Five Random Lessons from Covering the Theranos Debacle

Tod Kelly

Tod is a writer from the Pacific Northwest. He is also serves as Executive Producer and host of both the 7 Deadly Sins Show at Portland's historic Mission Theatre and 7DS: Pants On Fire! at the White Eagle Hotel & Saloon. He is  a regular inactive for Marie Claire International and the Daily Beast, and is currently writing a book on the sudden rise of exorcisms in the United States. Follow him on Twitter.

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76 Responses

  1. J_A says:

    “That Theranos couldn’t attract VC money from any person or firm that had any level of expertise in biotech, medicine, diagnostics, or health care companies was not some random fluke. ”

    All I know about biotech, medicine, diagnostics, or health care companies could probably fit your “Trucks and Dirt Bikes Special Edition” of Marie Claire. But I have several years of experience interacting with venture capital, private equity and hedge funds. Don’t buy the hype. They don’t know anything about anything. And they have the attention span of a six month old.

    It’s painful sitting with them, trying to go down on how a company makes, or doesn’t make, money, and be looked at with a mixture of boredom, incomprehension, and arrogance. They don’t know, they don’t want to learn, and they are sure they know better than you. Otherwise, how is it that they are the ones doling out the dough.

    I can go on for hours on seeing people throw millions of other people’s money out of the window in bad deals, that were obviously bad deals, after they were told they were bad deals.

    Belittling the know-how of experts is not solely the province of Trump rallies.Report

    • Burt Likko in reply to J_A says:

      Okay, but there is a degree of risk that VC is willing to accept, no? Some ways of making money are indeed innovative or seemingly improbable, but they do eventually work out. If there are good-enough answers to questions about “Okay, this is a cool thing you can do, but how do you make money doing it?” then “good-enough” quality answers don’t need to be “sure-fire.”

      In the case of investing in Theranos, I’d certainly expect an answer to “Well, does it actually work?” to refer to something with scientific validity behind it. Monetization doesn’t seem that difficult: we’re going to charge customers per service. So a) is the product a solid response to market demand, b) is the price point effective (not too high that it can’t be bought by the target consumer, not too low that there isn’t profit), and c) can the product be scaled up to an interesting level, and I’m in. Theranos had b) and c) nailed. It was a) where it failed.

      So did the VC people confuse “Is the product a solid response to market demand” with “Is there a demand for the product”? Demand alone isn’t enough — satisfaction of that demand is how you get people to want to buy.Report

      • Saul Degraw in reply to Burt Likko says:


        As I mentioned below, Google Ventures and other VC firms were interested in Theranos for a while but refused to give money because Theranos did not want to do any due diligence work.

        The thing about VC as far as I can tell is that there is a lot of money but not enough projects or new companies out there. Theranos first attracted attention because it seemed like they were trying to do new tech because most tech start-ups are really “tech” start-ups. So you have a million different delivery service or service apps which sometimes get mocked for solving the social and laziness problems of well-to do twenty and thirty somethings. Remember this is the world where an app that said “yo” was talked about as a hot commodity.

        So it is easy to give people a few million during initial fund raising but then have them collapse during Series A.

        The VC bet is that they might lose on a lot of companies but when they score big on a Facebook or Google, they score really big, and often fairly cheaply.Report

      • J_A in reply to Burt Likko says:

        In my experience, the “well, does it actually work? How?” Is where things fall apart.

        I can accept that the tech business might be different -because you have techies talking to techies that are interested in geek techie things- but the Harvard MBA crowd tend to avoid the “How it works” because they don’t have the knowledge to follow or understand the explanation, and they can’t acknowledge that because they are the Alpha Males in the room.

        So, most times the focus of the conversation remain in the What (What does Teranos do?) and the -dreaded name- “Value Proposition” (Who will pay for this and how much? How much will it cost to manufacture?)

        The how will be relegated to due diligence, to be undertaken by lesser people that will write a report that will be summarized into PowerPoint (*) by a recent MBA graduate or Investment Bank associate that didn’t understand what he read and couldn’t make questions.

        Now, refusal to allow for due diligence, that a big red flag. Had I’d been Teranos, I would have tried to BS the due diligence part too. I’m sure there would have been several gullible investors that would have been satisfied.

        (*) the majority of times the Due Diligence summary will be a fishing appendix in the presentation, that no one will read or ask about, because if it was fishing important, it would be in the fishing core of the presentation, wouldn’t it? It becomes a self fulfilling process.Report

  2. J_A says:

    Jim Cramer

    If you haven’t seen the Jon Stewart interview of Jim Cramer, you must. You absolutely must.

    These 30 minutes could save your life, or, at least, all your money

    First, a remembrance of how all started:

    Now, for the actual goods:—jim-cramer-extended-interview-pt–1Report

  3. Saul Degraw says:

    Great piece Tod.

    Being the left-wing guy I am, I agree with your conclusion. My big problem with this kind of ultra deregulation attitude is that it does seem to be very “caveat emptor”. Put the product on the market, if it works Yay!!! If it doesn’t work, the truth will out….eventually.

    Theranos seems to be a classic example of too many good to be true narratives. You had a young woman rising to the top (or trying to) in some fields dominated by men. You had a revolutionary new technology over something that people hate getting done, etc.

    But the problem as you noted is that the scientists and top VC firms like Google Ventures knew it was bunk or suspected so because Theranos would not turn over any documents for due diligence work.

    I will say this about tech though as a non-techie surrounded by techs. They tend to be absolutely true believers in what they do. A lot of them seem to really believe in “disruption” and that they are changing the world. A few years ago there was a Wired article about what it was like to be on the failing side of Silicon Valley. One guy in the article finally got a job at some kind med-tech app start up and he went around shouting “We are going to make physicians obsolete” as his victory dance. This is allegedly a smart human being who managed to graduate from university.

    But the other real failure is that the media often failed to push back on her. They never asked any critical questions. My guess is that too much of the media and these interviews is now arranged before the actual interview and if you want an interview, you need to agree to all sorts of conditions for the interview to occur.

    Plus the media tends to love the Aspen-cocktail party circuit.

    We need more journalists who want to be unpopular outsiders and not get invited to parties. Again it is the cult of savvy in a different arena:

    Savviness! Deep down, that’s what reporters want to believe in and actually do believe in — their own savviness and the savviness of certain others (including master operators like Karl Rove.) In politics, they believe, it’s better to be savvy than it is to be honest or correct on the facts. It’s better to be savvy than it is to be just, good, fair, decent, strictly lawful, civilized, sincere or humane.

    Savviness is what journalists admire in others. Savvy is what they themselves dearly wish to be. (And to be unsavvy is far worse than being wrong.) Savviness — that quality of being shrewd, practical, well-informed, perceptive, ironic, “with it,” and unsentimental in all things political — is, in a sense, their professional religion. They make a cult of it. And it was this cult that Karl Rove understood and exploited for political gain.

    What is the truest mark of savviness? Winning, of course! Everyone knows that the press admires an unprincipled winner. (Of a piece with its fixation on the horse race.) Josh Green, a reporter for the Atlantic Monthly who actually took the time to understand Rove’s career, totaled up his winnings in a 2004 article (“Karl Rove in a Corner”) that I highly recommend.

    Winning in this case means being a young billionaire adopting some Steve Jobs dress habits.Report

  4. Burt Likko says:

    Re: Tod’s assignment to do the story at Marie Claire.

    First of all, I am rather not a part of Marie Claire‘s target audience. The only reason I would buy that magazine is to read Tod’s article.

    Secondly, it’s easy to see why Marie Claire would want a piece on Elizabeth Holmes. Not Theranos, just on its billionaire CEO. Ms. Holmes is — or at least for a time appeared to be — the precise aspiration of that target audience. She is young, smart, wealthy, successful, and most of all, attractive.

    Which makes it all the more remarkable that Tod would get to do the piece: the hallmark to Tod’s writing is a clear-eyed look past a whole lot of the bullshit and fluff and packaging to examine the actual human qualities of the product underneath it all. Most of all, the ethics. Seriously, I’m impressed with Marie Claire‘s editors that they would put that sort of analysis front and center for their readers: it demonstrates that the editors have respect for their audience that they care about such things, at least in addition to the fashion and beauty suggestions, and the doings of the famous and frivolous, that one would normally expect in a magazine marketed to a young female mass-market demographic.Report

    • Tod Kelly in reply to Burt Likko says:

      Actually, as I have come to learn, marie claire likes to publish these kinds of articles. They consider themselves being closer to a female version GQ than another Vogue. Part of why they don’t put these stories online is that they use them to sell the print version. The more I learn about them as I work with them, the more interesting I find their business model.

      Also, this is as good a time as any to say that despite the fact that they totally own the story and are under no obligation to do so, marie claire has given me permission to post a slightly different version of my article on the Trump campaign and it’s attempts to appeal to women voters on Blinded Trials once the article hits the newsstand in the international market — which I’m told means either tomorrow or Monday.Report

  5. Bill Frist, the guy who diagnosed Terri Schiavo as “not somebody in persistent vegetative state” from a videotape? Shocking.Report

  6. Kolohe says:

    (Full disclosure: Marie Claire already had a puff piece on Holmes in the works this Spring before Theranos cratered and it was decided to scrap it entirely. That story and space was eventually turned over to me to do mine.)

    Now *that’s* some fine vulture capitalism right there.Report

  7. Saul Degraw says:

    So if Jennifer Lawrence plays Holmes in the movie, who plays Tod?Report

  8. Saul Degraw says:

    FWIW Stanford has two really good art museums and a good performing arts center.Report

  9. Oscar Gordon says:

    I am certainly speaking out of school here, but Regulatory Capture is not limited to the capture of regulatory agencies, but can also encompass the capture of political entities who direct those regulatory agencies (Peltzman model, IIRC). So a single business, using its political connections to influence or even direct the legislative process regarding regulation toward its benefit, is capture.Report

    • This is like if the management of a corporation did things that benefited management rather than the shareholders, customers, or the employees as a whole. Good thing that’s unheard of.Report

      • Oscar Gordon in reply to Mike Schilling says:

        Well, except for the Well Fargo thing, although I hear that the board intends to claw back some money from the CEO and the lady who was in charge of the division. So that’s good.

        Otherwise, totally unheard of…Report

        • Morat20 in reply to Oscar Gordon says:

          I would bet my bottom dollar that the only reason they’d do it is for PR purposes.

          In fact, they’ll probably offer profuse apologies to the man and quietly put in a few good words with their friends, and he’ll find his next board position is more lucrative — to make up for his loss, you know.Report

          • Oscar Gordon in reply to Morat20 says:


            Probably. Thing is, even if it didn’t happen that way, it happens so often that absent a “Where Are They Now?” in a year showing the man bashed against the financial rocks & selling all his assets to keep money coming in, or having turned a new leaf & now doing legit philanthropy, everyone will assume he’ll be theatrically shown out one door, and graciously welcomed into another, once the furor has died down.

            The aversion to accepting responsibility among the elite… that’s happened before, if I recall, and it didn’t end well then either.Report

  10. Aaron David says:

    I think what pisses me off the most is the complete lack of scientific awareness among reporters (not you Tod.) I see this stemming from a combination of misunderstanding the scientific method and captivation by the idea of Girl Power! There is nothing inherantly wrong or dangerous about women scientists, nor anything particularly new about them, though we could use many more. That said, the science of whatever they are doing is still science and to be taken seriously needs to be treated as rigorously as any other scientific findings.

    There is no miracle cure to anything. Every bit of the work needs to be subject to the absolute scrutiny of other scientists, especially those who disagree with the project and what to see it brought down. Otherwise it is simply confirmation bias. And the complete lack of critical thinking regarding this in the world of journalism is, frankly, disgusting and pathetic. And possibly does more damage to the concept of science than anything else. The media not going to great lengths to correct this weakens a field that is already under fire due to biases among its practitioners, biases that lead to the erosion of public trust.Report

  11. Damon says:

    I gotta agree with Saul (I know!) on the whole media thing.

    This whole story has failure written on it:

    Yeah I can buy the VC guys not giving a damn and throwing money at the company. But no peer reviewed data. I’m about as far from “science” work and that’d raise an eyebrow if I was 1) looking at using the product and 2) considering investing.

    Politics: So the AZ congress relied on guys they know for recommendation. This is different how from copy/pasting industry/activist legislation outlines, putting your name on it, and submitting it as a bill? How is this different from “politics as usual”?

    ” It is, rather, a case of what conservatives and libertarians insist we need more of: sweeping deregulation across the board that favors innovation and that applies to all companies equally.” I’m failing to see 1) the sweeping deregulation (it’s one state after all and it’s more akin to “politics as usual”) Additionally, if anyone along the line was ACTUALLY DOING THEIR JOB (the reporters, the VC guys, the congress critters) would this have ever happened?Report

  12. Richard Hershberger says:

    I have been utterly fascinated by this whole saga. One bit you don’t touch on that seems relevant is that Holmes is hot. Furthermore, she manages the nice balancing act of being hot, but in hot-smart-chick way, without giving off ditzy-blonde vibes. I wonder if someone less hot, or hot in the wrong way, would have gotten her foot in the door in the first place, much less run with it as long as she did.

    A related question is how much of this was brought forth by the media narrative? Could I build a corporate mini-empire around my brilliant invention of a hamster-powered space rocket, if only I could get the glossies on board?Report

    • Saul Degraw in reply to Richard Hershberger says:

      FWIW the first time I heard about Theranos was on Kevin Drum’s blog and he thought it was promising and actual tech as opposed to most “tech” companies as I mentioned to Burt.Report

    • I have been utterly fascinated by this whole saga. One bit you don’t touch on that seems relevant is that Holmes is hot.

      Well, yes, except that she’s not. (Talking in typical Hollywood standards of who is and isn’t hot here.) The pictures you see of her in magazines, taken by those magazines, do indeed make her look Hollywood-hot, or like a New York fashion model. But when you see her on video, moving around, she isn’t. She’s more like a normal person, with a bit of a double chin and the kind of body one has when one spends all their days at a desk.

      Which, once again, does not mean that normal people can’t be hot. They can! And everything is subjective! And FWIW, who I am attracted to and who Hollywood says I should be attracted to rarely line up.

      But even granting all of that, the news media that was covering her clearly went out of their way to try to make her appear to be a Hollywood version of hot, because again, having her look like a New York fashion model fit a particular narrative they really, really wanted to sell.Report

      • Burt Likko in reply to Tod Kelly says:

        Yes, I can see a bit of extra flesh under the chin even in the photographs and videos posted here, and not so much of the wasp-waistedness, big-bustedness, and overall physical athleticism that Madison Avenue prefers in women.

        All duly noted, and immediately disregarded. She’s still a physically attractive woman. Which has fish all to do with either her business acumen or her professional ethics, which are what’s really implicated here.Report

      • LeeEsq in reply to Tod Kelly says:

        Richard’s point still stands. Holmes had enough natural material for the photographers to work with and make look like a New York model, which is how most people would see her. If Holmes had less natural material for the photographers to work with than the narrative could have been very different.Report

        • Chip Daniels in reply to LeeEsq says:

          I agree and that sort of confirms Tod’s point that she was able to fit the prescripted narrative that the press wanted to tell.

          Does anyone remember that Dale Car?
          It is a too-weird-to-be-fiction story where in 1974 a woman claiming to have invented a radical 3 wheeled car was able to bamboozle investors and the press, until the scam fell apart.

          Then as now, the press fell hook line and sinker for a terrific rags to riches, David and Goliath story that should have been obvious had they not been so eager to make the story true.Report

          • Aaron David in reply to Chip Daniels says:

            Yeah, but that was helped by the ’73 oil crisis, as the main point was a two cylinder motor that would get 70ish mpg. Which you can do, but not in the way that people actually drive, i.e. going over a walking pace. Companies are still try to do things like this, only now we call them Volkswagon.Report

        • Gabriel Conroy in reply to LeeEsq says:

          I agree, too. I’ve occasionally seen photographs of famous actors without their makeup on and they don’t seem as attractive as they do when they’re made up for movies/TV.Report

      • like a normal person, with a bit of a double chin and the kind of body one has when one spends all their days at a desk.

        Hey, Tod, are you saying I’m not hot?Report

      • Slade the Leveller in reply to Tod Kelly says:

        Of course, we would expect a George Clooney/Beau Bridges (YMMV) lookalike to know from hot.Report

    • Kim in reply to Richard Hershberger says:

      See solar fucking roadways (and no I won’t call it what legal wanted to. fuck legal).Report

  13. Mo says:

    Point #1: Public speaking != charisma. I don’t know if this is necessarily the case with Ms. Holmes, but I know a few people that are terrible public speakers, but extraordinarily charismatic in person.

    Point #2: You say, “There are a gazillion Silicon Valley bullshitters hoping to strike it rich, but they don’t end up on the cover of the New York Times Style Magazine.” However, how many of them have a (paper) net worth of Elizabeth Holmes? Of that much smaller population, a higher percentage of them get magazine covers. Also, when discussing Silicon Valley culture, tech media culture is part of that. Scams like Theranos or Zenefits* aren’t broken by the Techcrunches or Recodes of the world, but by media less in bed with their industry. OTOH, the WSJ will break financial fraud and the Washington Post frequently breaks DC scandals.

    * Zenefits was broken by Buzzfeed, which is more like a new version of traditional media, than Silicon Valley based.Report

  14. J_A says:

    Bringing here a comment about @will-truman piece in Hit Coffee

    In most countries you don’t need a doctor’s order to get blood tests or most any other kind of tests. You can walk into a medical test lab, request the tests, and come back next day for the results. Is not as if you are at risk of anything if you decide you want your urine checked

    And actually, most blood tests are pretty inexpensive. People will, for instance, check their lipid profile once a quarter.

    Here in the USA I have to go to the doctor twice: once to get the test order, and once for him to interpret the tests for me, and only then can I google myself the meaning of each value.

    Having doctors involved in almost every step is pure regulatory capture.Report

    • LeeEsq in reply to J_A says:

      Your description of Palo Alto is true of many affluent places in the Bay Area. Last time I was in California, my Dad and I went to a sushi place in San Jose. It was in this outdoor mall type of entertainment area that was trying to imitate the typical apartments on top, restaurants and stores on bottom look of a traditional urban neighborhood. It looked very fake because everything was obviously built at the same time and had the same designers and look. There lots of places like that apparently.Report

      • DensityDuck in reply to LeeEsq says:

        And it’s worth pointing out that it’s exactly the kind of New Urbanist “housing above retail” space that we’re supposed to prefer.

        I mean, I *guess* it could be “straight-sided undecorated machines-for-living”, but that seems like the kind of place that you’d want to get away from as quickly as possible.Report

    • Kim in reply to J_A says:

      … not always. When the doctors run the blood tests *as opposed to a lab company* they often have better detection systems. Turns out the lab company can’t measure things nearly as well as the doctors do.

      Downsides to this method: doubletesting, needing to give a liter of blood each time, and having to listen to the eastern european doctor saying “I vant yur blut” a lot.Report

    • Oscar Gordon in reply to J_A says:

      Certainly for something like a Lipid panel, or any test that tends to get repeated with any regularity, I can see an argument for just putting in a standing order.

      Every 6 months, I drop by the lab, get a blood draw, and then after my PCP gets the results, she can request I schedule a follow-up if something looks funny.Report

      • Kim in reply to Oscar Gordon says:

        Who gets blood tests as a standing order? It maybe should be done, but people don’t do it.
        The reason why folks want doctors involved is false positives and negatives. They don’t want people saying “but I had a test and it said it was Fine!” … your heart was killing you, it wasn’t fine.Report

  15. Doctor Jay says:

    I like this piece. Quite a bit.

    Holmes may not speak all that well, but she’s a fantastic photograph, and that’s a kind of charisma.

    I haven’t followed the case all that closely, but I’ve been wondering about something. An entrepreneur can promise something in good faith, and then when it doesn’t work as expected, plow forward thinking the problems will get solved, and everything will be fine. Or they can plow forward knowing it’s never going to work, and just take the money. I am still in doubt about which of these Holmes did. But the sales pitch of “all their board belongs to the Hoover Institute” makes me deeply suspicious.

    Why would you do that? You would seek out sympathetic board members with experience that will be useful, right? But all the focus seems to be on selling the thing, and none of it on getting it to actually work right.

    You’re right about Palo Alto, and it makes me sad. I first lived there in 1979, and it didn’t really look like that then. It was a great place to be, there were several small art film houses on or near University Avenue, and other interesting byways.

    Holmes reminds me in some ways of Steve Jobs. Start with the turtlenecks, and continue with the whole “insanely great” at selling things – selling a narrative – to the public. But Jobs actually delivered product that more or less worked.Report

    • Oscar Gordon in reply to Doctor Jay says:

      True believer syndrome. If I can just keep the hype going, I can keep the money rolling in, so we can overcome the technical challenges and be heroes.Report

    • Aaron David in reply to Doctor Jay says:

      An entrepreneur can promise something in good faith, and then when it doesn’t work as expected, plow forward thinking the problems will get solved, and everything will be fine.

      Also referred to as Throwing Good Money After Bad.Report

  16. Jaybird says:

    Excellent article, start to finish.

    I find myself constantly wondering when incidents like this happen about the narrative that existed a year prior.

    What was the narrative?

    Then I look at the narrative and say “Oh. Jeez.”

    Then, as part of the aftermath, I look and see if the narrative survived the incident.

    You know, for the next time we have a similar narrative.

    If a narrative is bulletproof despite multiple incidents, something else is going on.Report

  17. trizzlor says:

    Another reason VCs invest in vaporware is because the investments have #brand value regardless of whether they materialize or not. The IBM Watson Personal Health project is considered a joke in academia, but it’s worthwhile as a brand investment because it makes IBM look like a cutting-edge, innovative company. Something that looks very similar to Theranos is going on at Google ( ) for the same reasons. Holmes captured certain Sillicon Valley signifiers – Girl Geek, Stanford dropout, personalized health, replacing doctors with apps – that were worthwhile investments even in the absence of a product. The problem is that Theranos pushed their failed product to market instead of slowly fading away.Report

  18. trizzlor says:

    One upside of this story: there’s now a lot of concern that the Silicon Valley culture of selling the sizzle and disrupting regulations poses a real risk when you’re talking about DTC health services, in a way that wasn’t there for social network apps or ride sharing or whatever.Report

  19. I’ve watched about 5 minutes of the first video. You’re right that she’s not super-dooper charismatic. But she’s not horrible. She is clear and she stays on message and much of what she says about expanding access to information resonates well with me. I can see her appeal. That doesn’t mean the media didn’t boost her as Tod says. And he’s done the research, so he should know.Report

  20. This deserves highlighting, especially here at OT, because this is not really a case of market capture, or of crony capitalism. It is, rather, a case of what conservatives and libertarians insist we need more of: sweeping deregulation across the board that favors innovation and that applies to all companies equally.

    I’m going to rehash a little bit of what Will said over at Hitcoffee. There’s some truth to what I’ve bolded above, although I’m also inclined to agree with Damon’s critique

    I also think there’s a pro-regulatory “liberal” counterpart that’s potentially dangerous, too. It’s the notion that we need our laws to buttress the prerogatives of professionals and to forbid people to act outside the parameters professionals establish. I’m not saying all liberals do that or that doing that is the essence of early 21st-century American liberalism, but it’s one of those tradeoffs that come with regulation.

    Perhaps there’s more of a middle ground possible. We could have regulation that demands companies like substantiate the claims they make or regulation that endorses or declines to endorse such claims, but yet not an a priori decision to outlaw attempts to do things in alternative ways. To me, Theranos’ and malfeasance, as Tod describes it, rested in promoting a product that didn’t work and didn’t do what it said it did and the legislators’ malfeasance rested in being too credulous of Theranos’ claims. The malfeasance didn’t in the fact that it wanted to provide a way to bypass doctors.Report

  21. Fish says:

    #5 is why the best I can manage is half-assed libertarianism. Wow.Report