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The Elizabeth Holmes trial: Fraud, funding and a reckoning for Silicon Valley

Elizabeth Holmes, the founder and former CEO of blood testing and life sciences company Theranos, arrives for the first day of jury selection in her fraud trial, outside Federal Court in San Jose, California, on Aug. 31, 2021. (Nick Otto/AFP/Getty Images)
Elizabeth Holmes, the founder and former CEO of blood testing and life sciences company Theranos, arrives for the first day of jury selection in her fraud trial, outside Federal Court in San Jose, California, on Aug. 31, 2021. (Nick Otto/AFP/Getty Images)

Elizabeth Holmes was a Silicon Valley wunderkind. Now, she’s been found guilty of fraud.

But, from 2003 — when she first founded her company Theranos —  all the way to 2013, she built a company valued at $10 billion.

But, not everyone was convinced.

“I met Elizabeth Holmes late in 2006, when she was raising some of the early rounds of capital for Theranos, and it was clear when I sat across the room from her that she could not answer the basic questions about how the device worked,” Dr. Bijan Salehizadeh says.

If that’s the case, why did so many other supposedly savvy investors fall for her?

“What we’re seeing in the last decade-plus with a lot of companies led by these young, charismatic founders that are attracting vast amounts of capital is, the story is the vast amounts of capital,” Margaret O’Mara says.

Today, On Point: Fraud, funding and Silicon Valley’s ‘fake it till you make it’ culture.


Dr. Bijan Salehizadeh, investor in health care venture capital and private equity for over 20 years. (@bijans)

Micah Rosenbloom, managing partner at the venture capital firm Founder Collective. (@micahjay1)

Kara Swisher, opinion writer for the New York Times. Host of the podcast “Sway.” (@karaswisher)

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Margaret O’Mara, professor of history at the University of Washington. Author of “The Code: Silicon Valley and the Remaking of America.”

Quick Read: Margaret O’Mara’s History Of The Rise Of Silicon Valley And Startup Culture

How did Silicon Valley’s cultural history lead us to the Elizabeth Holmes trial?

There has been great excitement and optimism about technology technologists, technology companies that’s long standing. In the late 1970s, early 1980s, when figures like Steve Jobs are popping into the public eye, Bill Gates, these are new style CEOs and new kinds of products that are rising up at a moment when the old economy in the U.S. is stumbling.

This is happening the same time that Detroit is under assault by Japanese carmakers, where the American dream doesn’t seem quite as potent as it used to be. And here we have these new companies, these new products that are transformative. And it was a really great 40-year run of incredibly good press and excitement about it. And also products, digital devices that have more computing power than the entire Apollo program. And I’m holding one of them in my hand, my iPhone, as I speak to you. It’s extraordinary.

But O’Mara says that a little more than a decade ago, the relationship between tech founders and venture capitalists changed.

The big change occurs in the wake of the Great Recession. 2009 or so, where you have a financial system that has faltered in some areas, in some industries, and where there’s a vast amount of money looking for a home. And the best bet on the stock market is our tech and tech related companies. You look at Apple, you look at the big guys, they are making extraordinary returns for their investors. And so other investors are looking at, where can we get on this rocket ship at the launchpad and in the process?

Tech founders, she says, gained a lot more clout with investors.

One big change is that these young technical founders have entered into agreements that have ensured that, even if adult supervision is brought in. That they are neither moved out of their company, nor did they lose control of that company’s direction. And really, the blueprint for that was Google. When Sergey Brin and Larry Page in 1998, Stanford graduate students in computer science, ensured that the very generous early rounds of venture capital financing that they received built in space for them to have control.

This is the beginning of the spread of dual class stock, in which founders keep a big chunk of control over companies as they grow. So that model has been one that has become more and more common. We see that in Facebook. That’s one reason that Facebook doesn’t do what Mark Zuckerberg doesn’t want it to do. And this also helped with Theranos, where, as Elizabeth Holmes fraud trial made very clear, she had an extraordinary amount of control and power over the direction of that company, even though she was young, and inexperienced and didn’t have that much background in that particular space.

All of which leads Professor O’Mara to the current moment.

There are some very exciting companies that are being created, funded, nurtured and grown in this moment. And new innovations and new exciting entrants into the market. But there also is a lot of other noise. And I think the thing that everyone should remember, whether you’re an entrepreneur, or an investor or a citizen, is this is a cyclical economy. There is a boom and there is a bust. And this has been a very long ride, and a very long boom. But you know, as someone who studies the history of this industry, and the history of American capitalism, I know that booms don’t go on forever.

This article was originally published on WBUR.org.

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