Theranos, Part 1-2: Wonder Woman, not

• SURRENDERING TO FOMO. It is well documented that humans are more likely to respond to fears and threats than to the rewards of pleasure. Avoid situations where there is a rush to “get in” and little fear of failure. For this, you need to trigger not a reaction of exuberance, but that primitive reaction of fear and threat. Instead of thinking, “I better hurry to get in before I miss it” try thinking, “Why is there all this pressure to rush into this?” Use the fear-threat emotion to develop and refine your FOMO radar. The story of Elizabeth Holmes and Theranos is a story based on FOMO, as many rushed to invest so they would not miss the next big thing.

• Surrendering to FOMO is one of the Seven Deadly Stupidities.

When an uncle asked the school-aged girl what she wanted to be when she grew up, the answer from the girl was, “A billionaire.” By the time the girl turned 19, she had dropped out of college and started her own company called Real Time Cures. The company was built as a response to the girl’s fear of needles and her desire to simplify blood testing and the all-important diagnoses that originate with the blood test. Real Time Cures became Theranos and Elizabeth Holmes became the world’s youngest-ever self-made billionaire.

Theranos had a young, dynamic, and photogenic founder while having the noble mission of making laboratory testing accessible and affordable for all. Holmes was an effective salesperson and prodigious fund raiser. She raised more than $900 million of venture capital for the company from a list of prominent, experienced investors. Here is some documented FOMO from the New York Times:

All-in, Mosely’s client network of wealthy families invested almost $400 million in Theranos.

Note that these funds were “equity” not debt. Equity was not secured by buildings, land, or any other hard asset like debt.  If it were debt (like a home mortgage) and the company did not make its interest payments, the issuer of the debt can seize and sell off the buildings to pay back the debt.

Equity was a bet that the value of the company would go up at some future date. The thinking was that after Theranos was proven to be successful, somebody would pay a higher price for the equity and the original investors could sell at a profit. There is a reason it is called venture capital.

In addition to the fund raising, Holmes assembled a board of directors that read like a who’s who of American credibility. Board members included former secretaries of state George Schultz and Henry Kissinger, and former senators Bill Frist and Sam Nunn, to name a few.

Walgreens, a Fortune 100 company, rushed to make an investment and to secure a deal that would put Theranos testing equipment in Walgreens stores everywhere. The Theranos relationship would help Walgreens transform itself from being a steady, if unspectacular, drug store chain to a full-service healthcare company. With the massive foot traffic already present in its stores, Walgreens saw limitless upside in the Theranos-inside-of-Walgreens strategy. 

To recap:  Almost a billion dollars of equity raised, a star-studded board of directors watching over things, and one of the biggest and best-known retail footprints in health care signed up as an investor and key business partner.

Starting in 2015, a series of Wall Street Journal stories exposed the fact that there was no Theranos technology that was able to perform a staggering number of tests based on a pinprick of blood. The company was essentially a hoax. 

On November 18, 2022, 38-year-old Elizabeth Holmes was convicted of four counts of criminal fraud and sentenced to more than 11 years in prison.