Elizabeth Holmes has long been convicted in the court of public opinion. But after four long months, a jury of her peers will decide whether the Theranos founder is criminally guilty of defrauding investors and patients.
For Holmes, the verdict will have obvious personal consequences, including the threat of up to 20 years of prison. But for the rest of tech, experts outside the Silicon Valley bubble say it’s unlikely there will be some dramatic revelation or change in behavior, regardless of the outcome.
A guilty verdict won’t scare entrepreneurs off of exaggerating the numbers to get funding, nor will a not-guilty verdict embolden a generation of founders to stretch the truth. Instead, many of the lessons of Theranos are already learned, and in some cases, already being forgotten during a time when there’s plenty of money sloshing around at sky-high valuations for companies that have shown very little substance behind the vision they’re selling.
“I think we would all like to believe that there will be vicarious learning, that it would reduce the amount of pushing the envelope in terms of ethical behavior and integrity,” UC Berkeley professor Jennifer Chatman said of the potential verdict. “Unfortunately, that's not what I think is going to happen. And I think so because Elizabeth Holmes is not prototypical as an entrepreneur.”
Holmes rose to such prominence in part because of how atypical she was in the tech industry as a solo female founder running a health sciences company as a college dropout. Her charisma and charm helped her build Theranos and raise nearly a billion dollars, attracting a board of political heavyweights in the process.
But that je ne sais quoi that made Holmes and Theranos what they were is also what will keep startup founders and investors from taking the verdict as any kind of wake-up call, said Chatman, who researches organizational culture and narcissistic CEOs.
The fact that Holmes was so atypical as an entrepreneur is compounded by a social psychological bias called fundamental attribution error. People are more likely to look at Holmes and view her bad behavior as inherent to her personality or a character trait, while they’re less likely to hold themselves accountable in that moment because they have full context of their actions, Chatman explained. A classic example is a manager calling an employee lazy who shows up to a meeting late, but then making apologies when they are the ones delayed, knowing the context of why they were held up.
Regardless of whether Holmes is found guilty or not, people are likely to dismiss it and easily distance themselves from it by saying “That’s not me” or “That would never happen to me,” Chatman said.
“I want to think that people will get a message from this, but I have a feeling it's going to have little-to-no effect,” she said. “It's too easy for people to discount her.”
One group that has at least learned a little are investors, but it won’t be because of a fresh verdict. Investors learned their lessons years ago when the first Wall Street Journal story broke, said Wharton management professor Jacqueline “Jax” Kirtley. “Where the biggest impact of this story is going to play out is at the investor level, and I don't know that the investors ultimately are going to care as much about the verdict,” Kirtley said.
After the Theranos news first broke in 2015, all of those unique outliers for Holmes became signals for venture capitalists to re-evaluate. Investors now point to the lack of Silicon Valley VCs in her cap table as a major warning sign: Many tech leaders hailed her as the next Steve Jobs, but even Jobs raised money from Sequoia and Venrock. A board filled with former generals and politicians rather than scientists would now be seen as a red flag, not a calling card. Most unfairly, the path has become even harder for female founders, particularly in health care, as many say they still feel they face more scrutiny in wake of Holmes.
Given the revelations in court about Holmes’ and Sunny Balwani’s relationship, and her claims of abuse (denied by Balwani), Kirtley is concerned that investors could pay more attention to mixed-gender founding teams after the verdict. “I do worry that that could become something that investors look at — mixed-gender teams with a female lead,” Kirtley said. “Because this is one example that they're going to look at that is suddenly top of mind that they need to pay attention to, or they think they need to pay attention to, and that’s what worries me a little bit.” The fact that Holmes hid their relationship from investors may particularly trouble potential backers.
What Kirtley is less worried about is whether entrepreneurs will feel like they can get away with lying if Holmes is found not guilty. Funding the next Theranos should be harder because investors have learned some lessons and know more about what to look out for.
“The entrepreneurs don’t get to say ‘Oh she’s not guilty, I can do whatever I want,’” she said. “I don’t know that anyone gets to be emboldened by this because people who have more power have learned a lot of lessons. Those lessons aren’t going to change because of the verdict.”
Columbia Business School professor Len Sherman isn’t as optimistic.
He admits he feels like Scrooge at Christmas, but he argues that there are more fundamental issues at play that weren’t specific to Theranos, and whatever lessons investors learned from Theranos have already been forgotten in another period of exuberance.
“Theranos checks every box of what I believe are some wretched excesses in the Silicon Valley ecosystem,” he said.
Theranos had one of those charismatic CEOs that people got swept up in despite their character, Sherman said, pointing to examples like Jobs and Travis Kalanick.
Paired with the ability to attract a lot of cash and investors who are skimping on diligence, such characters could be running away with companies, he said, in a time he calls the “blitzscale bubble.”
“A big point at this trial was ‘Where were those investors?’ and ‘Why didn’t they do more diligence?’ but I would say that there’s even less due diligence being done in 2021 than in the period of 2012 to 2015 that they were talking about in this trial,” Sherman said.
Add in a founder-friendly term sheet that allows the charismatic CEO to retain power, and there’s no ability for the board to rein in that behavior, he added. (Holmes never sold a share of Theranos stock, a move the prosecution said was so she could retain voting control.)
While Sherman wishes a Theranos verdict could prompt Silicon Valley to be more introspective, he’s doubtful a verdict in either direction will change the entrepreneurial ecosystem.
“I see this trial as being not only not unique, it's just this is the way business is being done, and we're gonna see it again,” Sherman said.
The verdict will establish a narrow fact of criminal liability. What it won’t settle is whether Holmes is an object lesson or outlier. Holmes’ impact on the broader culture is indelible, and a part of the narrative others place on the tech industry. But it hasn’t bent the story Silicon Valley tells about itself.