It’s a quintessential Silicon Valley story. A smart, attractive 19-year-old American woman who has taught herself Mandarin while in high school is studying chemical engineering at Stanford, where she is a president’s scholar. Her name is Elizabeth Holmes. In her first year as an undergraduate she persuades her professor to allow her to attend the seminars he runs with his PhD students. Then one day she drops into his office to tell him that she’s dropping out of college because she has a “big idea” and wants to found a company that will revolutionise a huge part of the healthcare system – the market for blood testing services. Her company will be called Theranos.

Holmes’s big idea was for a way to perform multiple tests at once on a tiny drop of blood, and to deliver the results wirelessly to doctors. So she set about pitching to investors. Her story was straight out of the Silicon Valley playbook: blood testing is a $75bn (£56bn) market, which is certain to keep growing as medical science advances and is dominated by a few big, dozy companies. As such, it’s ripe for disruption – that key SV word. A standard blood test costs $50, but Theranos will be able to do it for $2.90, and because the dozy incumbents buy their testing kit from other companies such as Siemens and Roche Diagnostics, it has to be approved by the Food and Drugs Administration (FDA). But Theranos will make its own “lab-on-a-chip” testing machine and so, via a strange legal loophole, will be exempt. And – best of all – Theranos will just require a tiny pinprick’s-worth of blood: none of that nasty business of sticking a needle into a vein.

There is a depressing list of journalists who were taken in by the Holmes hype, including high-status practitioners

This pitch was delivered by an impressive young woman with a penchant for black turtlenecks who described her technology as “the iPod of healthcare” (remind you of anyone?). In no time at all, Holmes landed $400m from investors eager to get in on this disruption. They included such noted medical experts as Larry Ellison (founder of Oracle) and Rupert Murdoch. She also recruited an impressive-sounding board of directors that included two former US secretaries of state (George Shultz and Henry Kissinger).

Eventually, Theranos came to be valued at $10bn, which gave Holmes a net worth of several billion and made her the youngest self-made female billionaire in history. It also made her perfect glossy magazine-cover material: just think – a glamorous, single, smart young woman set on changing the world using digital technology.

There was, however, one fly in the lip gloss – a grizzled Wall Street Journal investigative reporter, name of John Carreyrou. Alerted by a whistleblower, he started digging and discovered that the Theranos pitch was baloney. The vaunted kit either didn’t work or produced wacky results. It had never undergone any independent, peer-reviewed testing. Some of the demonstrations were faked by having the blood samples covertly tested on conventional machines. And so on. Enraged by his inquiries, Holmes and her fellow executives turned nasty, harassed employees suspected of whistleblowing and set their legal pit bull – the star lawyer David Boies– on Carreyrou.

All to no avail. The FDA pulled the plug on Theranos, and the Security and Exchange Commission (SEC) charged Holmes with “massive fraud”. She was fined $500,000, lost voting control of Theranos and was banned from being an officer or director of any public company for 10 years. The company also had to settle with various private investors who ended up losing more than $600m. And there will probably be further litigation by patients, shareholders, state and federal authorities.

All of this – and more – is detailed in Bad Blood: Secrets and Lies in a Silicon Valley Startup, Carreyrou’s absorbing story of Theranos and his investigation. Reading it prompts some uncomfortable thoughts about journalists and the way we report the tech industry. On the one hand, it’s a comforting story – of how a formidable investigative reporter uncovered a massive fraud, and how his editors stood up to vicious legal intimidation by one of the most expensive lawyers in America. (Which is even more remarkable, given that the paper’s proprietor had $125m invested in Theranos.)

On the other hand, though, there is the depressing list of journalists who were taken in by the Holmes hype, including high-status practitioners such as the New Yorker’s Ken Auletta, whose 2014 profile of Holmes makes embarrassing reading today. What makes it worse is that all one needed to do was to take a Theranos blood test and then do some critical thinking about the results – as, for example, Jean-Louis Gassée did brilliantly in 2015.

Which leads one to ask why so many journalists lose their critical faculties when they are confronted with the Zuckerbergs – or the Holmeses – of this world? Power is not the only aphrodisiac around, it seems. Tech-driven wealth also does the job nicely.

What I’m reading



Amazon Prime origins

Great ideas are only obvious in retrospect. Amazon Prime – the subscription that ensures you don’t pay for shipping – was a stroke of marketing genius. Former employee Eugene Wei’s blog has a fascinating online account of how it came about.

Fake news quiz

The News Literacy Project has an online test to see whether you can spot fake sources. A good idea in principle, but a bit sketchy.

Virtual homelessness

I’ve always thought SimCity one of the most impressive simulation games ever created. What I didn’t know was that virtual homelessness has really engaged – and sometimes enraged – players. If homeless people started showing up in a neighbourhood that you had “built”, its value went down. So there were lots of arguments in online forums about it. Was it a bug or a feature? Scholar Matteo Bittanti records their discussions in How to Get Rid of the Homeless.

• This article was amended 4 June 2018 to correct the sterling monetary conversion of $75bn.

