystem has come to accept that there are these geniuses, and they come along every few years, and they can see around corners and that they’re infallible. As a result, I think Elizabeth’s story, which was a false narrative, was swallowed up hook, line and sinker because of the acceptance of this myth of the brilliant tech founder.

She settled a civil suit with the SEC and there is a criminal case ongoing.

Three weeks after the book published, the Justice Department filed criminal charges against Elizabeth and Sunny, wire fraud and conspiracy to commit wire fraud. From what I hear, and I’m still in touch with sources, she is planning to fight this and not strike a plea deal.

Her argument is that this wasn’t fraud, this was just another startup that failed, and it got a lot of press because she was a woman, and there was nothing else different from other Silicon Valley companies that fake it until they make it. Theranos never made it, and she never sold her shares, so how could this be a fraud if she didn’t enrich herself? These will be the main arguments her defense will make. We’ll see if they make any headway with the jury.

I personally think that the government has amassed so much evidence that they will get a conviction, and my prediction is that she will end up in prison.

Bad Blood: Secrets and Lies in a Silicon Valley Startup is available now.

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