Sometimes, entrepreneurs do have to take no for an answer. In Theranos founder Elizabeth Holmes's case, it took her years to learn this lesson and she learned it the hard way--when the Securities and Exchange Commission finally shut down her company.
The Stanford dropout who lost $900 million of investor capital with her blood-testing startup built on a lie is the subject of the fascinating new documentary The Inventor: Out for Blood in Silicon Valley. The film examines how Holmes deceived business leaders around the world into thinking she could revolutionize the U.S. health care industry, but it also highlights the dangers of Silicon Valley's "fake it till you make it" mentality. The movie screened at the Sundance Film Festival in January and premieres on HBO Monday.
Directed by Oscar-winning filmmaker Alex Gibney, whose 2015 documentary Steve Jobs: The Man in the Machine took a critical look at the Apple co-founder's value system, The Inventor serves as a film companion to Wall Street Journal investigative reporter John Carreyrou's best-selling book Bad Blood. The first journalist to expose what the SEC called a "massive fraud," Carreyrou is one of many people interviewed in the film who helped debunk Holmes's claim that her invention, named the Edison, could quickly perform hundreds of diagnostic tests using only a few drops of blood. Carreyrou published his first story about Theranos's struggling technology in October of 2015, the same month that Inc. published a cover story about Holmes.
Some of the most compelling parts of the film are accounts from former Theranos employees who worked on the company's failing technology while witnessing Holmes go to greater and greater lengths to deceive investors and the media. When the truth finally caught up with Holmes, who had been heralded as the youngest self-made female billionaire, federal prosecutors indicted her and Theranos chief operating officer Sunny Balwani on fraud charges. Theranos's valuation eventually dropped from $9 billion to zero.
Inventing a story
One of the central questions The Inventor seeks to address is how Holmes attracted financing and support from so many people--from Theranos investor and Oracle founder Larry Ellison to board member and former Secretary of Defense James Mattis--without providing audited financial statements or proof that her technology worked. Part of the answer, Gibney suggests, has to do with the power of storytelling.
"Stories have emotions that data doesn't, and emotions get people to do all kinds of things, good and bad," behavioral economist Dan Ariely says in the film. "If you think about the people who invested in her with a very little amount of data, it's about having an emotional appeal." In presentations, Holmes often cited her uncle's death from cancer as her motivation for trying to create "a world in which no one ever has to say goodbye too soon." Theranos's fast and simple blood tests, she claimed, would lead to earlier detection of health issues and allow the company to "democratize" health care.
The Silicon Valley mantra of "move fast and break things" popularized by Facebook co-founder Mark Zuckerberg may have also played a role in Holmes's ability to raise money from investors despite the fact that her company's technology hadn't been proven. Many startup founders stress the importance of entrepreneurs not giving up, even when faced with seemingly insurmountable challenges. At Theranos's offices in Palo Alto, California, one of the quotes Holmes put on the walls in giant letters was the famous line from Yoda in Star Wars: "Do or do not. There is no try."
Real blood, fake tests
Although the Edison device couldn't reliably perform the tests Holmes said it could, she and the machine's namesake, the inventor Thomas Edison, did have one thing in common: Both overpromised when it came to their accomplishments. As Gibney points out in the film, Edison claimed he had solved the mystery of the incandescent light bulb four years before he actually got it to work. He also faked demonstrations in order to raise more money from investors, a tactic Holmes employed by processing blood tests on commercial analyzer equipment in Theranos's lab and claiming the tests were performed by the Edison.
Unlike Edison, however, Holmes's deception took on much greater consequences when Theranos, in need of additional financing, signed a deal with Walgreens and began performing tests on real patients that often yielded inaccurate results. Tragedy also struck when a lawsuit involving a Theranos patent allegedly led blood-testing expert Ian Gibbons, the first experienced scientist hired by the company, to commit suicide.
"He was so distraught over this stupid patent misappropriation case and not knowing what he was going to do with the rest of his life," Gibbons's wife, Rochelle Gibbons, says in the film. She added that Holmes never contacted her after her husband's death, and that her only communication with Theranos came when she was asked to return her late husband's confidential documents to the company.
While The Inventor depicts Holmes as a talented con artist, it also suggests she had a blind faith that Theranos would eventually disrupt the U.S. health care industry. In the documentary, one of the quotes Holmes cites during an interview comes from Martin Luther King Jr.: "Take the first step in faith. You don't have to see the whole staircase." As Gibney says in the film, Holmes "never lost her faith in the power of invention."