Someone with a PhD in microbiology explained to me (a layman) why what Theranos was claiming to do was impossible. She said you cannot test only a single drop of blood for certain things because what you are looking for literally may not be there. You need a full vial of blood to have a reliable chance of finding many things.
1. Is this simple but clear explanation basically correct?
2. If so, how could Theranos hoodwink investors for so long when possibly *millions* of well-educated people around the world knew that what they were claiming to do made no sense?
In: Biology
Yes, for many things they were claiming to test, the amount of analyte in a drop of blood isessentially zero.
There are many reasons investor fell for it, probably the simplest/most obvious is FoMO/social proof: once a startup raises some money, it’s easier to raise more money, because new investors assume the old ones did their due diligence. Also, Elizabeth Holmes courted high-profile board members like Henry Kissinger, who made her seem credible (even though they weren’t bio/tech people).
A few other explanations:
1. Tech investors are often not tech experts, and many of their investments are *supposed* to be technically difficult and risky. As it turns out, many successful startups were build on ideas then considered technically difficult/impossible, investors are looking for that high-risk/high-reward startup that will become a unicorn. So “techincally risky” and “physically impossible” to an investor who is looking at dozens of deals at a time sound pretty similar. Also, many in the tech world have the attitude that most problems are solvable if you throw enough money at them. Theranos raised $700 million dollars–so even if they hadn’t figured it out, it’s easy to see why people might believe that they could.
2. Many investors in Theranos were not “traditional” Silicon Valley investors with track records of biotech/tech success; many were private investors who were not experienced in the space: the Walton family, Betsy DeVos and Rupert Murdoch account for half the money in. AFAIK, the most reputable SV investors were Tim Draper, who wrote an early check because he was a family friend, and Larry Ellison.
3. Theranos had that big deal with Walgreen’s and was working with the US military, so people assumed that their technology worked, because they were selling it and generating revenue with it. Of course, it turns out that they were serving Walgreens in a fraudulent way–but that was being covered up–and that Holmes was lying about the military contracts–but that’s an easy lie to believe when George Shultz is on your BoD.
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