- Hey guys, this is the story of the 9 billion dollar scam.
There is no shortage of start-ups in Silicon Valley.
In an era of crowd-funded companies
you're never completely sure if a start-up
will even exist long enough to deliver its product.
But, some companies such as Uber and Airbnb
are able to break through and completely
revolutionize their respective industries.
Now for the healthcare industry,
that company was Theranos.
Not to be confused with Thanos, Theranos.
Well I guess it kinda makes sense
they like snap their fingers
and like billions of dollars appeared.
- [Man Off Camera] You're not wrong.
- [Host] Theranos was founded in 2004 by Elizabeth Holmes.
A 19-year-old Stanford drop-out
who managed to convince her parents that they should
spend her tuition money on her company instead.
I need parents like that.
The company's original name was Real-Time Cures
but I guess that wasn't start-up-y enough,
so instead it was changed to Theranos.
A combination of therapy and diagnosis.
It was founded with the goal of running
multiple blood tests with an extremely small sample
of around 25-50 microliters, roughly a thousand times
less than traditional vials.
Now I hate getting my blood drawn
so I'm all for that right?
By utilizing a technology it called
Lab on a Chip, the readings from a single drop of blood
could be sent wirelessly to one of Theranos'
proprietary testing machines, the Edison.
Edison's were capable of running
multiple tests at a time,
anything from a simple cholesterol reading
to a much more complex operation,
like a cancer screening.
Now because all the tests were being done
simultaneously, they could be done
at a fraction of the cost compared
to a typical lab where each test required
an entirely dedicated vial of patient's blood.
Na-ah, no thanks, I'll pass on that.
The idea was immediately popular
and it attracted high profile investors
including Henry Kissenger, Rupert Murdoch
and Betsy Devos.
Now with her Foundation built,
Holmes, spent the next decade developing
the technology and securing hundreds of millions
of dollars from other VC firms as well.
After a few small-scale trials
with independent labs, Theranos officially
launched to the public in 2013, via its website.
Almost immediately it partnered with Walgreens
to put machines on every street corner.
Now Theranos had become the lab work provider
for a number of different insurers,
AmeriHealth Caritas, and Capital BlueCross
and they were awarded
the Bioscience Company of the Year by AZBio.
This all sounds very impressive.
At that point the company was worth an estimated
9 billion dollars more than both Uber as well as Airbnb.
Now as Holmes held a 50% stake in the company,
that in turn made her a multi-billionaire.
Not bad for someone under 30.
You're not a multi-billionaire yet, right?
- [Man Off Camera] You sound like me ... you know I'm not.
- There was just one problem.
The Edison machines didn't actually work.
In the 10 years that it had been operating,
Theranos never submitted the technology
to any medical journals for peer review.
Whenever she was questioned on how
the technology works, Holmes would give
intentionally vague responses like
a chemistry is performed so that a chemical
reaction occurs and generates a signal from
the chemical interaction with the sample
which is translated into a result.
That's not science talk, that's like me
trying to explain how to make videos.
It's like, oh, how do you do YouTube?
Well you start with the YouTube juice,
you pour it into the YouTube bucket,
and then a video comes out, and then this is happens.
Things started to fall apart for Holmes
after a 2015 Wall Street Journal article
questioned the authenticity of Theranos
which resulted in the SEC finally
stepping in to investigate.
Now, eventually Theranos admitted
that only 1% of the results from the Edison's
were accurate and arguably even worse
they'd been using commercially available blood testing
machines all along.
You know, what they were trying to really replace.
Now the house of card really began to fall apart from there.
Holmes had claimed that Theranos' annual revenue
was around 100 million dollars when in reality
it was a thousand times less.
Yes, Theranos' annual revenue was only 100 thousand dollars
and just to be clear that's revenue, not profit
so by 2015 they were hemorrhaging nine to ten million
dollars per month.
Remember how expensive that traditional blood testing was?
So now you're probably wondering how did Holmes
grow her company with a product that didn't even exist?
During the 10 or so years that Theranos was active
Holmes would get new investors to buy out
the older more impatient investors.
And some were willing to wait because Theranos
had the potential to shake up the entire health care system
and make them a ton of money in the process.
And while typically a medical equipment manufacturer
would sell a machines like Theranos' Edison
to labs and clinics Holmes made sure to keep
the technology in house.
Basically she not only covered up the massive and nefarious
scam that her company was pulling but she also guaranteed
that if she did manage to make her non existent Edison
machine a reality, she'd be able to retain a monopoly
on the technology, and keep that sweet sweet VC money
along the way.
Naturally, once Holmes was caught she was sued
by roughly everyone.
The SEC brought several charges down on her,
but she managed to settle with them outside of court
in a move that resulted in her paying a 500,000 dollar fine
but, you know, she was also barred
from serving as a director or officer of a public company
for the next ten years.
If that wasn't enough she's also still awaiting a criminal
trial for committing fraud on an astronomical scale.
If you enjoyed, definitely be sure to check out
some other episodes including our one all about
scooter companies and how they're currently making
billions of dollars and if you enjoyed this
definitely be sure to subscribe to the channel
otherwise Matt won't be able to make rent rent this month
That was way too serious.
- [off screen voice] Wow.
- That was much more on the nose than I intended it to be
- [off Screen voice] Yes.
- If you don't subscribe Matt's not gonna eat today.
- [off Screen voice] Fact, those are all scarily true.