When Elizabeth Holmes stands trial this week, her defense could involve a few options. Her lawyers might argue she was abused by former Theranos COO and boyfriend Sunny Balwani and believed what he said was true, according to newly unsealed documents. (He denies it.)
Then there's another tack that's been hotly contested in the run-up to the trial: the "This is just how Silicon Valley works" defense.
Inevitably, it's not just Holmes on trial for the alleged fraud that vaporized a lab-testing company once worth nearly $10 billion. Silicon Valley's culture will be examined for its habit of enthusiastically embracing visionaries and supporting those who took a "fake it till you make it" approach that has let a lot of companies grow. Startups in Silicon Valley launch with MVPs — not most valuable players, but minimum viable products — and build from there. Selling moonshots and visions of massive societal change define Silicon Valley more than its porous and shifting borders in the Bay Area.
Holmes' lawyers fought to be allowed to talk about how exaggerating and promising is a normal part of startups. The job of the government's prosecutors will be to convince a jury that Holmes wasn't just hyping her startup's blood-testing capabilities, but doing so with an intent to deceive investors and the public. She faces 10 counts of fraud and two counts of conspiracy to commit fraud, and, if convicted, could face 20 years in prison.
Both Balwani and Holmes have pleaded not guilty, and Balwani's separate trial is expected to begin in early 2022. The opening arguments for Holmes' trial are expected to start Wednesday.
As the trial begins, Silicon Valley insiders are already pushing back at the idea that this case has anything to do with them. The notion that Theranos didn't precisely follow every page in the Silicon Valley playbook — for example, it didn't have experienced biotech investors on its board — is an important part of the story, argued former a16z partner Benedict Evans in a Twitter thread. Venture capitalists have been quick to point out that Theranos only received a check from Tim Draper, a family friend who happened to be co-founder of DFJ, but not another Sand Hill Road firm.
Defending Elizabeth Holmes
Still, there was a time when Holmes was respected and defended by many venture capitalists as a part of Silicon Valley, and Holmes seemingly basked in the attention it brought her. She had the quintessential startup story: A Stanford dropout, she operated in stealth for nearly a decade before going public with its blood-testing technology. She became known for wearing black turtlenecks, and consciously or not, drew comparisons to Steve Jobs for her vision and her wardrobe choices. A magnet for publicity, Holmes appeared on the covers of Forbes, Fortune and Inc., and was named one of Time's "100 Most Influential People" in a write-up by her board member and former secretary of state, Henry Kissinger.
Three days before The Wall Street Journal published its first article suggesting problems at Theranos, a story written by Laura Arrilaga-Andreessen, wife to Marc Andreessen, for T: The New York Times Style Magazine on five entrepreneurs, including Holmes, who could change the world, appeared online. (The story drew ethical concerns after it emerged that Arrilaga-Andreessen's connection to a16z and Airbnb CEO Brian Chesky hadn't been disclosed.) By the time the article landed on doorsteps, with Holmes as one of six "Greats" covers, former Wall Street Journal reporter John Carreyrou had published his first article on Theranos.
The Journal's editors placed an understated headline on an article that would unravel a $9 billion startup and lead to a founder facing fraud charges: "Hot Startup Theranos Has Struggled With Its Blood-Test Technology."
After it was published, several Silicon Valley VCs rushed to defend the startup. Marc Andreessen started blocking critics of the startup and compared her to Steve Jobs (his tweets have since been deleted).
Founder Collective's Micah Rosenbloom penned an essay "In defense of Theranos" where he argued that few were actually hurt by her misleading story and that "startups by definition should evangelize a vision."
"This a clear case of hype outpacing reality. Certainly if Theranos was a public company, they would need to be more careful with guidance, but they're not," he wrote just a few weeks after the first article.
Looking back, Rosenbloom told Protocol his assumption at the time was that the company had been using existing technology as a stop-gap until its own R&D caught up. Now, following the publication of books, podcasts and movies about Theranos, he said there were clear ethical breaches (potentially criminal ones, depending on the trial outcome) and he has "nothing to say in defense of the team at this stage."
Plenty of health care venture capitalists pointed out that they were not involved with the company, having done the diligence and suspecting things were fishy from the start.
GV founder Bill Maris, who has since left the firm, told Business Insider in 2015 that he was happy GV had passed on the deal and threw the blame to journalists who he felt had clearly never tried the test. "We looked at it a couple times, but there was so much hand-waving — like, Look over here! — that we couldn't figure it out," Maris said at the time. "So, we just had someone from our life-science investment team go into Walgreens and take the test. And it wasn't that difficult for anyone to determine that things may not be what they seem here."
Holmes, though, had connections most startup founders don't. She pitched her Silicon Valley image to high-powered government officials and family offices. She fit the bill well enough: Theranos had a Palo Alto headquarters, and Holmes had her Stanford ties and connections. She also had an ardent believer in Draper, who repeatedly defended Theranos even after the implosion. "I feel we have taken down another great icon," Draper told CNBC in 2018, after Holmes had settled with the SEC and was barred from serving as a director or officer at a company for 10 years.
The Silicon Valley image
Even if other Sand Hill Road names passed on the deal, it didn't stop Holmes from raising over hundreds of millions from investors like the family offices of Walmart heir Sam Walton, the family of former education secretary Betsy DeVos, and media mogul Rupert Murdoch.
She built a board of directors filled with high-powered D.C. types including two former senators, two former secretaries of state, a former general, a former admiral and a former CEO of Wells Fargo. Those high-powered figures are also on the 200-name-long potential witness list that could appear in the star-studded trial, which also includes famed litigator and Theranos attorney David Boies, former Defense Secretary James Mattis and whistleblowers Tyler Shultz and Erika Cheung.
Silicon Valley's investors remained unscathed from the deal. But Theranos did trade on the region's image and sold that vision of disruption to anyone who would listen: the press, East Coast elites, and corporate partners like Walgreens and Safeway.
Female founders say Holmes' actions also damaged their reputations: They face constant comparisons to the disgraced entrepreneur, they say.
"SV and VCs can't wash [its] hands of this fiasco," tweeted Altos Ventures' Ho Nam. "Just as VCs can't take credit for winners they shouldn't take the blame. But the SV environment and culture made this happen."
As much as Silicon Valley may want to point to Theranos as an extreme outlier, there are plenty of other venture-backed startups that have had their own troubles of hype outpacing reality (see WeWork or Tesla) or other cases where venture-backed founders are facing fraud charges (see the recent arrest of Headspin founder Manish Lachwani, accused of inflating ARR and lying to Tiger Global, or the charges uBiome founders Jessica Richman and Zachary Apte face for defrauding investors).
Holmes sold a vision of Silicon Valley to her investors in the way that startup founders are taught to do. One question that may be answered in the trial is exactly where the line between optimism and deceit falls.