Note: This essay was written as a final paper for a business journalism class I took at Yale in Fall ’17. Any errors and omissions are regretted and can be attributed to a majority of this paper being written in a sleep-deprived state during finals week.
Silicon Valley needs its icons. Steve Jobs, Jeff Bezos, Mark Zuckerberg, Elon Musk — stars of the tech industry who have inspired trust, admiration and occasional trepidation. They have brought millions of dollars of investments into the sector and motivated thousands of young men and women to aspire to a career in technology. They have made us believe that all our problems have one solution — smarter, better, faster technology.
For over two years from 2013 to 2015, Elizabeth Holmes was the darling of the Valley and the media outlets that cover it. Featured on the cover of Fortune, Forbes, Inc. and New York Times Style Magazine, she seemed to be on the cusp of revolutionizing the diagnostics industry. Her startup, Theranos, a contraction of “therapy” and “diagnosis,” was set to disrupt blood testing, an industry which generates over $73 billion in revenue annually. Theranos, she claimed, would do away with needles, replacing them with painless pin pricks and make testing more efficient, using just 1/100th to 1/1000th of the amount of blood needed by labs.
In 2014, Theranos was valued at $9 billion, equivalent to the entire gross domestic product of the Bahamas. A company that had yet to produce a viable product was worth as much as an island nation of 400,000 people. That year, Holmes topped the Forbes list of America’s Richest Self-Made Women with a net worth of $4.5 billion.
Today, 91 percent of Theranos’s valuation has evaporated and Holmes’s net worth is estimated at zero dollars, all thanks to the work of an intrepid Wall Street Journal reporter, John Carreyrou. The story of Theranos’s rise and fall casts light on the nexus between the media and Silicon Valley. It is laced with lessons for the journalism industry which is struggling to play catch up with a rapidly evolving technology sector.
“When I finally connected with what Elizabeth fundamentally is I realized that I could have been looking into the eyes of a Steve Jobs or a Bill Gates,” recounted Holmes’s Stanford chemical engineering professor, Channing Robertson, to Roger Parloff, who brought Theranos to the limelight in June 2014. Parloff’s cover story for Fortune magazine, titled “This CEO is Out for Blood,” is a 5,000-word panegyric to Holmes’s genius and Theranos’s achievements. Robertson, who joined Theranos as an employee in 2009, continues, “I gave up two endowed chairs to do this, I think that’s a statement.”
In his account, Parloff paints an intimate picture of the charismatic founder who dropped out of Stanford at nineteen to start Theranos. Holmes hoped to disrupt the diagnostic-lab industry, which performs 10 billion tests a year and provides the basis for 70% of doctors’ medical decisions. By replacing large vials with tiny capsules and syringes with pin pricks, Theranos promised to revolutionize diagnostics for infants, the elderly and patients on anticoagulants.
The company was driven by aggressive marketing and bullish pricing. Holmes’s christened the small vial used to store blood samples as the “nanotainer,” and made it symbol of Theranos’s principles — pain free and efficient care. Thanks to rounds of funding by venture capitalists, Theranos had amassed $400 million which it used to price its blood tests at less than half the cost of those offered by traditional labs. By partnering with Walgreens, Theranos planned to establish outposts in most of its 8,200 locations in US. Holmes aspired to “place a Theranos center within five miles of every American,” Parloff writes. Theranos’s noble aims were backed by an all-star board, comprising former Secretary of Defense William Perry and former Secretaries of State Henry Kissinger and George Shultz, whose grandson Tyler Shultz, a Stanford alum, worked at Theranos as well.
And Silicon Valley fell prey to the cult of personality. Holmes was a super star, appearing on talk shows, at tech summits and covers of magazines. Amidst rising allegations of gender biases in the Valley, she was the self-made female entrepreneur Silicon Valley craved. Her aims were noble — she was not simply another college dropout trying to start a food delivery app but was pioneering an innovation that would save millions of lives. The media drew parallels between Steve Jobs and her, citing Holmes’s strong vision, control over her company and charismatic presence. She lived up to the image, donning black turtlenecks and blurring the lines between herself and her company, till Theranos became Holmes.
Ken Auletta of the New Yorker joined the list of journalists who profiled Holmes in 2014. In his flattering piece, he describes the young Holmes as “a curious and happy loner.” She spent a lot of time moving around in her childhood, preventing the formation of any long-lasting friendships. Instead, she read Moby-Dick from start to finish at the age of nine and made elaborate designs for time machines. “The wonderful thing about the way I was raised is that no one ever told me that I couldn’t do those things,” Auletta notes Holmes as saying, “I was probably, definitely, not normal.”
In early 2015, John Carreyrou received a tip from a former employee of Theranos. The employee, who later turned out to be Tyler Shultz himself, was alleging fraud and mismanagement in the startup. Journalists receive tips from strangers all the time. More often than not, the allegations levelled tend to be unfounded, or stem from confusion or malice. The media was raving over Theranos, the company had Kissinger, and Shutlz’s own grandfather, on its board — what could possibly be wrong? Yet, Carreyrou chose to dig deeper.
“I was intrigued by Theranos,” he said in a phone interview. “You can be Zuckerberg and learn coding in your parents’ basement but I don’t think a drop out can do advanced biomedical research,” he said referring to Holmes, “there is a reason all Nobel Prize winners in Medicine tend to be in their 60s.” Carreyrou, a Pulitzer Prize winner for investigative reporting into the American healthcare system, was also suspicious of the opacity of the answers given by Holmes regarding Theranos’s groundbreaking technology. “When she explained the technology in interviews, it seemed like the version you’d give to an elementary school student,” he remarked. When asked to explain her technology by Auletta, Holmes replied, “a chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel.” To explain away the lack of peer review and scientific backing Holmes claimed that since Theranos’s testing is founded in the same “fundamental chemical methods” as conventional lab testing, “peer-review publication of validation studies is both unnecessary and inappropriate.”
However, digging into this mess was a slow process. Every employee of Theranos had signed a non-disclosure agreement, making Carreyrou’s task nearly insurmountable. His sources were threatened and defamed by the company’s smear campaigns, being dismissed as disgruntled employees who were out to get Holmes. Tyler Shultz, one of the first whistleblowers, claimed to be followed by private investigators hired by Theranos.
After ten months of research and reporting, Carreyrou published his story in the Wall Street Journal in October 2015. Titled, “Hot Startup Theranos Has Struggled With Its Blood-Test Technology,” the article was the tipping point in Holmes’s thus far carefully balanced act. Theranos had misrepresented the power and accuracy of its star product, the lab instrument holding together the pieces of Theranos’s brand. The Edison, which was supposed capable of performing a battery of tests on tiny blood sample was being used for less than 10% of the tests conducted by Theranos. A majority of tests were carried out on analyzers bought from third parties such as Siemens AG.
The Edison was also unreliable. Theranos proficiency testing samples, split between two types of equipment — the Edison and third party analyzers, gave disparate results, fueling internal doubt regarding the accuracy of Theranos’s technology. Sunny Balwani, President and Chief Operation Officer instructed lab personnel to report only results from third party analyzers for proficiency testing, in gross violation of federal protocol.
Further, Theranos was not obligated to release information about the accuracy of the Edison because of an unusual regulatory structure. Lab tests which use equipment from medical supplies providers such as Siemens AG require approval from the Food and Drug Agency (FDA). However, when labs devise their own lab-developed tests (LDT) on their own equipment, they do not have to be cleared by the FDA, a fact Theranos took infinite advantage of to advance its scheme.
While Theranos’s marketed the “pin prick of blood” required to conduct tests with Edison, it had to dilute its samples to make them compatible with traditional lab machines, further casting doubt on the accuracy of test reports. Theranos also routinely asked users to give blood samples through venipuncture, the traditional way with a syringe in the arm. While in reality this allowed them to conduct tests on traditional lab equipment more easily, it was a departure from the famed “pin prick” Theranos promised its customers. In December 2015, Parloff wrote a protracted correction for his profile in Fortune, titled “How Theranos Misled Me.” He writes that he while he was intrigued by Theranos’s venipuncture practices, they were often explained away as a means to “cope with volume” for a “rapidly scaling” company. Upon further probing, he was shut down by the company for delving into “trade secret” territory.
Carreyrou’s article led to a flood of coverage on the company’s illicit practices and set off a domino effect. Theranos used shell companies to buy commercial lab equipment to preserve secrecy. Walgreens sued Theranos for $140 million (later settling out of court for less than $30 million). Theranos moved to close all its clinical labs and Wellness Centers. To prevent investors from suing the company, Holmes offered them more and more shares in return for the agreement to release potential legal claims against it.
Recent reports by the Washington Post allege that Theranos hired a DC-based corporate research firm, Fusion GPS, to “blunt aggressive reporting” against it. The firm contacted Carreyrou to create a back channel in the weeks after the first scathing report, and “advised the reporter that his approach with Theranos up to that point had been too aggressive, and [they] encouraged him to soften it,” the Washington Post quoted an anonymous source. Fusion GPS has sought to advance the interests of a range of clients in DC, and was responsible for producing the Trump dossier in 2016.
On October 15th, 2015, hours after Carreyrou’s article was published, Theranos released a press statement in response.  The company belittled Carreyrou’s sources and proceeded to claim that “sources relied on in the article today were never in a position to understand Theranos’s technology and know nothing about the processes currently employed by the company.” The statement concludes in classic Silicon Valley savior syndrome style, “Stories like this come along when you threaten to change things, seeded by entrenched interests that will do anything to prevent change, but in the end, nothing will deter us from making our tests the best and of the highest integrity for the people we serve, and continuing to fight for transformative change in health care.”
In July 2016, Holmes was banned from owning or operating a medical laboratory for at least two years.
How this happened: The Fourth Estate
When Parloff wrote his Fortune cover in 2014, he had witnessed all the warning signs that would bring about the downfall of Theranos — opaque answers, uber secrecy, skeptical doctors and patients. However, Silicon Valley and the media chose to remain oblivious to these alarm bells. “Critics are likewise puzzled by the cosmic vastness of Holmes’s end-to-end business model. If Theranos is making breakthrough analyzers, they wonder, why doesn’t it just sell them to existing labs? [It’s] like FedEx trying to manufacture all its own airplanes and trucks,” he wrote.
And yet, confidence in Theranos remained high because investors trusted Holmes. Kissinger, then board member of Theranos, when asked to assess her as a leader said to Parloff, “I can’t compare her to anyone else because I haven’t seen anyone with her special attributes. She has iron will, strong determination. But nothing dramatic. There is no performance associated with her.” Holmes’s youth, self-confidence and micro managerial tendencies made investors want to trust her, for the fear of missing out on the next big thing. Profiles like Auletta’s, which quotes former Defense Secretary William Perry describing her as “another Steve Jobs, but I think that’s an inadequate comparison. She has a social consciousness that Steve never had. He was a genius; she’s one with a big heart,” only bolstered her case.
But perhaps the biggest enabler of Theranos’s meteoric rise was the very entity that brought about its subsequent downfall — the media.
Silicon Valley needs its icons and in the early 2010s, the Valley was looking for a female entrepreneur and startup queen. In her cover story for Inc. in October 2015, titled “Why the Next Steve Jobs Will Be a Woman,” Kimberly Weisul writes, “Name five iconic entrepreneurs. Actually, don’t bother, because we can pretty much predict your answer…[And] they’re all men.” The cover of the magazine that month featured Holmes in a Jobs-esque black turtleneck.
While Sheryl Sandberg and Marissa Mayer, Chief Operating Officer of Facebook and former President of Yahoo! respectively, had been important figures in the technology industry for years, they had not started their own companies. “There was a yearning in Silicon Valley to see a female tech billionaire tech founder,” said Carreyrou. Like Mark Zuckerberg, Bill Gates, and most importantly, Steve Jobs, Holmes had dropped out of college in her pursuit to “make the world a better place.” The fact that she was pitching an idea, an alternate reality that was so indisputably good, made her armor even tighter. Which journalist would dare sabotage the work of a company promising to make needles outdated, blood testing cheaper and diagnostics more accessible.
While Theranos’s services could be grouped with that of all traditional diagnostic companies, it did not operate like a traditional pharmaceuticals firm. The Valley was in its DNA and Theranos was essentially a technology firm. Its coverage was handled by media outlets’ technology reporters, as opposed to their healthcare ones. Carreyrou had been surprised by the company’s secrecy, but such behavior is not uncommon in the Valley, where simple ideas are worth billions. And so, the tech reporters accepted Holmes’s opacity unquestioningly. A healthcare reporter, as Carreyrou was, would have noticed the elementary understanding of diagnostics technology exhibited by Holmes in public interviews, and would’ve sought to investigate. Most healthcare reporters, however, were looking elsewhere.
It is common knowledge that journalism is a game of access. Journalists who can snag interviews with high demand businessmen as their product goes to market climb the ladder. In Silicon Valley this trait is grossly exaggerated. “The system here has been molded to prevent reporters from asking tough questions…Outlets that write negatively about gadgets often don’t get pre-release versions of the next gadget. Writers who ask probing questions may not get to interview the C.E.O. next time he or she is doing the rounds,” wrote Nick Bilton in a Vanity Fair piece reflecting on the aftermath of the Theranos scandal. This apprehension about shutting themselves off from the next big thing in the Valley prevented the tech press from seeking to critique Theranos’s ventures.
The media thus showered Holmes in praise, wrote profiles that read like panegyrics and accepted every opaque answer delivered to them. In the light of Theranos’s subsequent downfall, every outlet that showered praise on Holmes had to backtrack. To this day, they are reluctant to discuss the fiasco. Laura Lorber, executive editor of Inc. magazine, declined to comment saying “Inc. does not discuss companies which are in litigation with other parties.” Several tech press outlets, including TechCrunch, did not respond to repeated requests for comment.
This holds a valuable lesson for aspiring journalists — always second guess the wisdom of the masses, and do not accept answers just because thousands of others have. Even as Holmes was a charismatic and inspiring CEO, this did not merit the pure lack of criticism on the part of the media. Perhaps reporters sought to give her some slack because of her feat of being the only female techpreneur. However, while it is imperative to celebrate such symbols of progress, the media is obligated to not do so unquestioningly.
The media was also not incentivized to dig deeper because of the private nature of Theranos. Since the company was operating off venture capital money, it was not accountable to shareholder, Carreyrou noted. Further, Theranos had a token board of directors where Holmes had almost majority voting control. While having public service stalwarts such as Kissinger on board bolstered confidence in the company, the board members served no other purpose, lacking any expertise in the tech or healthcare sector. “My paper broke the Enron story in 2000 and within six weeks, the company had declared bankruptcy,” said Carreyrou, “but Theranos has not even launched an internal investigation.”
In the aftermath of the scandal, Theranos “pivoted”, Silicon Valley-speak for changed course, to focus on “MiniLab,” essentially the Edison, but packaged in more manageable bits. The website is now littered with the disclaimer, “This technology has not been cleared or approved by the FDA and is not for sale in the United States,” almost as if the company is hesitant to market itself. According to the Wall Street Journal, the company now holds less than $180 million of the $700 million it had raised. In July 2017, facing mounting legal costs and a plummeting valuation, Theranos put up its Palo Alto headquarters up for rent.
The Theranos scandal thus holds valuable lessons for aspiring entrepreneurs and journalists alike. Hubris and unrealistic expectations are increasingly plaguing start up culture, in Silicon Valley and across the country. Last month, the Wall Street Journal broke a story on Outcome Health, a Chicago based healthcare advertising startup. In May 2017 Outcome had raised $500 million in funding from Goldman Sachs and Alphabet, Google’s parent company. In November 2017, accusations came to light of Outcome having misled its investors. The company, and its billionaire founder, are facing multiple lawsuits.
Carreyrou is cynical, “private companies behaving in unruly ways. It’s like the Wild West out there.” He is skeptical about the savior syndrome that plagues the Valley. “There is a hubris in Silicon Valley that has reached ridiculous levels,” he says referring to ideas that Silicon Valley could effectively secede from the country. “They think just because they made money it makes them smart and makes them godlike creatures,” he continues, “there needs to be a reset.”
And the reset could come from the media.
While most of the tech press is founded in consumer coverage and born out of the same start up culture it tries to critically cover, outlets like The Information are leading the trend in constructive coverage of the technology industry. Founded by Jessica Lessin, a former Wall Street Journal reporter, The Information is a subscriber based outlet promising to bring back the integrity of old school journalism to the Valley. Carreyrou sees promise in this trend. “It’s the media’s responsibility to prevent companies from misusing their power,” he said, “good investigative journalism can achieve that.”
The Theranos fiasco was special because it exploited multiple flaws in the media and the Valley — the cult of personality, the silos in which media outlets operate and their cravings for access. Nick Bilton writes about this nexus in Vanity Fair, noting, “while Silicon Valley is responsible for some astounding companies, its business dealings also replicate one big confidence game in which entrepreneurs, venture capitalists, and the tech media pretend to vet one another while, in reality, functioning as cogs in a machine that is designed to not question anything.” And unless the new age tech press decides to take pages out of the old media book, to value integrity and in depth investigation, the trend will continue.
Source List and Footnotes
Carreyrou, John, Phone Interview. Dec. 2017
 “Medical & Diagnostic Laboratories Industry Profile From First Research.” Firstresearch.com. N. p., 2017. Web. 11 Dec. 2017.
 Herper, Matthew. “From $4.5 Billion To Nothing: Forbes Revises Estimated Net Worth Of Theranos Founder Elizabeth Holmes” Forbes.com. N. p., 2017. Web. 13 Dec. 2017. https://www.forbes.com/sites/matthewherper/2016/06/01/from-4-5-billion-to-nothing-forbes-revises-estimated-net-worth-of–theranos–founder–elizabeth–holmes/#5aaf2a513633
 Bizjournals.com. N. p., 2017. Web. 13 Dec. 2017. https://www.bizjournals.com/sanfrancisco/print–edition/2013/08/30/theranos–the–biggest–biotech–youve.html
 Auletta Ken. “Blood, Simpler.” The New Yorker. N. p., 2014. Web. 13 Dec. 2017. www.newyorker.com/magazine/2014/12/15/blood–simpler.
 Carreyrou, John. “Theranos Whistleblower Shook the Company — and His Family; Tyler Shultz Says He Wanted to Shield Reputation of Former Secretary of State George Shultz, a Theranos Director and His Grandfather; $400,000 in Legal Fees.” Wall Street Journal (Online) Nov 16 2016 ProQuest. 10 Dec. 2017 .
 Carreyrou, John. “A Prized Startup’s Struggles — — Silicon Valley Lab Theranos is Valued at $9 Billion but Isn’t using its Technology for all the Tests it Offers.” Wall Street Journal Oct 15 2015, Eastern edition ed. ProQuest. 10 Dec. 2017 .
 Weaver, Christopher. “Theranos Secretly Bought Outside Lab Gear and Ran Fake Tests, Court Filings Allege; Company Disagrees with Many of Allegations, Says they Reflect ‘One–Sided Filing’.” Wall Street Journal (Online) Apr 22 2017 ProQuest. 10 Dec. 2017
 Weaver, Christopher, John Carreyrou and Michael Siconolfi. “Walgreens Seeks to Recover $140 Million Investment from Theranos; Pharmacy Chain Sues for Breach of Contract, Court Records show.” Wall Street Journal (Online) Nov 08 2016 ProQuest. 10 Dec. 2017 .
 “An Open Letter From Elizabeth Holmes — Theranos Newsroom.” Theranos Newsroom. N. p., 2016. Web. 13 Dec. 2017. https://news.theranos.com/2016/10/05/an–open–letter–elizabeth–holmes/
 “Theranos Just Reached A Deal With Investors To Avoid Lawsuits.” Fortune. N. p., 2017. Web. 13 Dec. 2017. http://fortune.com/2017/05/16/theranos–news–investors/
 Gillum, Jack et al. “‘Journalism For Rent’: Inside The Secretive Firm Behind The Trump Dossier.” Washington Post. N. p., 2017. Web. 12 Dec. 2017.
 “Statement From Theranos — Theranos Newsroom.” Theranos Newsroom. N. p., 2015. Web. 13 Dec. 2017. https://news.theranos.com/2015/10/15/statement–from–theranos/
 Weisul, Kimberly. “Why The Next Steve Jobs Will Be A Woman.” Inc.com. N. p., 2015. Web. 7 Dec. 2017. https://www.inc.com/magazine/201510/kimberly–weisul/will–the–next–steve–jobs–be–a–woman.html
 Kosoff, Maya. “Elizabeth Holmes Just Put Theranos’S Palo Alto Headquarters Up For Rent.” The Hive. N. p., 2017. Web. 13 Dec. 2017. https://www.technologyreview.com/s/602053/theranos–unveils–minilab–invention–to–a–skeptical–audience/
 Weaver, Christopher. “Theranos, Walgreens Reach Deal To Settle Lawsuit.” WSJ. N. p., 2017. Web. 13 Dec. 2017. https://www.wsj.com/articles/theranos–walgreens–reach–deal–to–settle–lawsuit–1498037580
 Kosoff, Maya. “Elizabeth Holmes Just Put Theranos’S Palo Alto Headquarters Up For Rent.” The Hive. N. p., 2017. Web. 13 Dec. 2017. https://www.vanityfair.com/news/2017/07/theranos–palo–alto–headquarters–sublease
 “Silicon Valley’s ‘Ultimate Exit’: Secession From The United States.” The Verge. N. p., 2013. Web. 13 Dec. 2017. https://www.theverge.com/2013/10/22/4865626/silicon–valleys–ultimate–exit–secession–from–the–united–states–balaji–srinivasan