Los Angeles Times Festival of Books. John Carreyrou, Author of “Bad Blood: Secrets and Lies in a Silicon Valley Startup.”

I went to the LA Times Festival of Books (April 13-14). I'll be posting my notes on the various panel discussions I attended.

The third panel discussion I attended was "John Carreyrou, Author of Bad Blood: Secrets and Lies in a Silicon Valley Startup.."

Here is an edited panelist biography via the LA Times website.

John Carreyrou is a two-time Pulitzer Prize-winning investigative reporter at The Wall Street Journal. For his extensive coverage of Theranos, Carreyrou was awarded the George Polk Award for Financial Reporting, the Gerald Loeb Award for Distinguished Business and Financial Journalism in the category of beat reporting, and the Barlett & Steele Silver Award for Investigative Business Journalism.

And the following are my notes from the panel discussion: 

Elizabeth Holmes left Stanford during her sophomore year. She wanted to build a medical device. She also wanted to be like Steve Jobs. She created Theranos. The goal was to invent a bracelet that would have needles that would diagnose your diseases and then give you the necessary medication. This was very Sci-Fi and when they finally gave up on that idea, they shifted to doing blood tests. In the end, it was never ready and that’s where it all became a lie.



Holmes raised money based on this innovative idea. There is an obvious convenience to giving a small amount of blood and having the results beamed to a physician to catch diseases at the start. She wasn’t a Bernie Madoff type. She didn’t drop out of Stanford to con people. She wanted to be a founder/entrepreneur.

She started to lie to investors. When Theranos’ first CFO realized that their demos were fake, he told her they were committing security fraud. She fired him right there. She felt they were doing something to save lives and that you had to fake it until you made it.

She was able to get support from well known names via reputation laundering. She first got support from her professors. She flipped that support into getting support from venture capitalists. From there, she was able to get prestigious individuals onto her board. Her board members were actually a red flag as none of them knew anything about medicine. Yet, others felt this was a real company, because those individuals were on the board.

Her board members might have also had money signs in their eyes. Briefly, Theranos had a valuation of $9 billion, which at the time made it more valuable than Airbnb, Uber, etc.

There was also a yearning for a female founder (2014 - 2015). At one point she was worth $5 billion. She was able to trade on her gender (this is a sensitive topic since the #metoo era). She targeted older men and never women (other than a female professor at the beginning who wouldn't support her efforts). Maybe she avoided women, because she felt they would figure her out.

Not all investors provided capital without doing research first, but this is where the fraud happened. Some investors went in for blood tests, but were given fake test results. Very few within the company knew of the fraud. Employees were in silos. She also fire people who disagreed with her. It was a toxic culture.

The inflection point occurred in the fall of 2013. She was under pressure to deliver on her Walgreen partnership. At that time, the company had already lost Safeway. She decided to go live even though the demos weren’t working. She could have ended the partnership and said they were going to continue more R&D.

The results were disastrous. They had to toss all test results. They had done 13 million blood tests.

One side story is that of George Shultz’s grandson, Tyler. He tried to tell his grandfather that Holmes was running a scam. Tyler left the company in 2014. In 2015, Tyler heard about Carreyrou and contacted him. Tyler was nervous about talking to the reporter. He used a burner phone and a separate email. He was still identified as a leak and was harassed by lawyers and had to go radio silent. The lawyers acted like thugs and his parents had to spend $500K to defend him. Other confidential sources were also targeted.

Holmes shows no signs of being impacted by this meltdown of her company.