Acharismatic young leader, billions of dollars in valuations and a technology that promised to change the world but failed to deliver: the meteoric rise and fantastic fall of the medical tech startup Theranos has been seen by many as an indictment of the hype-train attitude of Silicon Valley. Nearly 20 years after Theranos’s launch, its CEO, Elizabeth Holmes, is headed to trial, charged with defrauding clients and investors. Silicon Valley is facing a public that’s wary of its methods and intentions – but the verdict is still out on whether startup culture has fundamentally changed. “People are more sensitive to scams now – in some ways, there is a pre-Theranos Silicon Valley era and post-Theranos era,” said John Carreyrou, a journalist who has been covering Theranos for six years and now hosts a podcast on the trial. “But in many ways the boom has continued unabated. I’m not convinced there has been a true reckoning, yet.” ‘A particular moment in Silicon Valley history’ Theranos was founded in 2003 by a then 19-year-old Stanford University student, Elizabeth Holmes. Holmes promised to upend the vast medical testing industry with a technology that could perform a range of health tests on just a small drop of blood. The company reached its pinnacle about 10 years later, valued at a staggering $10bn, before it all collapsed. “The rise and fall of Theranos reflected a very particular moment in Silicon Valley history,” said Margaret O’Mara, a historian of the region who holds a professorship at the University of Washington. At the time, the Silicon Valley tech bubble was obsessed with young founders, celebrating the success of startups with “humble beginnings” that managed to take over the world – Mark Zuckerberg from his dorm room, Jeff Bezos from his garage. At the same time, some investors were increasingly frustrated that the valley’s output was concentrated on social platforms, seen by some as frivolous. As the investor Peter Thiel memorably said in 2013: “We wanted flying cars. Instead we got 140 characters.” “Then we have Theranos, which was not making an app but selling a promise to transform healthcare,” O’Mara said. “Holmes was targeting an experience – blood testing – that is very familiar and not very pleasant. That was appealing to a lot of people.” There was another draw to Holmes. As big names like Bezos, Zuckerberg and Bill Gates dominated the scene, women were largely left out of the narrative. In other words, the time was ripe for a young, female tech leader to take center stage. “Here was a photogenic, telegenic young woman posing as the female Steve Jobs,” O’Mara said. “It was an incredibly alluring narrative that everyone wanted to believe.” Changing times When Holmes was rising to power, tech companies were still seen as innovators that were largely benefiting society, said O’Mara. Bolstered by organizers’ use of technology platforms in events like the Arab spring and Occupy Wall Street, there was an overarching narrative that Silicon Valley was connecting the world and promoting democracy. “This was a time when companies could say they were making the world a better place and most people believed them,” O’Mara said. Startups from an array of industries were able to hop on Silicon Valley’s hype train, adopting its ethos of “move fast and break things”. Theranos was primarily a medical device company, while WeWork – another industry darling – was at its core real estate firm selling office space. A decade later, the startup environment has decidedly changed. Revelations like the Cambridge Analytica scandal have eroded trust in big tech. Legislators and the public are increasingly questioning the monopoly power some major tech companies hold. Social platforms were largely blamed for the rise of Donald Trump and his stunning victory in the 2016 election. “That’s when the whole conversation around social media and more broadly the tech sector started turning sideways,” O’Mara said. “There started to be more skepticism about what exactly these companies were promising.” ‘Life and death’ But opinions differ on how tech firms, and medical startups in particular, have adapted to the changing climate. “Theranos has raised awareness that people should take a stronger look at fantastical claims when they are made,” said David Grenache, former president of the American Association for Clinical Chemistry and current chief scientific officer at TriCore Reference Laboratories. “It helped raise some level of caution – it reminded people to look before you jump feet-first into believing in a technology that doesn’t really exist.” Although scrutiny is healthy, and necessary, for any startup in the field, the intensity of it has backfired on many medical tech companies, Grenache continued, noting there are “legitimate companies” working towards diagnostic technology that are more quickly shut down by investors. “Healthy skepticism has evolved into complete mistrust,” he said. John Ioannidis, a Stanford professor of medicine who was one of the first to challenge Theranos, argued that even amid growing scrutiny, medical testing companies in the Valley have continued some of the mistakes the blood testing startup made. Like Theranos once did, many medical tech companies still operate in “stealth mode”, launching and raising funding for their products without offering legitimate proof the products work, a study Ioannidis published in 2019 found. Of the 18 “unicorns”, or tech companies valued over $1bn, in the field, more than half had “no highly cited papers” on their work, according to the study. When the secretive nature of Silicon Valley collides with healthcare, very little information gets out regarding the actual research behind products, he cautioned. “Operating in stealth mode, making extravagant claims, and eventually driving people to make uninformed decisions about their health is very scary,” Ioannidis said. “This is not a laptop or a mobile phone, this is life and death.” Another problem, Ioannidis pointed out, is that many of these companies operate in a regulatory “gray area” because the technology they sell is not directly categorized as medical. While a vaccine or medication would require a more stringent approval process from the Food and Drug Administration (FDA), technologies like those offered by Theranos are able to get products into the hands of the public with little regulatory oversight. The FDA started reckoning with the problem following Theranos’s collapse, but a long road lies ahead. “This has been a wake-up call for a lot of people, including the FDA,” said John Wikswo, a professor of biomedical engineering at Vanderbilt University. “The experience has exposed a number of weaknesses in regulatory discretion.” Congress in 2015 held a hearing in Washington to discuss “lab-developed tests”, or LDTs. Like those used by Theranos, such diagnostic tests do not require companies to submit tests to the FDA before using them on patients. Dozens of startups have taken advantage of the loophole in recent years, according to the FDA. But not much regulatory progress has been made since. The efforts stalled under the previous administration and the fate of LDT regulation appears to be “in limbo” under the Biden administration. Meanwhile, medical tech companies are continuing to grow. Private biotechs in the US raised $27.2bn in 2020, according to data from Pitchbook, which tracks such deals. That’s an increase from $10.6bn in 2015, when Theranos began to fall apart. How these companies move forward in the coming years may partly depend on Elizabeth Holmes. The outcome of the case will be huge for startup culture, Carreyrou, the journalist, said. “There has long been a culture of faking it until you make it in Silicon Valley, and Holmes is a product of that culture,” he said. “To reform that – to change Silicon Valley – it is going to take a conviction.”