The ‘trial of the century’ shows why we fell out of love with Silicon Valley

Perhaps Elizabeth Holmes should have chosen better role models.

It is clear that the founder of Theranos, whose fraud trial has just started in San Jose, both believed and fed the hype that proclaimed her the “new Steve Jobs”, even sporting the kind of black roll neck sweater that Apple’s founder habitually wore.

The trial of Theranos founder Elizabeth Holmes starts this week. Credit: Bloomberg

Then there was Larry Ellison, who invested in Theranos, a startup that promised to revolutionise blood testing, and would regularly pop round in his red Porsche to check on the company. As John Carreyou, the journalist who did most to expose Theranos, writes in his brilliant book Bad Blood, Holmes regularly started her sentences with the phrase “Larry says...”

Both men were, of course, hugely successful; Jobs was a visionary. However, they were also at the forefront of mythologising Silicon Valley’s “fake-it-until-you-make-it” culture.

Jobs’s NeXT venture was arguably one of the tech industry’s most successful failures. The company only ever sold a handful of computers but nevertheless earned Jobs a fortune. Apple bought NeXT in 1997 to get its hands on the company’s operating system and to bring its founder back into the fold.

Meanwhile in Oracle’s early days, Ellison was prone to exaggerating the capabilities of his database software, which were notoriously full of bugs.

Hubris has never been in short supply on the west coast of America. Most startups fail but no founder can allow themselves to harbour pessimistic thoughts. Nor can every new company be expected to get everything right straight off the bat.

Rarely, however, have such lofty promises been based on such shaky foundations as those at Theranos.

One of the most astonishing passages in Bad Blood highlights the extent to which senior executives used technical terms they didn’t fully understand in order to appear smart. Sunny Balwani, Holmes’s deputy and one-time boyfriend, misheard “end effector” (the device at the end of robotic arm) as “endofactor” and constantly repeated the error.

It’s also one thing to overpromise and underdeliver if you make computers or software; it’s something else entirely when you’re in the business of inventing medical devices.

Holmes claimed to have developed a device that could conduct a wide range of tests from a single drop of blood, selling investors on the idea that the company’s technology would be available to all and detect illnesses far earlier than ever before, potentially saving millions of lives. There was just one problem: it didn’t work.

Oracle co-founder Larry Ellison was omnipresent at Theranos in its early days.Credit: AP

Her trial is being billed as a Silicon Valley morality tale. It certainly has the right kind of narrative arc and all the necessary elements: a telegenic founder, the cult of personality, the veneration of youth, promises to improve the world, credulous investors and a valuation of nearly $US10 billion ($13.6 billion) at one stage.

Then came the fall. Carreyou and the regulators ripped back the curtain and found that Theranos’s blood testing devices produced inaccurate results and incorrect medical diagnoses.

The repercussions from the company’s collapse fed into a broader mistrust of tech and vaunted promises made by self-proclaimed visionaries, which accelerated after the Cambridge Analytica scandal, and wider questions about the role of social media companies in the political rise of Donald Trump.

A film and TV series about Holmes are already in the works. There will be an obvious temptation to draw wider lessons about the tech scene.

There’s certainly a case to be made that Theranos marked the high (or low) mark in public credulity with the overblown promises that emanate from Silicon Valley.

It’s true the dramatic rise and precipitous fall of Theranos occurred at a particular moment in history of the tech industry. Holmes founded the company after dropping out of Stanford aged 19 in 2003, when the pain of the dotcom bubble was beginning to ebb. It rose to prominence between 2013 and 2015 when the rancour caused by the 2016 election was yet to come.

It was a time when a second wave of tech unicorns were following in the wake of the likes of Facebook and Amazon. But most were social media platforms and online retailers run by geeky men.

They were changing the world but in a slightly ho-hum manner. As Peter Thiel famously said: “We wanted flying cars. Instead we got 140 characters.”

The world was desperate for a less frivolous tech company, preferably run by a woman. Holmes promised the world a healthier future.

Apple’s Steve Jobs was one of the first high-profile tech visionaries to come out of Silicon Valley.Credit: Bloomberg

And the world lapped it up. As Carreyou has said, people wanted to believe. The company’s board was stuffed full of luminaries. Safeway and Walgreens agreed to distribute its products. Investors pumped its valuation to make Holmes, on paper at least, the world’s youngest self-made female billionaire.

All the while the company was quite literally a black box. There’s certainly a case to be made that Theranos marked the high (or low) mark in public credulity with the overblown promises that emanate from Silicon Valley.

The fact that Holmes was operating in the medical sphere means that this was not just a tech company. It’s one thing to lose money (even as much as the £700 million ($1.3 billion) which was invested in Theranos); it is quite another to potentially endanger lives.

Equally, Holmes is clearly a unique character. That is one of the reasons why the trial is even happening and has engendered such fascination. It’s fairly safe to assume that most people would have plea bargained by now. It is even rarer for the defendant to take the stand as Holmes is reportedly planning to do.

Cases such as this usually hinge on semantics. Were the inflated claims made by Holmes and her team common-or-garden Silicon Valley hyperbole or outright and intentional deceit? Holmes has pleaded not guilty and there have been indications her defence will centre on claims that she was manipulated by Balwani, who is set to be tried early next year.

The trial will tell us a lot about both the particular culture at Theranos and highlight why the world has started to fall out of love with tech in general.

Telegraph, London

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.