Theranos is one of the great cases for studying Silicon Valley company taking risks. But in this case, it is not a risk-taking in the category of luck, or the category of success vs. failure. It is a case of blatant fraud.
Theranos is a health technology startup company, claimed to have revolutionary blood test technology that used very small amounts of blood. Theranos' CEO, Elizabeth Holmes, founded the company in 2003 at the age of 19. It sounded like a billion-dollar idea, a potential unicorn company. Its technology and approach were disruptive, exactly what Silicon Valley venture capitalists were looking for. By 2011, the company has been founded for more than 7 years and received about $89 million of funding. It was not a short period of time in terms of valley's startup mentality. Located in Silicon Valley, it must have gone through the boom of Web 2.0 in 2006-2007 and the recession caused by subprime mortgage crisis from 2008 to 2009.
Yet things took a turn in 2011. Holmes was introduced to former Secretary of State George Shultz. Shultz subsequently joined Theranos board of directors, and gradually other all-star members from both public and private sectors. Since then a slew of big name investors came on board: $150 million by Walton family (heir of Walmart founders), $120 million by Rupert Murdoch (Fox/News Corp, owner of WSJ), and $100 million by Betsy DeVos (current Secretary of Education Departement). Theranos received total $1.4 billion (USD) worth of investment by end of 2017 and had a peak valuation at $9 billion. But its technology had never came close to fulfill its promise. Through a series of whistleblower and external challenges, the company can fake no more.
This story was not an outlier of Silicon Valley's startup jungle adventures. It was the scale of the late stage investment in this company and all the public figures involved and their influence that made this story extraordinary. At the same time, a non-investor such as myself may probably also shoulder some of the investor's loss through the purchase of daily household items, monthly fee of TV cable service, and nonetheless college student loans.
