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Will Silicon Valley finally change after the Elizabeth Holmes verdict?

January 4, 2022, 4:35 PM UTC

After a four-month-long trial, Elizabeth Holmes of the now-defunct blood testing startup Theranos has been found guilty of four counts of fraud. It’s a verdict that carries enormous weight in the venture capital industry: Startups and founders are rarely held to legal account for stepping out of line.

Holmes had pleaded not guilty in the case, but here’s where the jury ultimately landed:

  • Guilty of conspiracy to commit wire fraud against Theranos investors and guilty of three counts of wire fraud against Theranos investors
  • Not guilty of three counts of wire fraud against patients and a charge for conspiracy to commit wire fraud against patients
  • No verdict on three counts of wire fraud against Theranos investors

Theranos’ Chief Operating Officer, and Holmes’ ex-boyfriend, Ramesh Balwani—known as Sunny—will stand trial beginning in February. He has also pleaded not guilty.

What that means for Holmes

Holmes is facing up to 20 years in prison and a $3 million fine, though it’s unlikely she’ll be beyond bars for long, writes my colleague Nicole Goodkind. If Holmes chooses to appeal, she may not be going to prison for another 18 months, after which she would likely be sent to a low-security prison. Her celebrity status could significantly influence her experience there.

Has anything changed?

It’s hard to understate the impact of the Theranos indictment and trial. This has been an extraordinarily high-profile case: There were 275 funds, trusts, individuals, employees, and others that owned shares in Theranos, and the startup had garnered nearly $1 billion in funding. That cash poured in from the likes of venture capitalists Tim Draper, Donald Lucas, and Dixon Doll as well as investors Betsy DeVos, Rupert Murdoch, and the Walton family. It had a star-studded board, including former Secretary of Defense Bill Perry, former Secretary of State and National Security Adviser Henry Kissinger, retired U.S. Marine Corp Gen. James Mattis, and former Wells Fargo CEO and chairman Dick Kovacevich, among others. 

Some investors originally stood by Holmes even after Wall Street Journal reporter John Carreyrou’s investigation raised damning questions over test accuracy and revealed the company wasn’t using proprietary technology for most of its testing. Draper has publicly stood by Holmes much longer.

Here’s a dark line in a New York Times analysis this morning, written by Erin Griffith, a former Term Sheet Editor:

“No industry wants to be judged only by its worst actors. And many venture capitalists who heard Ms. Holmes’s impossibly lofty claims didn’t fall for them. But if anyone in Silicon Valley was suspicious of her proclamations, none spoke publicly about it until after things went south.”

While Holmes’ verdict may stand out as unusual and extreme, what lies at the heart of the case might not be: Charismatic founders who exaggerate, mislead, or outright lie about the data, alongside an embrace of a fake-it-till-you-make-it mentality that can have dire consequences, have long held their place in Silicon Valley.

You can point to a slew of former, and more recent examples, of founders stretching the truth, misleading investors, or worse: Hampton Creek, WeWork, and Ozy Media, to name a few.

One thing that really does set Theranos apart was its position in the healthcare industry. This wasn’t a beta software experiment—it was people’s medical results. It was diagnoses. 

Parting thoughts

Yesterday served as a stark reminder for Silicon Valley, but it’s also one for journalists: Our work can give a loud voice, and unwarranted authority. It’s not just investors who contributed to the rise of Theranos.

There can be a tough price when we don’t manage to unearth the questions we should be asking. It seems to often be the everyday person, and most vulnerable, who ultimately pay that price. 

Some words of wisdom from Mark DiSalvo, CEO of Semaphore, whose firm works to replace bad actor general partners who commit fraud:

‘’Diligence, diligence, diligence. Know that thieves come in all shapes and sizes and it is the character of people that is the core to every business judgment.’’

If you’re a venture capitalist and want to share your thoughts on the Theranos trial, send me a note.

Until tomorrow,

Jessica Mathews
Twitter: @jessicakmathews


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