Elizabeth Holmes is guilty. What does the Theranos trial verdict mean for founders and investors alike?

After a months-long trial process for Elizabeth Holmes, founder of Silicon Valley-based blood testing company Theranos, a jury found her guilty on four counts related to misleading investors.

Holmes was facing 12 charges of conspiracy and fraud, and was tried on 11 of those counts relating to misleading investors and customers about the validity of the company’s blood testing technology. She’d created a unicorn in Silicon Valley for the startup she founded in 2002 when she was just 19. She’d raised more than $1 billion, leading Theranos to a $9 billion valuation when it gained mainstream attention in 2013.

The Wall Street Journal initially took a deeper look into the company in 2015 and found that the company was only using its technology for a small portion of its blood testing, and that its accuracy was questionable. Charges of fraud were first filed against Holmes in 2018. She was found guilty on Jan. 3, 2022. (This episode of The Daily gives a great look at the case’s genesis.)

Fallout for women in tech

During the trial, prosecutors outlined a case in which Holmes knew the company’s technology could not deliver on its promise, but sold a different story to investors. Her own story — as a wunderkind and a woman building a STEM company — and subsequent downfall has consequences for others like her in the field.

“What I found most compelling was hearing from female founders, especially in life sciences and health care. Many of them told me that the downfall of Elizabeth Holmes is still impacting them,” wrote Erin Griffith, a New York Times reporter who’s covered the case, in a September article. “She was the most successful example of a female founder at the time and remains one of the most infamous ones. One thing I heard over and over was just disappointment that this person who was held up as such a shining example for women in tech turned out to be an accused fraud.”

When the story first broke years back, one woman founder of a Philly-based medical device firm told Technical.ly that she got the comparison to Holmes often: “I walked into a meeting with investors and I happened to be wearing a black sweater” — much like Holmes frequently donned. “They asked if I was the new Elizabeth Holmes.”

As the verdict came in this week, and Holmes awaits sentencing, Technical.ly asked founders, investors and technologists across the mid-Atlantic and beyond what they thought about the trial and its impact.

Philly-based Alice Walsh, the VP of translational research at a life sciences company, said she feels a personal connection to Holmes as women in biotech around the same age. Walsh also studied engineering and “dreamed about diagnostics to improve patient care.” But she didn’t take the same controversial path.

“I now work at a VC-funded startup and talk to a lot of other small biotech companies. I see a lot more to be optimistic about. There are amazing people doing great work — a lot of ‘anti-Theranos’ companies doing cool work,” Walsh said. “However, I do think that Theranos cast a big shadow over legitimate players in the space who are trying to advance point-of-care blood diagnostics. The picture was pretty grim for women founders before Elizabeth Holmes and I don’t think she helped.”

‘Breakdown of due diligence’

McKeever Conwell, founder and managing partner of RareBreed Ventures just outside of Baltimore, said the case highlights some high-level issues within the VC industry. Holmes was able to find some very powerful investors early on in the company’s career, but not many specializing in the life sciences, he noted.

“When you’re a generalist investor, sometimes you are investing, you know, in industries you might not know as much about or dive as deep in. But then this also shows the breakdown of due diligence,” Conwell said. “In certain cases, investors will take the word of other investors or their friends or people they’ve worked with before as their due diligence.”

What's the accountability of those investors for their due diligence?

Conwell said he can both understand the guilty verdict and why Holmes did what she did. But he also thinks there’s responsibility that lies within the investors to take the time to understand what they’re funneling money into.

“She did everything she did to create the opportunity to build a company and to try and create something that she thought could be world changing,” Conwell said. “She took it to a far, far extreme, and she’s going to pay for it. But for these investors — they messed up. … What’s the accountability of those investors for their due diligence?”

Del Smith, CEO of biotech company Acclinate in Birmingham, agreed that the investors hold some responsibility here. And it highlights the idea that founders can capitalize on relationships with investors with a less stringent due diligence process.

“Raising venture capital today is a challenge for most founders, and presents an even greater challenge for Black founders who oftentimes receive even greater scrutiny and due diligence with their venture,” Smith said. “Although VCs would have founders believe that their decision is built on complete rationality, the reality is that many VCs still have personal bias and are influenced by their peers.”

‘Gray area’

Founders, venture capitalists and others in the startup space can likely sympathize with some of the inter-workings of Theranos’ success and demise. Philly-based serial entrepreneur Tim Allen defined it aptly: “It’s such a gray area.”

“Investors know that startups have to paint a fantasy-land picture in order to wow them enough to get the money to try. They’re also aware of the failure rates,” Allen said. “However, in this case, plausible deniability went out the window. They knew what they were saying was untrue, rather than just ‘extremely unlikely.'”

And Pittsburgh-based Code & Supply Managing Director Colin Dean, who’s also a software engineer, explained that delicate balance that comes with selling something that doesn’t yet exist: Startups constantly grapple with setting customer expectations in a way that doesn’t align with sales. It’s also complicated to assess risk as an investor, and there’s a lot of trust involved there, he said.

“I’d like to believe the Holmes honestly believed that what she claimed would eventually be realized. But I also trust the investigation and jury in this case,” Dean said. “There’s just enough information to demonstrate beyond reasonable doubt that her demonstrations and promises were lies, terrible lies.”