Whatever happened to Theranos? Lessons from a startup bust

By Tina Irgang

Last year, Theranos founder Elizabeth Holmes was at the top of Forbes’ list of America’s Richest Self-Made Women. When the magazine released its new list on June 1, Holmes had dropped off completely. In fact, Forbes announced it was lowering its estimate of her net worth to zero. What went so wrong in just a year?

The magazine’s estimate is based on Holmes’ 50-percent stake in Theranos. In 2014, Forbes notes, investors purchased stakes in the company that suggested a valuation of $9 billion.

“Since then, Theranos has been hit with allegations that its tests are inaccurate and is being investigated by an alphabet soup of federal agencies,” the magazine says. “That, plus new information indicating Theranos’ annual revenues are less than $100 million, has led Forbes to come up with a new, lower estimate of Theranos’ value.”

When the company first started, its promise was to disrupt the lab market with technology that would use a tiny amount of blood to run a large number of tests. The company called its testing system “Edison,” after the legendary inventor.

But then The Wall Street Journal started to investigate late last year, and what it found wasn’t pretty.

“The company offers more than 240 tests, ranging from cholesterol to cancer. It claims its technology can work with just a finger prick,” says The Wall Street Journal. But “in a complaint to regulators, one Theranos employee accused the company of failing to report test results that raised questions about the precision of the Edison system,” which could constitute a violation of federal lab rules. The employee also alleged that the Edison device could only perform 15 tests, and did so with questionable accuracy.

In addition, the Journal found that Theranos was actually using traditional machinery produced by Siemens to perform many of its tests. In response, an attorney for the company acknowledged that Edison wasn’t being used for all tests, but said the technology would eventually get there.

Meanwhile, Forbes notes, the Food and Drug Administration (FDA) has only given approval for a single herpes test conducted by Theranos. While Holmes had promised that some 120 additional approvals would be forthcoming, the FDA instead “introduced restrictions that led Theranos to stop using its finger-stick tests.”

In April, the Securities and Exchange Commission and the U.S. Attorney’s Office for the Northern District of California launched investigations into whether Theranos misled investors about its technology, according to Vanity Fair.

The problem with startup hype

“It’s hardly unusual for a startup to over-hype its potential in its early days. Mark Zuckerberg was crowing about connecting every person in the world long before that claim seemed plausible,” says Wired. “But Theranos is a cautionary tale of what happens when that mentality creeps into sectors other than software, such as medicine.” The equation suddenly becomes very different when people’s health might be at stake.

Another problem, Wired notes, is that the tech industry and its investors are constantly on the lookout for the next idea that will change the world. Based on that mentality, investors kept pouring money into Theranos over the past decade, even though not much was known about the company’s methodology.

“If Theranos had been transparent about how its technology worked, or the fact that it wasn’t fully realized, it wouldn’t be in the mess it’s in now,” argues Entrepreneur.

Theranos made another major mistake in trying to cut physicians out of the testing process and pitching consumers the convenience of walking into a pharmacy for a blood test any time, argues Business Insider. Because no medical professionals are involved, the testing process is subject to far more scrutiny from the FDA than might be the case otherwise, the publication adds.

In an October news conference, trying to dispel concerns raised by the Wall Street Journal investigation, Holmes said, “People don’t understand what we actually do.”

And that’s exactly the problem.

Tina Irgang is the production editor for SmartCEO. Contact her at