The "bad blood" fraud case that shocked the venture capital circle is about to usher in the end.
This week, Elizabeth Holmes, founder of the sensational American blood testing company Theranos, appeared in a California court to stand trial after she was charged with fraud and other charges of fraud, and if convicted, she could face up to 20 years in prison.
Who is Elizabeth Holmes? Many people are estimated to be no strangers to her story: before October 2015, she was a Stanford bully, a Silicon Valley white rich beauty, a talented entrepreneur, who was favored by high-level politicians in the US business and political circles, and was praised as "female Jobs" by well-known VC tycoons.
It all stems from a device she invented that claims to be able to "drop blood to test cancer" — claiming that as long as a drop of blood is drawn at the fingertip, 240 medical indicators can be detected, from cholesterol to cancer. At that time, Elizabeth and her startup Theranos became popular all over the world, and even raised almost $900 million from a group of VCs and investors. But as the fake affair surfaced, she was pulled off the altar, and Theranos had a valuation of up to $9 billion.
Looking back now, Elizabeth's case is undoubtedly a painful lesson in the history of global venture capital, and many details show that this should not have been selected by VCs, but tim Draper, a well-known venture capitalist in Silicon Valley, was also unfortunate to fall into the pit, and investors are still reflecting on how to avoid making the same mistakes today.
A Stanford schoolgirl
"Blood into gold", once made a valuation of 9 billion US dollars
From being hailed as "the next Steve Jobs" by well-known investors to now being a prisoner of the order, Elizabeth Holmes's two-sided life experience is lamentable.
Born in 1984, Elizabeth has shown a "genius" trait from an early age. According to media reports, she wanted to make a time travel machine at the age of 7 and drew detailed design drawings for it; at the age of 9, she aspired to become a billionaire and become the president's wife; and later, she proposed to change the world and do something that "all mankind never thought could do", and this sentence seemed to lay the groundwork for her subsequent entrepreneurial career of "blood into gold".
Entering the middle school period, Elizabeth had excellent academic performance and A in all subjects, so she was successfully admitted to stanford University in 2002 and successfully won the Presidential Scholarship. During college, Elizabeth chose to study chemical engineering, which was very popular at the time, under the tutelage of Professor Channing Robertson, a big bull in the scientific research field.
Everything went on in an orderly manner until the 2003 OUTBREAK OF SARS. Elizabeth, a sophomore at the time, was interning in Singapore, which was also the hardest hit area of the epidemic, and Elizabeth began researching the detection of the SARS virus from the blood. However, in her opinion, this method is too inefficient and cumbersome, and the blood test means that blood is drawn, which is extremely unfriendly to the pain-sensitive people, and Elizabeth herself has said that she was "afraid of needles" as a child.
There are often opportunities behind the pain points, and Elizabeth is quick to make a judgment. After returning from Singapore, she locked herself in her home for five days, writing a patent for a medical device that monitored her physical condition in real time, and then approached Professor Robertson to discuss entrepreneurship, which was supported. In 2003, Elizabeth founded a biometrics company called "Theranos" (a compound word for Therapy and Diabetes) to explore real-time treatments. In May 2004, Elizabeth decided to drop out of Stanford University and devote herself to the development of new blood testing technologies.
After more than a decade of polishing, Theranos launched a blood test product called Edison to the market around 2013, claiming that as long as a drop of blood is drawn at the fingertip, 240 medical indicators can be detected, from cholesterol to cancer, and the minimum fee is only a few dollars, claiming to subvert the expensive and complex testing methods of the US medical system. In addition to technical propaganda, Elizabeth also set the slogan of "farewell to terrible needles and blood test tubes" for Theranos, thereby psychologically capturing people who are unbearable to feel pain.
The move quickly caused a sensation, with Walgreens, a 7,000-store pharmacy chain giant in the United States, seeking cooperation with Elizabeth, and Tim Draper, a well-known venture capitalist in Silicon Valley, who invested in Theranos' first million dollars early. More notably, Elizabeth was also favored by prominent figures in American politics, and even the then US President Barack Obama appointed her as the US global entrepreneurial ambassador; a number of celebrities directly entered the board of directors or became investors to endorse her Theranos company.
Theranos became the world's brightest unicorn. At the end of 2014, Theranos was named the "world-changing startup" after Tesla by North Atlantic; in 2015, Theranos was valued at $9 billion, Elizabeth held 50% of the shares, and was worth as much as $4.5 billion, so she was named "the world's youngest female billionaire" by Forbes magazine, and in the same year, she was named to Time Magazine's "100 Most Influential People of 2015 List". Even more legendary, because of the mostly dressed in black sweater pants, and the habit of public speaking with elbows on the knees, venture capitalist Mark Anderson called Elizabeth "the next Jobs".
For a time, everyone was immersed in the joy of discovering genius, and Elizabeth's entrepreneurial experience spread all over the world. Beneath the hustle and bustle, almost everyone selectively overlooked a hidden concern: Elizabeth only used vague words such as patent information and trade secrets to see how Theranos' blood testing technology worked.
Stunned the global venture capital community
Genius girls faked, startups dissolved
On October 15, 2015, everyone who knows Theranos will never forget the day when a force that destroyed Gula came and changed everything.
The reason was a front-page headline published by the Wall Street Journal on the same day, titled "A Prized Startup's Struggles", which is more like an investigation report on Theranos.
The source of the article cites the testimony of four former Theranos employees, questioning the effectiveness of the company's blood testing device, Edison: first, Edison can detect only 15 indicators, but claims to be able to detect 240 indicators; second, the accuracy of Edison's testing is critical, possibly violating federal regulations on laboratories. Even more fatal, the article mentions that a large number of Theranos' tests were performed on traditional devices purchased from companies such as Siemens, which means that Edison's "genius" invention was fake from the start.
As soon as the news came out, public opinion quickly fermented. "No wonder she's so secretive about technology", "Few board members know how to test blood"... Elizabeth and her Theranos instantly became a hot topic in Silicon Valley, and the scandal quickly fermented around the world.
Elizabeth did not sit still, she hired a well-known legal team, ready to sue the Wall Street Journal for defamation, at the same time, also appeared on the famous American TV show "Mad Money" (Mad Money), positive response to public questions. On the show, she said in a Jobs-like tone: "When you want to change the world, someone will target you, which is normal... At first they think you're crazy, and then they're going to attack you, but as long as you get through it, you can see the light of day. ”
But the Wall Street Journal didn't give Elizabeth a chance to breathe, and three weeks after that, a number of follow-up stories broke out, blowing up the black scenes of Theranos. On the other hand, U.S. politicians have begun to step down as directors, Walgreens, a pharmacy chain giant that has worked with the company, has announced the closure of all stores of "health centers", and the FDA of the U.S. Food and Drug Administration has officially launched an investigation into Theranos and issued a warning of its laboratory practices.
The FDA survey and clinical comparative data from academia quickly validated the media claims. It is understood that less than 10% of Theranos' testing programs (including prostate cancer and pregnancy programs) rely on Edison instruments, while more than 60% of the projects are done on traditional instruments using special dilution methods, which increases the probability of misdiagnosis. There was a girl who used Edison to measure her blood potassium concentration, the results were ridiculously high, the doctor said that she was likely to have a heart attack, after a follow-up examination, she found that the girl was very healthy.
After the equipment fraud scandal was exposed and confirmed, the lawsuit against Theranos Company flew like a piece of paper, people seemed to wake up from a big dream, and verbal attacks such as "liar" and "shame" were constantly heard. On June 1, 2016, Forbes updated Elizabeth's personal net worth valuation to 0, and Fortune magazine named her "the most disappointing leader in the world", and only a year or so later, Elizabeth quickly fell from "thousands of pampered one" to the altar.
But the "reckoning" for her is far from over. In June 2018, U.S. federal prosecutors indicted Elizabeth on nine counts of wire transfer fraud and two counts of conspiracy to commit fraud, alleging that she had defrauded investors, patients and doctors with the company's blood testing technology. In the same year, Theranos announced its dissolution.
Elizabeth will go to trial in September this year, the opening statement will be held on September 8, the trial is expected to last 13 weeks, and she will face up to 20 years in prison if convicted of fraud charges.
From "female Jobs" to "Silicon Valley's most cattle liar", Elizabeth has experienced two ups and downs in just a few years, and the Wall Street Journal reporter has compiled her story into a book called "Bad Blood", which is one of the most sensational fraud incidents in the history of global venture capital in the past decade.
Famous VCs endorsed and raised $900 million
It's all adrift
Along the way, Theranos has gained the support of many political and business circles and well-known investors.
Well-deservedly known as "Silicon Valley's top white rich beauty", Elizabeth's neighbor is the famous investor Tim Draper (the founding partner of the DFJ) investment fund), and her first investment came from this neighbor - $1 million, and then DFJ continued to support Theranos.
Tim watched Elizabeth grow up and never skimped on her praise and appreciation, saying that Elizabeth was one of the most outstanding female entrepreneurs in the world. With Tim's endorsement and support, Elizabeth went well in the follow-up financing process.
According to incomplete statistics, In 2004, Theranos received $6.9 million in financing; $16 million in 2005; $28.5 million in 2006, and $400 million in 2014, with a valuation of $9 billion, and Elizabeth's net worth reached $4.5 billion. In fact, back in July 2010, DFJ, John Levinson, Ryan J. Orr, ATA Ventures, T Peter Thomas, Bob Shapiro, Thomas C. Hawes and Colton Dillion jointly invested $45 million in Theranos.
According to Theranos, there are 6 major institutional investors behind him. In addition, Theranos had two huge rounds of funding in October 2015 with undisclosed investors. On December 24, 2017, overseas financial media broke the news that Theranos had obtained a new financing of $100 million, funded by Fortress Investment Group, but the news was not confirmed.
It is reported that fortress will receive a 4% stake in Theranos, and the loan from Fortress will be collateralized by Theranos' patent. Fortress is an American asset management company that invests in non-performing assets as one of its specialties, and in February 2017, Japan's SoftBank Group announced that it had acquired Fortress for about US$3.3 billion in cash.
Roughly speaking, Elizabeth and Thenaros raised nearly $900 million (about 6 billion yuan) from investors, and now this huge investment is estimated to be adrift.
What is less well known is that Google Ventures once had a crush on Thenaros. In 2013, after careful consideration, the former decided to abandon his investment in Thenaros. This detail was voluntarily disclosed by Google Ventures after Theranos was suspected of having a huge suspicion of counterfeiting.
In the investor's description, Elizabeth is a very strong founder, and when raising funds, she does not disclose to investors how her technology works. Of course, this also laid the groundwork for the future exposure of "earth-shattering scams".
It's a shame
She taught the venture capital community a painful lesson
Returning to the farce itself, it has left many profound lessons for the venture capital community.
First of all, for Elizabeth, when she dropped out of Stanford at the age of 19, there was reason to believe that she did pursue a career with the desire to "change the world," and even the Wall Street Journal reporter who kicked out the Theranos scam did not deny this: "She had a vision that she truly believed in and devoted herself to it." ”
However, when the trace, faster, more accurate and painless blood detection technology could not be successfully developed, she chose to steal equipment, tamper with data, deceive the trust of customers and investors; make celebrities, speak around, create the illusion of successful people, and finally abandon the original intention of entrepreneurship, desperately take shortcuts, helpless to the East Window Incident.
Entrepreneurship is difficult, but even so, there are still many entrepreneurs who insist on doing "difficult and correct things", they see the growth of their own enterprises as a long run, as long as the direction of departure is correct, they can be infinitely close to the end, on the contrary, no matter how far they go, they will only deviate more and more.
This earth-shattering case has brought investors more to think about. Back in the beginning, Elizabeth was plastered with all kinds of labels that seemed to be successful entrepreneurs, Silicon Valley-born, gifted girls, Stanford school bullies... And her outfit resembling "Jobs" is perfectly in line with all the imaginations of people for subversives at that time, coupled with the high-level respect in politics and business, it is easy to confuse those VCs who believe in the philosophy of "investment is investment".
However, if you analyze it in depth, it is easy to see that Elizabeth's initial conditions for starting a business are so difficult to scrutinize: How did a Stanford dropout who only took chemistry courses for about two semesters invent pioneering detection technology in biomedical fields that are much more barrier and depth than other majors? She hasn't even published a weighty academic paper in any well-known academic journal.
In addition to the misjudgment of investment logic, the psychology of crazy grabbing projects and "FOMO" is also an important reason why VCs have fallen behind in Elizabeth's case. The so-called FOMO psychology refers to the "For Fear of Missing Out", with the intensification of competition in the venture capital industry, VCs are worried about missing a good opportunity to bet on unicorns, and they are more afraid that opponents in the industry will take the first step, so they may have seen many abnormal situations, but still choose "rather than mistakes, do not miss", and eventually suffer major losses. This scene, I believe that the domestic venture capital circle has also had a deep understanding.
In the past two years, the anxiety about project investment spread, many investors bluntly said, now there is no time to do due diligence, a cursory look at the company's various aspects of the data indicators, immediately to TS (letter of intent to invest), some even on-site payment, the result of this phenomenon is that the valuation of the project has been greatly increased, the venture capital industry into the infighting, and more importantly, those institutions that are eager to sell are invisibly exposed to huge risks.
Fortunately, more and more VCs/PE in China are aware of this problem and have begun to adjust. From the perspective of investment direction, at present, investing early, investing in small, investing in technology; investing in the neck of the card; investing in domestic substitution, etc. have become the consensus of the venture capital industry, using the power of funds to cultivate unicorns that truly create value, and more and more investment institutions have changed their thinking, transforming from financial investors into "fellow travelers" around entrepreneurs, supporting each other to do "difficult and correct things". From the perspective of investment strategy, digging deep into the industry and researching first has also become a magic weapon for VCs/PE to overcome project anxiety and seek differentiated competition. In the objective context of the increasingly differentiated industry pattern, the phenomenon of "grabbing projects" may continue for some time, but more and more institutions are turning to the "small and beautiful" development mode and deeply cultivating opportunities in various segments.
In September, Elizabeth finally went to trial, and soon the much-talked about story of "Bad Blood" will come to an end. Onlookers can watch the hilarity, but for the entrepreneurs and investors who are in it, this will eventually be a painful lesson that is difficult to forget.