Theranos, founded by Elizabeth Holmes, had a valuation of over $9 billion. Investors rushed to get in on her company’s breakthrough blood-testing technology. Holmes’ Edison machine claimed to detect chronic diseases from cancer to liver dysfunction – through drops of blood from a finger prick. The idea was promising and seemed like the next big thing in healthcare. Even people like Henry Kissinger and George Schultz got on board.
There was just one problem. The machines weren’t producing accurate results, and the company knew it. Under instruction from Holmes and other leaders, the company covered it up by diluting blood samples and conducting traditional tests instead of on the Edison machine. When word finally got out, many investors withdrew their support for Holmes.
Holmes’ verdict suggests that investors should be more vigilant about their portfolio companies. But no one is willing to slow down. Experts say it’s about demand and supply. There’s a lot of VC money to go around and the same number of companies. Forget careful due diligence – the priorities for most investors are sped-up timelines.
Meanwhile, the Theranos scandal could disproportionately affect startup founders who are women – particularly those in health tech. The focus of due diligence (if any) is increasingly on a startup founder’s gender. Companies must be held to higher standards, of course. But those standards should be universal to all founders.
The lessons from Theranos appear lost on the VC world. But life may get harder for female leaders everywhere – the chance for increased sexism, discrimination, and pointless questions about their leadership only threatens to grow.