In the past, stock bubbles have usually been popped by flagrant misdoings or scandals. Worldcom and Enron downed the dot-com bubble and Lehman Brothers and AIG kicked off the global financial crisis in 2008. The latter, of course, was more than an accounting scandal. It was a result of the realization that financial instruments and consumer debt had changed beyond the control of regulators and financial markets. Theranos, the choice corporate evil in Bad Blood, seems now like it should have triggered a similar reckoning in the venture capital and startup world.
For a while, Theranos was one of the most valuable private companies in the world and Elizabeth Holmes, it's founder and CEO, one of the youngest self-made billionaires. After a series of classic investigative pieces in the Wall Street Journal, Theranos quickly unravelled and suffered a massive public humiliation. Its value dropped to nothing, as did its founder's. John Carreyrou, the journalist behind the reveal, wrote Bad Blood as a bookend to the story, a final testament to the absurdity and con-artistry of the company and it's backers.
Theranos made its name by claiming to have solved a key problem in medicine: the use of venipuncture needles. It's technology could supposedly run hundreds of blood tests on a pinprick sample from the tip of a finger. The promise was substantial but the product was terrible. Theranos ran almost all of its tests on the conventional laboratory equipment it had bought from competitors and never settled on what it's business model or product actually was. Yet, with the support of the prominent individuals on its board, it was able to raise hundreds of millions of dollars of financing with a valuation of 9 billion dollars. The scale of the fraud is staggering and it still strikes me as nuts. How were Holmes and her paramour-COO Sunny able to project revenues that were so obviously non-existent? Why didn't investors do the basic due diligence of checking up on the "deals" the company claimed it had made?
Holmes herself is the key element in this mystery. Initial stories indicated her charisma as the reason she was able to pull it off. Carreyrou shows that this is only the first part. Her parents, rich and well connected, were able to support her claims by making connections and possibly pulling strings. To make things even more ridiculous, her father was a vice president at Enron when the company went bankrupt. That detail would be too on-the-nose if it was fiction, but alas it is not.
Bad Blood accidentally showcases the general decay of the American corporate system. A company built on the back of inherited wealth and power makes its way to the top of Silicon Valley by faking it without ever making it. Theranos' only successes - it's deal with Walgreens - can be attributed to a health care system that puts emphasis on revenue generation and not patient health. Its pitch - a disruption of laboratory testing - was nowhere near realistic. As the secrets were spilling, Theranos hired the most expensive lawyers to harass and discredit potential whistleblowers.
To get back to my initial thought, the question of a startup bubble seems more pressing today than it did when Theranos failed. Uber, Lyft, Impossible Foods and other venture capital companies have gone public with grossly inflated valuations that are nearly impossible to justify. Uber seems especially unlikely to be worth this much in a few years. It's businesses are unprofitable despite slowing growth (a Silicon Valley anathema) and the company has not been successful in building the kind of "moat" that it promised investors even a few years ago. Theranos should have been the scandal that killed these kinds of valuations, but it didn't, so we might need to wait a few more years for the end of this bubbly era.
For a while, Theranos was one of the most valuable private companies in the world and Elizabeth Holmes, it's founder and CEO, one of the youngest self-made billionaires. After a series of classic investigative pieces in the Wall Street Journal, Theranos quickly unravelled and suffered a massive public humiliation. Its value dropped to nothing, as did its founder's. John Carreyrou, the journalist behind the reveal, wrote Bad Blood as a bookend to the story, a final testament to the absurdity and con-artistry of the company and it's backers.
Theranos made its name by claiming to have solved a key problem in medicine: the use of venipuncture needles. It's technology could supposedly run hundreds of blood tests on a pinprick sample from the tip of a finger. The promise was substantial but the product was terrible. Theranos ran almost all of its tests on the conventional laboratory equipment it had bought from competitors and never settled on what it's business model or product actually was. Yet, with the support of the prominent individuals on its board, it was able to raise hundreds of millions of dollars of financing with a valuation of 9 billion dollars. The scale of the fraud is staggering and it still strikes me as nuts. How were Holmes and her paramour-COO Sunny able to project revenues that were so obviously non-existent? Why didn't investors do the basic due diligence of checking up on the "deals" the company claimed it had made?
Holmes herself is the key element in this mystery. Initial stories indicated her charisma as the reason she was able to pull it off. Carreyrou shows that this is only the first part. Her parents, rich and well connected, were able to support her claims by making connections and possibly pulling strings. To make things even more ridiculous, her father was a vice president at Enron when the company went bankrupt. That detail would be too on-the-nose if it was fiction, but alas it is not.
Bad Blood accidentally showcases the general decay of the American corporate system. A company built on the back of inherited wealth and power makes its way to the top of Silicon Valley by faking it without ever making it. Theranos' only successes - it's deal with Walgreens - can be attributed to a health care system that puts emphasis on revenue generation and not patient health. Its pitch - a disruption of laboratory testing - was nowhere near realistic. As the secrets were spilling, Theranos hired the most expensive lawyers to harass and discredit potential whistleblowers.
To get back to my initial thought, the question of a startup bubble seems more pressing today than it did when Theranos failed. Uber, Lyft, Impossible Foods and other venture capital companies have gone public with grossly inflated valuations that are nearly impossible to justify. Uber seems especially unlikely to be worth this much in a few years. It's businesses are unprofitable despite slowing growth (a Silicon Valley anathema) and the company has not been successful in building the kind of "moat" that it promised investors even a few years ago. Theranos should have been the scandal that killed these kinds of valuations, but it didn't, so we might need to wait a few more years for the end of this bubbly era.