Bad Blood: Secrets and Lies in a Silicon Valley Startup

This book joined my library after I heard that Elizabeth Holmes had been found guilty of defrauding investors in January of this year. One quick amazon search later, and I had found the book Bad Blood: Secrets and Lies in a Silicon Valley Startup by John Carreyrou…not to be confused with the book I reviewed in February, Bad Blood: The Tuskegee Syphilis Experiment. This Bad Blood specifically details the rise and subsequent fall of Elizabeth Holmes and her company Theranos.

Oh…quick disclaimer, not all the names mentioned in the book are the correct names. They all belong to real people, but some of them have been granted pseudonyms by the author to protect their anonymity. And whereas some books will include a little asterisk the first time a pseudonym is used, this one did not. Which I’m cool with, it kept me from wanting to look everyone up to see who was using their real names.

Elizabeth Holmes was born on February 3, 1984, in Washington DC to Christian Rasmus Holmes IV and Noel Anne Holmes. The family was not wealthy, although they certainly came from wealth, as she traces her heritage back to medical doctors on one side and the Fleischman fortune on the other. But by the time Elizabeth was born, the money was gone due to bad money management. Incidentally, this is not unusual. Generational wealth is, to a certain extent, a myth, as those who don’t earn it rarely know how to keep it past inheritance.

Anyway, Elizabeth wanted to be rich. Like as a kid, that was her stated life goal, was to be rich, to restore the family fortune. And at first, she was on track to do exactly that, she worked her butt off in school and earned her way into Stanford University, which is no small feat. It’s too bad that she was grossly impatient. If she had actually taken the time to learn all she could about her chosen field, she might not be where she is now.

So, while she was growing up, and given that she was very smart, she was enrolled in a summer language program to learn Mandarin and spent the summer she turned 18…I think… in China, and this is actually where she met Ramesh “Sunny” Balwani, who stood up for her against some bullies. Seems weird to think you could be bullied at 18…I don’t know, I’m sure some tried, and I just didn’t care about it enough to be bothered.

So, she gets back from China, starts at Stanford, and spends one year there, before thinking she has found the next big medical hit, a patch that will sit on the skin and test the blood while delivering medicine. She took this idea to Professor Phyllis Gardner at Stanford University. Dr. Gardner explained to her all the ways this would not work. It wasn’t just that the tech had not been invented, it just wouldn't work because microfluidics and delivery of medication are not compatible ideas. Basically, the doses need to be big enough to be effective, and micro doses do not fit that bill. Dr. Gardner referred Elizabeth to Channing Robertson over at the school of engineering. And there Elizabeth talked Dr. Robertson into supporting her vision and he became among the first to invest in her vision and company. She dropped out of Stanford in 2003, along with co-founder Shaunuk Roy, and formed Real Time Cures, renaming the company Theranos later that year. Roy would eventually sell his 1.13 million shares back to the company at 50 cents per share, a whopping 82% discount to what he and other investors had paid into the company. Turns out, he was lucky in that discount, although it probably didn’t seem like it when Fortune magazine would later name Holmes the youngest self-made female billionaire.

She immediately started seeking out investors and rounded up a pretty solid initial round of $6 million. And within three years, Theranos was a going concern, and Holmes was in business with a solid board of directors, that included Channing Robertson, and Don Lucas.

Robertson, as has already been introduced, was a Stanford professor on engineering. Don Lucas is a Silicon Valley venture capitalist. And these guys, along with many smaller investors, including Holmes’s parents, were keeping the company going through failure after failure and an alarmingly high amount of turnover. And if there is one thing this book high lights in detail, it is the employee burnout, which occurred as a result of an incredibly toxic work environment. And this place was toxic to the nth degree. One of the rejected employees, or maybe it was board member Avie Tevanian, who was given the option to get with the program or leave, opted to instead address his concerns with a member of the board of directors, and he recommended to the board that they should hire an adult to oversee the company, highlighting some of the many concerns that he and other employees had. Holmes was over promising and not just under delivering, but failing to deliver anything at all, mostly due to the toxic work environment.

The board member called a meeting of the board of directors and were going to do exactly what the employee had recommended. Holmes managed to convince them otherwise, and instead brought on Sunny Balwani as Chief Operating Officer. And between the two of them, they made the company even worse, basically forbidding the different departments from talking to each other. So, the biologists and chemists, who are actually overseeing the tests and reading the results, are forbidden from talking to the engineers who are in charge of designing the machine. So, when there is a malfunction, they aren’t allowed to discuss it with the engineers. The engineers are forbidden from talking to the design team who determine what the devices look like from the outside. All are forbidden to talk to the press by draconian non-disclosure agreements. NDAs are not uncommon in any industry, but what is unusual is the hostility with which former employees were pursued with the NDA’s.

So, the turnover is high, and while the hostile work environment is the number one reason, the number one contributing factor to the hostility is the fact that the machines don’t work. And anyone who brings this fact to Elizabeth’s attention is fired. And the terminations are hostile. Security corrals the fired and frog marches them out the door after forcing the signing of a new NDA.

And this goes on for a decade, the failure hidden behind NDA’s, the ruthlessness, the mental brutality. But where things start to fall apart is with old family friend Richard Fuisz. For a time when she was growing up, the Holmes’s lived in Washington DC and their neighbors were the Fuisz’s. Now, Richard was not friendly with the family so much as his wife Lorraine was best friends with Noel Holmes. But when he heard Elizabeth had started a medical technology company, he was pretty pissed she hadn’t approached him to be on the board of directors. See, Richard had owned, operated, and retired, from several medical supply companies himself. He owned several patents on medical devices and was a doctor himself. In fact, that may be one of the oddest things and biggest red flags about Theranos. The board of directors did not include a single person who was medically knowledgeable. Weird right? I mean, a company dedicated to improving healthcare and wellness does not include a single person knowledgeable about medicine and healthcare in anything above the position of lab tech.

No disrespect to lab techs, truly, they are the worker bees that make modern medicine possible and contribute huge amounts of time and enthusiasm to making sure we all get properly diagnosed. And that was exactly what the problem was. See, Elizabeth is promising the sun and the stars and the moon in the sky to her investors and to her clients, who include Walgreens and Safeway now. And no way to actually deliver on those promises. She is swearing that with a single drop of blood from your fingertip, they can run hundreds of blood tests and deliver accurate results from this single drop of blood. Every other lab testing company in the world…not just Quest and LabCorp, the two main testing companies here in the states, but EVERY company, requires several tubes of blood drawn intravenously…those tubes from the arms. And to deliver on her promises, Theranos has to fall back on commercially available Siemens machines and venous blood draws.

So, Richard Fuisz, when he hears what Holmes is up to, looks at everything she is filing with the patent office, and sees what is missing from her designs, and immediately files a patent for the missing link, which basically sails through the patent office, because there are no descriptions of this design with the Patent office. Unfortunately for Fuisz, in his anger, he includes in the patent that his design is meant to work with or in conjunction with Theranos. This becomes hugely problematic when Elizabeth gets wind and hires nationally feared litigator David Boise to sue Fuisz and his sons for patent infringement, basing her claim not on Fuisz citing Theranos in his patent application, but on the fact that his son was working at the same office she was using for legal representation at that time. Boise, if you don’t recognize the name, represented Al Gore during the 2000 election in court and represented the Department of Justice against Microsoft when they brought suit against Microsoft for monopoly.

Now, there is not and never was any indication that John Fuisz ever engaged in anything approaching inappropriate behavior or ever looked up or accessed Theranos trademark or patent secrets. But that did not stop Boise, Theranos, and Holmes from suing them, which took several million dollars to defend against. But for all that, they came within a hairsbreadth of vindication, the Fuisz’s did. They had subpoenaed to testify one Ian Gibbons, who was a chemist…I believe he was a chemist but may have been an engineer, at Theranos, to testify in the patent lawsuit. And had Gibbons testified, his testimony would have undoubtedly invalidated most of Holmes’s patents, since she contributed very little to the actual creation of the designs. Unfortunately, that extreme ruthlessness that Holmes and Theranos had already demonstrated, pushed Gibbons into a deep depression, and shortly before he was scheduled to appear in court, he committed suicide by ingesting a large amount of acetaminophen and alcohol, essentially shutting down his liver. The Fuisz’s settled by signing over the patent and agreeing each side would pay their own legal expenses.

And now, Theranos seems unstoppable. Everything becomes a bait and switch. Get them in promising the finger prick then stick a needle in their arm. The results were so wildly inaccurate that doctors in the field ended up ordering regular panels from established labs anyways. And thank God, I haven’t heard anything about anyone actually dying due to the sham results. There was at least one lady who talked to the author about having a panicked reaction to some very alarming results delivered by Theranos resulting in several thousand dollars in testing later revealing that she was, in fact, perfectly healthy. And there was one person who did have a heart attack that would have been preventable if the Theranos results had been accurate.

The major points that Elizabeth lied to use as a selling point, that the Department of Defense was using this machine in the field in Afghanistan and that hospitals were using this tech for diagnosis, were not true. This was not and never was true. While she did manage to convince General Mattis as to the value of her product, Mattis was not in charge of deploying medical devices to the field. That happy task fell to Lt. Colonel David Shoemaker, who stopped it in it’s tracks due to lack of verification of the machine working and no FDA approval. Mattis was not happy, but Shoemaker managed to talk him down, and I think he’s the only person to receive a “I survived Mad Dog Mattis” t-shirt or something like that when the Lt. Colonel retired. And hospitals, unlike Walgreen’s and Safeway, would require FDA approval for any lab type equipment. And Theranos had very carefully skirted anything resembling contact with the FDA, using all sorts of legal sleight of hand to explain why they did not need FDA approval for their Edison device, which is what they called their machines.

So, the lies and fraud continue unabated, and in 2014, Holmes is named the youngest self-made billionaire on the planet when Theranos is evaluated at 9 billion dollars and Holmes being the largest shareholder. Then, between the patent lawsuit, and Ian Gibbons widow Rochelle being enraged, and Theranos lab director Alan Beam leaving Theranos, it starts to unravel. Beam reached out to Fuisz to advise him there was definitely reason for concern. And Fuisz reached out to blogger Adam Clapper of The Pathology Blawg, who had written a small piece on Theranos. And Clapper agreed there was something to the story but did not have the time or resources to take on a multibillion-dollar Silicon Valley unicorn. Fortunately for us all, he knew a journalist at the Wall Street Journal. And at this point, author John Carreyrou is able to start reporting from firsthand experience how relentless and brutal Theranos, Holmes, and her legal team were.

Holmes, for her part, approached Rupert Murdoch, and talked him into investing $125 million in Theranos. Not so coincidentally, Murdoch also owned the Wall Street Journal. And Holmes hinted that bad press could kill her company. Several times. Murdoch, bless his heart, refused to kill the story. He put her off saying something like they’re professionals, if there’s nothing there the story will die from attrition. And the Theranos legal team had sit down meetings with Carreyrou and the Wall Street Journal and tried to intimidate them into not publishing, threatening lawsuits. But Carreyrou, being that he is a professional journalist and not an editorialist, had bulletproof witness statements in the form of Tyler Shultz and Erika Cheung, two former employees of Theranos who stood up to the bullying threats from Theranos, and stuck their necks out for truth. Ok, Shultz did, but he had family backing for this. His grandfather, George Shultz, was one of Theranos backers and board members. And Tyler tried to talk to his grandfather about what was going on, and his grandfather, at that time, was unwilling to listen. It is stunning how many people ignored all the red flags, but I’ll go into that more in a bit. But basically, while not personally swimming in wealth, his family was well off enough to hire the lawyers needed to fend off Theranos until the story broke, and Theranos had bigger fish to fry. Erika, being a much smaller fish, did the next best thing. She contacted the FDA directly. And the FDA did a mandatory surprise inspection of the lab and threw the book at Theranos.

That lab reported was leaked to the author and a copy of it was placed on the WSJ website, right next to his article. In 2014 Theranos was rated at being worth 9 billion dollars. In 2016 it was rated at less than zero. The spiral continued. Sunny was fired. The Company shrank. Holmes managed to secure additional funding from a private lender, using Theranos patent portfolio as collateral, and that portfolio was seized when Holmes was arrested and indicted for fraud on June 14, 2018. What gives this story so much teeth and makes it a concern to everyone is that it’s not just a bunch of extremely wealthy venture capitalists who got screwed by Holmes and her lies. There were multitudes of much smaller investors, including her family, who lost everything they gave, and will never get that money back. And there are the thousands of people who used the Theranos devices in Walgreens in Phoenix, AZ, where they had gone live with their lies and failures, using smokescreens to hide the truth. So, she basically screwed America. All of it.

Seriously, all anyone had to do was look at her other idol. The Steven Jobs obsession is well known and documented, with her pretentious turtlenecks, the hiring of employees from Apple for her design team, her staged photos that are a direct nod to Jobs. Her OTHER idol…Thomas Edison. That man epitomized nothing to see here, ignore the man behind the curtain, fraudster. Several years ago, I was in Washington DC for work and one of my oldest friends came down and we spent the weekend running around DC and we went to one of the Smithsonian’s. And in there was a huge display dedicated to Edison. And we both looked at each other and went oh of course…honor the greatest thief in history. Seriously. Edison patented a bunch of shit…invented very little of it. When we walked through the display, we were like Tesla did that…and that…that was Tesla…

Her other idol is a known fraudster and thief. That, to me, says an awful lot. This book was a fascinating study in schadenfreude. Not the poor people who just wanted cheap bloodwork or contributed their life savings to a false idol. I’m talking about the billionaire investors who propped her up and swallowed her lies wholesale for a decade plus. As early as 2006 the signs were all there. Hell, as early as 2003 the signs were there…remember how I said not one investor or board member had a medical background? But let’s take 2006 as a jumping off point. In 2006, Elizabeth fired her CFO Henry Mosley. In 2006, Elizabeth and her team had flown to Europe for a demonstration of the Edison device, which had failed to work. So, the team faked the demonstration…in good old Edison style. They used Wi-Fi to project a fake report back. Mosley found out about this and expressed concerns to Elizabeth. And was immediately fired.

The revolving door, not just of the lab workers, but of everyone, from the janitor to the highest executive officers, is a screaming alarm bell. And ANYONE who expressed concerns about the devices failings or indicated that communicating with the other teams would be useful, was shown the door. It’s like the titanic (Theranos) hit that iceberg in 2006. And everyone who pointed out to the captain that we were taking on water, was told if you’re so scared, head to the lifeboats. We’ll all be sitting in the nice warm dining room drinking champagne while you freeze outside in your fear. So, 2018 she is indicted for fraud, and in January 2022 she was found guilty of defrauding investors and not guilty of defrauding patients. Sentencing is scheduled for September 26, 2022. I bet she skates on the sentencing. She’ll have her new baby, born in 2021, sitting in the front row, she’ll bat her big blue eyes for once…. everyone reports how she never blinked and came across as very intense because of it. I bet she blinks now. We’ll find out in September.

Carreyrou does ask the question how did this happen and floats the Pygmalion idea, with Sunny using Elizabeth as his Trilby. But that belies her own complicity in the lies and fraud. And don’t forget…She approached Rupert Murdoch. Now, I’m not saying she did it explicitly to kill the story. I don’t know that. Maybe it was just genuinely for additional funding, God knows Theranos was bleeding capital through all it’s failures. But the timing is awfully sus. And she may have thought $125 mil was sufficient investment for him to have a vested interest in keeping Theranos afloat. Turns out, that is just a drop in the bucket to Murdoch, who basically wrote it off as a tax loss, and left her to sink when the shit hit the fan.

I think Carreyrou was close with his Pygmalion analogy. Only I think her board of directors each saw themselves as Pygmalion, and she was their shining Trilby they were going to show to the world. And I do think she was complicit. 100%. In 2003, author Robert Greene released a book called The Art of Seduction, following on the heels of his successful 2000 book, The 48 Laws of Power. I would not be surprised to learn if Elizabeth had read one or both of these books, and internalized their rules. Both are excellent, by the way, I read them both years ago and was blown away. But everything about this story reminded me of The Art of Seduction…and no, in this case Seduction does not mean in the venal intent, to bring one to bed. One can seduce mentally without ever intending bed play, and there is ZERO indications that anything so untoward ever occurred between Holmes and any of her investors. Except for Sunny. And that is another red flag. She failed to disclose her personal relationship with her COO to the board of directors, which is another source of fraud, as this would certainly have impacted the boards decisions.  But I think she handpicked her investors and seduced them mentally, one by one, until they were so blinded in their admiration of her vision, that the rose-colored glasses just made the red flags seem like…nothing.

So that is a brief, condensed version, of the Elizabeth Holmes and Theranos saga. If you want a bit more, HBO did a documentary feature called The Inventor: Out for Blood in Silicon Valley, which was excellent, and there is a Hulu miniseries called The Dropout, which was…eh. They’re trying to sex it up and make Elizabeth sympathetic, rather then the master manipulator I believe she truly is. But it’s Hollywood, they wouldn’t know the truth if it bit them in the ass. And of course for the definitive, most excellent book on the matter, there is Bad Blood: Secrets and Lies in a Silicon Valley Startup.

This book was originally reviewed on YouTube on May 1, 2022, but is now available on Rumble and PodBean.