The Theranos trial, symbol of the excesses of Silicon Valley

Along with Theranos, Elizabeth Holmes, whose trial for large-scale fraud opened on September 8, had founded what was to be a revolutionary biotech. Except that behind the promises to investors was a mere nothingness.

A particularly observed trial is underway in the United States, and this for nearly three months: that of Elizabeth Holmes, founder in 2003 of Theranos, a biotech start-up which was to revolutionize blood tests but which is now widely regarded. as the biggest fraud in the history of Silicon Valley. For many observers across the Atlantic, it is also in a sense the trial of one of the most perverse aspects of American tech culture: selling to investors thirsty for revolutionary innovations and high return on investment a incomplete product, or simply one that does not exist. In other words, the famous doctrine “Fake it till you make it” (“Pretend until you get there”) embraced so much by American entrepreneurs.

Because on one side are those, considered today as visionary “geniuses” of tech, who actually “arrived” there, embodied by Bill Gates or Steve Jobs. On the other side are those who have failed to fool investors and potential partners with a questionable product or service.

WeWork’s catastrophic finances

This is the case, for example, of Adam Neumann, sulphurous co-founder of WeWork, a former New York nugget of shared office spaces whose preliminary documents for its canceled IPO in 2019 revealed the catastrophic management of the company’s finances. . Founded in 2010, WeWork had over the years completed colossal fundraising from investors such as Softbank, JPMorgan Chase, Goldman Sachs or Benchmark, reaching a valuation of $ 47 billion in early 2019.

But little by little, investors and potential future shareholders have understood the company’s flawed economic model, as well as the huge expenses incurred by Adam Neumann for his personal life. Finally kicked out of the management of WeWork, it still ended up receiving at least $ 500 million from Softbank as part of a share buyback (WeWork ended up going public in early 2021 after its acquisition by a “Spac”, a listed company with no operational activity). Without counting a $ 50 million check for reimbursement of legal fees.

Theranos, the promise of a biotech revolution

Elizabeth Holmes and her company Theranos therefore also perfectly symbolize the excesses of start-up culture. As a reminder, the American founded her start-up in 2003 at the age of 19, without a diploma (a trifle in Silicon Valley). Theranos was to make it possible, from a droplet of blood taken via a prick on the finger, to perform hundreds of blood tests in a way much faster, less expensive and painful for the patients than anything that existed then in the health industry. This is thanks to an avant-garde machine called Edison.

In any case, that was the promise made to investors, including media mogul Rupert Murdoch, capital investor Tim Draper, Oracle co-founder Larry Ellison, or even the large American drugstore chain Walgreens. However, there is no trace of venture capital giants already present in the regions of Silicon Valley such as Sequoia Capital, Index Ventures, Bessemer Venture Partners, Insight Partners or Accel Partners.

Before investing in a company, these funds generally check various criteria intended to ensure the relevance of the financing, such as the solidity of the economic model, the experience of the management team, or so, and particularly in the case of a start-up. up evolving in the health industry, the proper functioning of the product or service and the official authorizations granted.

A risk to the health and safety of the public

Except that Theranos, who really came out of the shadows in 2013, had never proven that his revolutionary machine could fulfill its promises and only had an authorization granted by the Food and Drug Administration (FDA), the federal administration. responsible in particular for drugs, for … the detection of herpes. Instead, as a now famous survey by the Wall Street Journal in 2015, the company’s teams mainly carried out their tests, the number and efficiency of which were well below what the company promised, on machines from competitors such as siemens. At the same time, Theranos had raised no less than $ 800 million and reached a valuation of $ 9 billion, and Elizabeth Holmes was on the front pages of magazines such as Forbes, and participated in conferences like TedMed in 2014, going so far as to almost imitate Steve Jobs in his dress style and gesture.

The article from Wall Street Journal, based on the testimonies of four former employees, quickly brought about the downfall of Theranos. In parallel with an investigation already launched by the FDA, the federal health insurance agency concluded in early 2016 that the flawed practices operated by Theranos represented a risk to the health and safety of the public. In 2018, when the company closed its doors after agreeing to no longer perform blood tests, Elizabeth Holmes, as well as the director of operations Ramesh Balwani (also her ex-companion) were sued for large-scale fraud. ladder. Complaints whose trial therefore opened this month and should last up to three months and in which Elizabeth Holmes is accused of knowingly lying to her investors, but also to clients of Theranos and health personnel, to develop his company. The founder of Theranos, who claims to have been psychologically manipulated by Ramesh Balwani, faces up to 20 years in prison.

Several investors and former employees have expressed their wish that this lawsuit shed more light on Theranos’ practices, but also serve as an awareness for the tech industry in the United States.

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