The more I read about theranos the more apparent it is that there is something fundamentally wrong with it's core goals, leadership and technology. One easily identifiable red flag is the composition of its board. It's nearly all ex-military and government officials not veteran entrepreneurs and technologists. Just to name a few: George Shultz (former Secretary of State), Sam Nunn and Bill Frist (former U.S. Senators), James Mattis (General, USMC, retired) and Gary Roughead (Admiral, USN, retired) Henry Kissinger (former Secretary of State), William Perry (former Secretary of Defense)
In discussion on other HN threads, some commenters suggested that the board was composed that way to grease the wheels of a DoD acquisition of the company's "tech". As OP put it [https://news.ycombinator.com/item?id=11403165]:
John the more I think about Theranos the more I think this “mess” is actually deliberate. Looking at the history of Theranos and the composition of the board it appears Theranos was designed from early on as a vehicle to defrauded the US military.
The plan appeared to be to use their connection and access to some rather “helpful” high brass to offload the technology for billions and then later sweep the fact that it didn’t work under the rug (this tactic has worked fabulously for the last 20 years). Avoid the FDA altogether.
Who would have noticed another $10 billion misspent on some wizz-bang technology given the $100s billions lost in other frauds? When the wheels fell of this plan (some underling didn’t play along) the idea seems to be to blame the scientists and say “we were misled”. They might be evil, but they don’t appear to be stupid.
I have met many later-in-their-career, senior government folks cultivating a transition into the private sector.
They seem particularly vulnerable to this kind of catastrophe. It's like they have their favored peers who are also retiring & they get them connected to a firm by someone who also left and wants to help out other govies. They do 20 years in the military and then go work in private sector for companies that will sell to the government. So the board gets loaded up with civil servants rather than entrepreneurs.
My perception is that their career experience doesn't arm them with the ability to identify a company with inadequate runway & execution talent. They seem to think a a well connected "who-you-know" network would have enough collective wisdom to avoid this scenario, or maybe they don't really consider that failure is possible, given the funding environment of the military.
What if the company had been wildly successful, would you still view it's board composition in the same light? I agree with you, these are some pretty powerful 'non-scientific' people and it should raise some questions.
Yeah, the board members all fit into "ideas guy" archetype. AKA a useless moron that doesn't contribute to the end product in any way, but still takes all the credit for it.
Funny to see tech VCs try to get into the medical space with no knowledge or expertise in the subject. Expect more of this as clueless GPs try to cash in on personalized medicine trend and shady founders give them every opportunity to hop aboard. There are already professional VCs who do this shit all day everyday, they just hang out in Kendall Square and RT. 128 not SF.
There are plenty of Biotech VCs in the bay area. The one I know best is Third Rock Ventures, but there are others. The timelines for success are extraordinarily long so it's not quite as splashy a space. It's almost impossible to "fail fast" with a "MVP" in the biotech space, so you have to put in tons of capital for a long time.
That said personalized medicine should end up being interesting, but I think it's really, really early days.
Medical research is in great need of a major shakeup, because I feel like current research models have seriously underperformed in recent years...
...but now that isn't going to happen, primarily because of this debacle.
It's so sad that the "keystone cops" at Theranos have done so much damage to the reputation of the medical startup community- Possibly, they've set medical research back by several years with their bad behavior.
Every time from now on when someone dares suggest that medical regulation is stifling innovation, they will be asked to defend Theranos, which appears indefensible.
I think the damage is largely limited to the reputation of the Silicon Valley medical startup community. The biomedical community (which doesn't have much overlap with the pg definition of "startup") has been very skeptical of Theranos (and I think to a lesser extent, SV) for a long time, well before the WSJ's recent articles. The fallout from Theranos might even help Boston and RTP firm up their positions.
It's just a matter of time before huge writedowns in the valuation happen. And Elizabeth Holmes won't be described as a billionaire for much longer (which unless I have missed something is almost all on paper).
Without a drastic plot twist it appears this company is little more than vaporware. At least the investors that will lose their money are people who should have all known better (and can afford the loss!), back in the dot com boom this thing would have been held by mom and pop.
> And Elizabeth Holmes won't be described as a billionaire for much longer (which unless I have missed something is almost all on paper)
Almost anytime a startup gets to a valuation that high, the founders have had an opportunity to take some money off the table. VCs like this, because it keeps the founders' incentives aligned with the investors' (they are more likely to take risks and swing for the fences if they don't have to worry as much about their own personal net worth).
It's dangerous if the founder divests entirely, but you want them to have enough that they aren't too worried about the risk of the company collapsing to make bold decisions when necessary.
That said, I don't know Theranos's cap table, but it's probably unlikely that her current stake in Theranos is worth $1B on paper even today - did she really manage to achieve a $9B valuation while holding onto 11% of her company?
> back in the dot com boom this thing would have been held by mom and pop.
Who also should have known better. If someone doesn't understand how a company they invest in makes a profit, or what the risks to that company are, they have no business investing in it. For example, I hold agency-MBS REITs in my portfolio, but only because I'm willing to read the quarterly filings and keep an eye on news relevant to interest rates. They are absolutely not an investment I would recommend to most people who want something simple they can "set and forget."
I can't imagine the stress she must be under right now, unfortunately, it seems like the vast majority of it was her own doing.
Will be interesting to see what the company does. Normally the CEO would be "asked" to step down from having any involvement with the company whatso ever.
However, I believe she's the majority shareholder so the usual remedy of removing her from the company altogether might not work so well.
Man, there goes any hope of a decent exit anytime soon Thernos, as usual its the employees themselves who will absorb the brunt of this. I hope they have alot of money saved because if they try to raise again, and its debatable if t hey'd be able to, its going to be a nasty round.
> However, I believe she's the majority shareholder so the usual remedy of removing her from the company altogether might not work so well.
She could step down voluntarily if she believes that someone else could turn the company around. That would be better than going bankrupt and losing her entire fortune in Theranos stock.
"One of those tests, a blood-coagulation test known as prothrombin time, measures how long it takes blood to clot and is often used by doctors to determine which dosage of the blood thinner warfarin to give patients.
Wrong prothrombin time results could cause doctors to prescribe too little or too much warfarin. Too much of the drug, also known by its brand name Coumadin, can cause fatal bleeding, while too little can leave patients vulnerable to clots and strokes, according to medical experts."
Huge free market failure here. Thank god we still have some working government regulation in this country.
How did a company like Theranos get so "far" with all signs early and present pointing to deep, fundamental problems? I refuse to believe investors simply failed to perform due diligence.
I heard from a friend who is fairly prominent in the microfluidics space (doing lab work with much smaller amounts of material than ordinarily required) that initially it was a drug delivery company. Delivering compounds in a reliable time released way is challenging and valuable, and I think their initial foray was in that direction. Apparently it didn't work well early on and they pivoted in this direction, so maybe the VCs were not expert in the space post pivot.
More likely I think they were also enamored with what looked like promising results. I've personally seen situations where technical due diligence on lab tech was poorly done and therefore wrong. Unless the VC has a fairly strong science background/scientific advisors in a related sector, it's super easy to make something look like it's working when it's actually totally busted.
I think they ran in stealth mode for as long as possible. I remember finding out about them and not seeing a lot of information other than a few job postings some time back. Seems like once they started their move into daylight, the Wall Street Journal has been on a mission to take them down.
It's not obvious that the diagnostic assays they were running couldn't scale down.
These assays are performed regularly on large samples no problem, but the sensitivity and accuracy of the assay becomes erratic when you only have a couple micro liters of blood.
Either they couldn't develop proper assays (an engineering problem) or microliters of blood don't contain enough substrates for their assays (a major lapse in knowledge)
A combination of greed, badly wanting to win the VC lottery, and not wanting the obligation of knowing whoever holds their stock is a whale.
If you've ever invested in something and found out you were about to lose it, part of you flirts with the idea of selling while you still have plausible deniability. You know that if you ask too many questions, you'll lose that plausible deniability. Of course it doesn't really make a difference, you know damn well, but it's part of the grieving process.
Of note is that this letter is dated before the big dog-and-pony show they did of appointing a bunch of experts to their scientific and medical advisory board. Guess that was their attempt to get ahead of this news.
I've been short Theranos from the beginning. It's very obvious to people who have interacted with the type of person Holmes is.
> Stanfraud graduate (not even graduated)
> Father has a IV in his name
> Both parents work in DC (east coast)
These are HUGE red flags in a field where results are much more tightly correlated with technical expertise. They wouldn't be in another field that is less tightly correlated such as banking or politics.
Furthermore, anybody that has done any amount of research in any capacity knows that an undergraduate claiming their research project (in biology especially. CS is possible) could launch an entire company is either purposefully delusional or incompetent.
It seems like Theranos was a scheme to trick investors. It feels like the emperor has no clothes, but it was one of those ideas where "they are successful because they are successful" without anyone looking behind the curtain.
Maybe it's that legitimate medical tests take long enough that you could get a lot of sales and investment off of early trials and social proof.
I don't know anything about it to say that it really was a Bernie Madoff type situation, but it has a bizareness to it that feels similar.
Why haven't we heard anything from the VCs or , for that matter from anyone except WSJ ? If this letter is true, this is completely gross, how can a startup which is being punished for fraud still enjoy high valuations and, apparently the tolerance (if not support) of the silicon valley ?
I wonder how much Quest and LabCorp have lobbied to get Theranos under the microscope. Almost all labs have findings including FDA labs that need be to corrected. I just find it odd that WSJ seems to get access to government documents, internal information, and competitor benchmarks over and over again. Theranos faults aside, something does not smell right here.
I guess you prefer the old way where taxi cabs had a virtual monopoly, and it was expensive as hell. Uber did the right thing by disrupting this market.
Theranos potentially could have been amazing for medicine, but more and more this looks like an epic disaster.
[+] [-] dcgudeman|10 years ago|reply
https://en.wikipedia.org/wiki/Theranos#Governance
[+] [-] rzt|10 years ago|reply
John the more I think about Theranos the more I think this “mess” is actually deliberate. Looking at the history of Theranos and the composition of the board it appears Theranos was designed from early on as a vehicle to defrauded the US military.
The plan appeared to be to use their connection and access to some rather “helpful” high brass to offload the technology for billions and then later sweep the fact that it didn’t work under the rug (this tactic has worked fabulously for the last 20 years). Avoid the FDA altogether.
Who would have noticed another $10 billion misspent on some wizz-bang technology given the $100s billions lost in other frauds? When the wheels fell of this plan (some underling didn’t play along) the idea seems to be to blame the scientists and say “we were misled”. They might be evil, but they don’t appear to be stupid.
[+] [-] droopybuns|10 years ago|reply
They seem particularly vulnerable to this kind of catastrophe. It's like they have their favored peers who are also retiring & they get them connected to a firm by someone who also left and wants to help out other govies. They do 20 years in the military and then go work in private sector for companies that will sell to the government. So the board gets loaded up with civil servants rather than entrepreneurs.
My perception is that their career experience doesn't arm them with the ability to identify a company with inadequate runway & execution talent. They seem to think a a well connected "who-you-know" network would have enough collective wisdom to avoid this scenario, or maybe they don't really consider that failure is possible, given the funding environment of the military.
[+] [-] theseatoms|10 years ago|reply
[+] [-] kelvin0|10 years ago|reply
[+] [-] jboydyhacker|10 years ago|reply
[+] [-] peter303|10 years ago|reply
[+] [-] nickoakland|10 years ago|reply
[+] [-] peter303|10 years ago|reply
[+] [-] yarou|10 years ago|reply
[+] [-] droopybuns|10 years ago|reply
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[+] [-] pg_is_a_butt|10 years ago|reply
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[+] [-] cb18|10 years ago|reply
http://www.unz.com/isteve/the-elizabeth-holmes-reality-disto...
http://www.unz.com/isteve/theranos-maybe-old-white-men-dont-...
[+] [-] mrnd|10 years ago|reply
[+] [-] JoaquimBean|10 years ago|reply
[+] [-] entee|10 years ago|reply
That said personalized medicine should end up being interesting, but I think it's really, really early days.
[+] [-] drcode|10 years ago|reply
...but now that isn't going to happen, primarily because of this debacle.
It's so sad that the "keystone cops" at Theranos have done so much damage to the reputation of the medical startup community- Possibly, they've set medical research back by several years with their bad behavior.
Every time from now on when someone dares suggest that medical regulation is stifling innovation, they will be asked to defend Theranos, which appears indefensible.
[+] [-] tclmeelmo|10 years ago|reply
[+] [-] searine|10 years ago|reply
The research models have performed as they always have, if not better.
The only thing that's changed is the introduction of know-it-all Silicon Valley VCs who think bio is the same as software.
[+] [-] NN88|10 years ago|reply
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[+] [-] jonknee|10 years ago|reply
Without a drastic plot twist it appears this company is little more than vaporware. At least the investors that will lose their money are people who should have all known better (and can afford the loss!), back in the dot com boom this thing would have been held by mom and pop.
[+] [-] chimeracoder|10 years ago|reply
Almost anytime a startup gets to a valuation that high, the founders have had an opportunity to take some money off the table. VCs like this, because it keeps the founders' incentives aligned with the investors' (they are more likely to take risks and swing for the fences if they don't have to worry as much about their own personal net worth).
It's dangerous if the founder divests entirely, but you want them to have enough that they aren't too worried about the risk of the company collapsing to make bold decisions when necessary.
That said, I don't know Theranos's cap table, but it's probably unlikely that her current stake in Theranos is worth $1B on paper even today - did she really manage to achieve a $9B valuation while holding onto 11% of her company?
[+] [-] coderjames|10 years ago|reply
Who also should have known better. If someone doesn't understand how a company they invest in makes a profit, or what the risks to that company are, they have no business investing in it. For example, I hold agency-MBS REITs in my portfolio, but only because I'm willing to read the quarterly filings and keep an eye on news relevant to interest rates. They are absolutely not an investment I would recommend to most people who want something simple they can "set and forget."
[+] [-] chollida1|10 years ago|reply
Will be interesting to see what the company does. Normally the CEO would be "asked" to step down from having any involvement with the company whatso ever.
However, I believe she's the majority shareholder so the usual remedy of removing her from the company altogether might not work so well.
Man, there goes any hope of a decent exit anytime soon Thernos, as usual its the employees themselves who will absorb the brunt of this. I hope they have alot of money saved because if they try to raise again, and its debatable if t hey'd be able to, its going to be a nasty round.
[+] [-] simula67|10 years ago|reply
She could step down voluntarily if she believes that someone else could turn the company around. That would be better than going bankrupt and losing her entire fortune in Theranos stock.
[+] [-] return0|10 years ago|reply
[+] [-] wavesounds|10 years ago|reply
Wrong prothrombin time results could cause doctors to prescribe too little or too much warfarin. Too much of the drug, also known by its brand name Coumadin, can cause fatal bleeding, while too little can leave patients vulnerable to clots and strokes, according to medical experts."
Huge free market failure here. Thank god we still have some working government regulation in this country.
[+] [-] dwolfson|10 years ago|reply
[+] [-] entee|10 years ago|reply
More likely I think they were also enamored with what looked like promising results. I've personally seen situations where technical due diligence on lab tech was poorly done and therefore wrong. Unless the VC has a fairly strong science background/scientific advisors in a related sector, it's super easy to make something look like it's working when it's actually totally busted.
[+] [-] wombatpm|10 years ago|reply
[+] [-] kneel|10 years ago|reply
These assays are performed regularly on large samples no problem, but the sensitivity and accuracy of the assay becomes erratic when you only have a couple micro liters of blood.
Either they couldn't develop proper assays (an engineering problem) or microliters of blood don't contain enough substrates for their assays (a major lapse in knowledge)
[+] [-] minikites|10 years ago|reply
[+] [-] lawnchair_larry|10 years ago|reply
If you've ever invested in something and found out you were about to lose it, part of you flirts with the idea of selling while you still have plausible deniability. You know that if you ask too many questions, you'll lose that plausible deniability. Of course it doesn't really make a difference, you know damn well, but it's part of the grieving process.
[+] [-] makomk|10 years ago|reply
[+] [-] mplewis|10 years ago|reply
[+] [-] aznpwnzor|10 years ago|reply
> Stanfraud graduate (not even graduated)
> Father has a IV in his name
> Both parents work in DC (east coast)
These are HUGE red flags in a field where results are much more tightly correlated with technical expertise. They wouldn't be in another field that is less tightly correlated such as banking or politics.
Furthermore, anybody that has done any amount of research in any capacity knows that an undergraduate claiming their research project (in biology especially. CS is possible) could launch an entire company is either purposefully delusional or incompetent.
[+] [-] programminggeek|10 years ago|reply
Maybe it's that legitimate medical tests take long enough that you could get a lot of sales and investment off of early trials and social proof.
I don't know anything about it to say that it really was a Bernie Madoff type situation, but it has a bizareness to it that feels similar.
[+] [-] kqr2|10 years ago|reply
http://online.wsj.com/public/resources/documents/cms20160412...
[+] [-] phonon|10 years ago|reply
[+] [-] return0|10 years ago|reply
[+] [-] electic|10 years ago|reply
[+] [-] Ankaios|10 years ago|reply
[+] [-] cylinder|10 years ago|reply
[+] [-] jonknee|10 years ago|reply
[+] [-] pfarnsworth|10 years ago|reply
Theranos potentially could have been amazing for medicine, but more and more this looks like an epic disaster.
[+] [-] desireco42|10 years ago|reply
On the other hand, she is an excellent example of how not to be disconnected from reality for founders.
[+] [-] forrestthewoods|10 years ago|reply
[+] [-] AzzieElbab|10 years ago|reply
[+] [-] ageofwant|10 years ago|reply
Suffice to say that this debacle won't do any further biotech investment any good, and that's a great shame.
US$ 10B is a lot to piss away, I hope some good came of it.