As the fraud trial starts for Theranos founder Elizabeth Holmes, how self-made was she really?

The Silicon Valley star that fell raises a series of uncomfortable questions and has left egg on a lot of faces, writes James Moore

Theranos founder Elizabeth Holmes is fighting fraud charges carrying a maximum penalty of 20 years (Getty)

The schadenfreude is as thick as treacle when rich, powerful and supposedly clever people foul up as spectacularly as they did with Theranos.

Were it not for the fact that the US Centers for Medicare and Medicaid Services (CMS) released a report that one of the company’s facilities presented “jeopardy to patient health and safety”, and the allegations of patients being put at risk that have been raised, we’d probably be laughing our asses off.

For those who haven’t yet come across the name, Theranos is at the centre of a salutary Silicon Valley tale, and its striking founder Elizabeth Holmes is on trial for fraud, facing a potential 20-year sentence, with opening statements in her trial scheduled to begin this week.

Her company was a unicorn, a tech sector shooting star touting some revolutionary kit that was supposed to be able to perform a huge range of diagnostic tests with the aid of just a couple of drops of blood from a finger prick, and for a knockdown price too.

Walgreens, a chain of chemists, was on board and so were some very rich investors, who pumped hundred of millions of dollars into a company that was valued at as much as $9bn at its height, making Holmes a billionaire at a younger age than Apple’s Steve Jobs, whom she was often compared to, achieved the feat.

We’re talking here about the sort of tests that more usually require patients to get their veins speared for the purposes of filling one of those tubes that the Brexit-driven supply chain crisis has led to shortages of in Britain.

That being the case, you’d think investors would have asked how a business set up by a 19-year-old Stanford dropout with scant medical training had managed to create such a revolutionary product.

Turns out some did, especially those with experience in healthcare, given the thick veil of secrecy the company draped over the “Edison” machine that was supposed to do the job.

That’s not unusual in Silicon Valley, where proprietary tech is everything, as investors are asked to take an awful lot on trust, and the concept of “fake it until you make it” is well understood, if not endorsed. Some even manage to pull it off.

Was there ever a chance that Theranos could do that? There were enough investors with deep enough pockets to give Holmes her shot.

They dived in, driven on by a culture of greed, the fear of missing out on the next Amazon, and the cult of the Stanford dropout entrepreneur, which Holmes was. It’s decidedly odd when one of a highly prestigious university’s biggest selling points is the people who quit before they get their degrees.

Holmes talked the talk. She walked the walk. She faked it. Her company was just never able to make it. It was driven by a dream, expressed in its sickly hero ads in which people gushed about the company and its founder and her “vision”. The marketing material isn’t hard to find but I’d advise you to arm yourself with a sick bag if this piece inspires you to dig it out during a coffee break.

Her defence is expected to argue that failure isn’t the same as fraud (the line is a thin one in the Valley). And maybe throw some bricks at Ramesh “Sunny” Balwani. He was once her boyfriend, as well as the president and chief operating officer of Theranos.

She is expected to allege an abusive relationship. He will no doubt seek to blame her. With the judge having separated the trials, the blame the other strategy is easier to run with, although the release by prosecutors of some gooey texts they sent to each other appears to have thrown a wrench into that. You may once again need that sick bag, should you care to read them.

Reports from the trial will be coming thick and fast, with one book already written, docs having come out and a movie in the works. Here’s the thing that strikes me. When she was gracing the covers of business magazines, and being hyped as the next celebrity superstar CEO, Holmes was described as a “self-made” entrepreneur.

But she wasn’t quite as self-made as she looked. Her father was once an executive at Enron, the energy trading firm, which also collapsed under a cloud, although he wasn’t caught in the fall out. He has held a number of senior positions at US government agencies, while Holmes’ mother was a congressional committee staffer.

Her well-to-do parents allowed her to use funds set aside for her education to get going, which not everyone can boast access to and which call into question the self-made selling point.

It didn’t hurt Holmes that she was from the same sort of background as the investors she spoke to, and her connections enabled her to construct a board that included former US secretaries of state George Shultz and Henry Kissinger, James Mattis, a former general who served as Donald Trump’s secretary of defence, and former senator Sam Nunn.

Sometimes people from tough backgrounds and tough neighbourhoods shine brightly enough to get into Stanford. But would a 19-year-old black woman from, I don’t know, Compton be able to pull off the same sort of thing and draw in the same sort of people and money? Probably not.

Here’s the really interesting question. Let’s suppose she’d spent her life with her nose in medical text books and came up with some tech that actually worked. Not a mere pipe dream but something that really could revolutionise the world. It isn’t just people from Holmes’ background who are smart and driven and dedicated and entrepreneurial. Some of them have the capacity to do it right.

It’s just... do you think our genuine would-be revolutionary business leader would be able to get it off the ground?