Inside The Theranos Trial — With Erin Griffith of The New York Times

Erin Griffith is the New York Times reporter at the trial for Theranos founder Elizabeth Holmes. She joins Big Technology Podcast to bring us inside the courtroom, explaining why Holmes is on trial and whether she'll be a rare founder to face consequences for misleading investors. We also discuss whether Holmes is emblematic of the venture capital world's downsides, or an outlier. You can find Erin on Twitter, @eringriffith Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Alex Kantrowitz?

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• 0:43Alex Kantrowitz?

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• 1:15Alex Kantrowitz?

  Hello and welcome to the Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond. And this week, we're going to talk about the trial that Elizabeth Holmes is currently on. She's the founder of Theranos. She's not in studio. But joining us today is someone who's been at the trial and on top of this story from the beginning. Erin Griffith from the New York Times, welcome to the show.

• 1:39Speaker 01

  Hi, thanks for having me.

• 1:40Alex Kantrowitz?

  Thanks for being here. So you've been showing up to the courtroom bright and early.

• 1:46Speaker 01

  Yeah, so unlike other trials, I mean, I guess I don't have a great sense of how every trial goes, but this one, it's kind of first come, first served. It's a very small courtroom and there's a huge interest in getting in there. And so, yeah, I've been showing up at the courthouse like in the dark at 5:00 AM, you know, and not even being the first person there in line. And waiting for, you know, roughly five hours to start hearing the proceedings um on the on the days that we've been in session so far. So it's um even though the days are ending at two and it's on the trial's only three days a week, the judge set that schedule to make it maybe a little bit less of a burden on the jurors who are going to be doing this

• 2:31Speaker 01

  for three or more months. Um, it's still a long days.

• 2:37Alex Kantrowitz?

  Right. And the trial is just beginning. And one of the interesting things about it is we don't see, I don't even even know if we can call Elizabeth Holmes a tech executive, but we don't see executives who've been funded by venture capital who make grand promises end up in court so often.

• 2:55Speaker 01

  Yeah, and they definitely don't go to jail.

• 2:57Alex Kantrowitz?

  They don't go to jail. And there's an argument to be made that, you know, this is just sort of how it goes, where people make big promises. Sometimes they follow through with them and succeed. Sometimes they don't. But if you send everyone who didn't follow through on their promises to jail, you'd have a lot of, you know, startup founders, you know, currently in prison. So what's your view of this trial and its justness? And how might it differ from what we typically see?

• 3:31Speaker 01

  Yeah, I mean, and and to what you said, if we sent everyone who didn't in Silicon Valley who made grand, you know, proclamations about what their company might do or could do and didn't to jail, we probably, you know, wouldn't have some of the biggest, most successful, most powerful companies in our industry now because it's pretty much widely accepted in Silicon Valley that this is part of how you how you do it. I mean, these are companies that are trying to manifest the future. They're coming up with something that has never been done before. They're disruptive. This is not a matter of saying, you know, my.

• 4:12Speaker 01

  Coke tastes better than your Pepsi. When they're trying to raise money and, and marketing their products to the world, they're trying to create a new vision of how the world can be. That's part of the promise and magic of Silicon Valley, but it's also extremely problematic when it gets taken too far. And in Theranos's case particularly because it, you know, put people's health at risk and you're, you're messing with people's livelihoods. Um, it's, it, it's sort of easier to forgive a startup founder when they say, "Oh, our product is going to revolutionize the way you, you know, share photos with your friends." And then maybe they don't. Um, okay, fine. Good try.

• 4:58Speaker 01

  It's a lot different when, you know, you're, you're doing something in, in healthcare. And I guess the thing that I'll say about that is Silicon Valley now is so, over the last decade in particular, has become so much more entrenched in every other industry. It's not just media communications and internet toys. You know, their, their software is supposed to be eating the world. And so every single industry, um, is being affected by this. And so it does create a lot more opportunities for questionable ethics that have actually real consequences.

• 5:33Alex Kantrowitz?

  Right. And, and the promise here, just to set the stage of what Theranos was trying to do. The promise here was with just a single prick of your finger and one drop of blood, they could run dozens of different diagnostic tests.

• 5:48Speaker 01

  Yeah. The, the, the idea was, was even bigger than, that was the product. They created this like kind of machine that looked like a printer called Minilab or Edison that was supposed to take a finger prick or finger stick of blood, be able to do almost any test you wanted, cheap and very quickly. But the bigger idea that, that they really were selling the world on is that you can take control of your health information. You can order up any diagnostic test you want, like it's on a menu. And you then are now kind of in the driver's seat, deciding, making all your own healthcare decisions. Um, so that was a really disruptive, um, and exciting idea that a lot of people bought into.

• 6:33Speaker 01

  Um, unfortunately, the technology did not work.

• 6:38Alex Kantrowitz?

  Right, and they ended up rolling it out.

• 6:41Speaker 01

  Just to put it very bluntly.

• 6:45Alex Kantrowitz?

  Yeah, right, they gave bad diagnostics to people who had serious health issues. And is that the core of the case here that the US attorney is now saying you put people's health at risk by lying or lying to them about your product, which in turn led them to make decisions that could have harmed them?

• 7:03Speaker 01

  Um, not exactly, actually, it's a little bit more complicated than that. Um, this, so Theranos collapsed very famously in 2018. And around that time, there were settlements with lawsuits with patients, with investors, with the SEC. Um, Elizabeth Holmes, you know, agreed to not run a lab or be a public director for a certain amount of time. Um, they voided two years of their test results. But this particular, this indictment which came in 2018 is, um, is just about the fraud itself. And it's, so it's not about, and it's only about the investors.

• 7:44Speaker 01

  So it is focused on misleading and false statements that Elizabeth Holmes made in order to raise money. Um, and so in the opening arguments, we saw a lot of examples of that from the prosecution. There were documents that she or somebody at Theranos had apparently falsified from pharmaceutical companies endorsing the technology, when in fact, the pharmaceutical companies had said this technol, we do not endorse this technology. And they, and she had shown that to investors as a way to raise money. So that's one example. There were like tons and tons of examples of basically things that she lied. She exaggerated their revenue. There were years when she said they were making hundreds of millions of dollars and

• 8:29Speaker 01

  they had none, um, or, or very little. She claimed that they were, that Theranos, uh, mini labs were being used on battlefields and had, you know, German of defense contracts and they didn't. Um, and so this case is, is all about. Yeah, yeah. And so this case is, is very focused on, um, defrauding the investors, which is actually kind of a hard case to make because these her this is a private company, it never went public. So there's not like these mom and pop investors who poured their retirements into it. These are the richest, most powerful people in the world. Rupert Murdoch, Betsy DeVos, the Walton family. It's, you know,

• 9:10Speaker 01

  a little bit challenging to make a jury sympathetic to these people who were clearly seeking out a risky investment and have plenty of money to lose. Um, so that is, that is one sort of challenge in the case, but we will also be hearing from patients talking about the real world, you know, effects of this. And one thing that the prosecutors re- repeated in their opening arguments was basically, you know, it, it, it doesn't really matter who the victims are. She lied in order to get money and that is a crime. Doesn't matter if it's on Wall Street, on Silicon Valley or in Silicon Valley, or, you know,

• 9:50Speaker 01

  anywhere. It's fraud is fraud and, and, and that was the case the prosecutors made. So it is kind of narrowly focused.

• 9:58Alex Kantrowitz?

  Is it weird to you that the thing that could send Elizabeth Holmes to prison is defrauding investors versus like telling sick patients that one part of their, you know, health results were actually, you know, looking good or bad, where in case, in that case, it was an error. Like it's, it's strange, right? That it's investors that were, that the legal system is looking after here and not patients, or maybe I missed something.

• 10:24Speaker 01

  It's true. I mean, this is a essentially a white collar crime case. So they're focused on the, the financial piece of it. The, the case initially included patients and doctors, but the, um, they were, um, actually removed from it in the many years leading up to this trial because they didn't suffer any financial losses because their health insurance or malpractice insurance covered, um, them. And so this is, yeah, this case is, is focused on, um, on the financial fraud piece of it. The, the voiding the test results and all of that was, I guess, addressed when she paid fees and agreed to settlements with CMS and the FDA, um,

• 11:08Speaker 01

  and some of the lawsuits that happened earlier.

• 11:12Alex Kantrowitz?

  I see. So this is gonna be a long case, like you mentioned at the top, three months, maybe.

• 11:17Speaker 01

  Three or four. So it, yeah, last week when it said, the judge's calendar said three months, maybe longer. And then I noticed this week that it just, they had just quietly changed it to four, which is a little upsetting. The, yeah, it's gonna, and we already had our first delay, which is just, so this, this case was supposed to start in early 2020. And it was after plenty of delays already, and then they kept pushing for more and more delays because of the pandemic. And then most recently, it was delayed because Elizabeth Holmes had a baby. And so she.

• 11:53Alex Kantrowitz?

  Right. Baby's like one month old, right?

• 11:55Speaker 01

  Yes. Yeah. And so there have been so many delays. And then now we've, we've had so far, one day of actual trial, a week of jury duty and one day of actual trial. With like half a witness testimony. And we have a juror already who says they may have been exposed to someone with COVID. And so there, we're waiting on test results. So we canceled today, which is Friday, and picking up again next week. But I'm a little nervous that we are gonna burn through these juror, juror alternates so fast. This is such a long case and there's already like, one juror brought up that she didn't realize that KPMG, she had some, she had some connection.

• 12:38Speaker 01

  To an auditing firm that was involved in the case. Another one now is saying that she can't like take off work for three months. And so it's, it was already hard enough for them to find a jury with, that had never heard of Elizabeth Holmes before because of the media attention. And so, and that could actually be there for three full months. But the pandemic is just, you know, another twist on that. So it's, yeah, it's. I I'm a little nervous about that. This is as was the judge. He he expressed as much.

• 13:10Alex Kantrowitz?

  Right. And so it will be a long running media circus, but it will also be a case. So what's going to happen in these three months? Um, just from a like, what are they? What are they going to do? Is it going to be something where we hear a lot about it in the beginning and then it's going to go away and come back with a verdict? Or is there going to be tension throughout?

• 13:27Speaker 01

  It, you know, that's, that's a great question. I mean, I think as a journalist covering it, I don't necessarily want to be driving all the way down to San Jose and waiting in line at five in the morning, like every day for three months, but we don't right now have a great insight into who's testifying when. And there are some really like bold faced names that are on the witness list. Um, I mean, Rupert Murdoch's on there. Henry Kissinger's on there. Um, David Boies, um, the defense has John Kerry Rue on there. Um, Roger.

• 14:00Alex Kantrowitz?

  The defense, so Elizabeth Holmes is going to have the Wall Street Journal reporter who sort of brought the whole company down to testify. As one of their witnesses? That's crazy.

• 14:11Speaker 01

  They could, they also, the, the defense actually also put, um, all of the, um, US attorneys who are prosecuting the case on their list. And so it could be.

• 14:20Alex Kantrowitz?

  What's going on?

• 14:22Speaker 01

  It could be an intimidation strategy, um, that they're, you know, hinting that they might try to like, make the case that this was a witch hunt and that all these people were unfairly out to get her. Um, I heard one theory that maybe they put Kerry Rue on there to keep him out of the courtroom because some judges don't allow witnesses to be in the proceedings, but they didn't. Yeah, they didn't, they didn't do that. And, um, it could just be, I mean, so the witness list is over 200 people between the two sides and. So I don't think we could possibly get through that many, even in a trial this long. Um, so many of them, you know, might be red herrings or they might be, you know, just leaving the door open.

• 15:07Speaker 01

  Um, you know, so much can change over the course of it. I mean, Elizabeth Holmes herself is listed as a potential witness and that is hugely risky to have her go on the stand. I mean, the cross examination could just

• 15:23Alex Kantrowitz?

  Right, that doesn't usually happen.

• 15:24Speaker 01

  Brutal. Yeah. And so the fact that they are even like leaving that as a possibility is quite um, surprising and that is gonna be the biggest day of the trial if that happens. Um, so, and so I don't, yeah, I don't have a sense of like, we don't, we're not getting much in the way of updates or heads up on who's testifying when. And so it might be a thing where the media just has to go every day. And if that, and if they're going every day, then they're gonna be writing stories every day and some days are gonna be very boring. I mean, you know, there's a lot of like, there's a lot of accountants who are gonna be getting into very arcane details. There's a lot of scientists, doctors, medical testimonies. So, yeah.

• 16:05Alex Kantrowitz?

  Yeah, this is an interesting thing because we know so much about Theranos already. Uh, it's very rare to get such a deep glimpse inside a company, but the carrier book Bad Blood and all the reporting is uh, you know, been so illuminating. So do we need to learn more? Are we gonna learn more about this company? I mean, we already have this like pretty interesting revelation that Holmes made herself where she said she was in an abusive relationship with Sunny Balwani, who was one of the people leading the companies with her and you, and she's gonna use that as a defense. So I guess like this is a long way of saying

• 16:38Speaker 01

  Likely, likely. We don't know for sure.

• 16:40Alex Kantrowitz?

  Yeah. Do you expect this to be, to get even weirder than it already has been?

• 16:46Speaker 01

  Um, yes, because this story just has never ceased.

• 16:49Alex Kantrowitz?

  Yeah.

• 16:49Speaker 01

  I think that's a very good point. Um, but this story has never ceased to amaze me with just the strange quirks that come out about it. I mean, even just the fact that at the trial, there were like three women that were dressed as her that showed up on the, on the first day and they turned out to be like her friends or, or some relation to her. That was just a bizarre thing, like, like sort of.

• 17:13Alex Kantrowitz?

  So, so wait, hold on, let's, let's pause on that for a minute. So at the trial, there were three women who showed up dressed up exactly like Elizabeth Holmes. You really couldn't tell the difference if you.

• 17:22Speaker 01

  One looked exactly like her, like they might be related.

• 17:25Alex Kantrowitz?

  And, and these were her, her friends. I mean, that's really weird as a way to show support and dress like her.

• 17:32Speaker 01

  Afterward, they were like hugging her boyfriend, Billy Evans, and like chatting afterwards. So they clearly are, there's a connection there. It wasn't just like people from the internet. But anyway, so yeah, there's weird stuff like that happening. And so the, I mean, her, her, her father-in-law, the, the hotel heir, Billy Evans is her boyfriend. Her, his father was at the trial during the jury selection, sitting amongst the media the entire time. And he told us that he was just there because he always thought going to a trial was on his bucket list. And he, he lied about who he was. So there's like all kinds of crazy things happening. But, um, I mean, I, I want to think also that's interesting just about all the information that's out there about there.

• 18:13Speaker 01

  And I was like, I had mentioned that, that made jury selection really hard because so many people have followed the story. It's been such one of the biggest kind of business and tech stories of the last decade.

• 18:24Speaker 01

  It is, we're starting from scratch. We have to assume that the jurors don't know anything about this. And there's a lot of information that is out there in the public world that is either not permitted to be used as evidence or won't be because it's not relevant. Um, and the two sides have spent the last four years fighting over what can be used in this, what can be argued in this trial. They fought over whether or not you could say that all Silicon Valley companies lie. And so their notes was singled out. They thought, they, they fought over whether or not Elizabeth Holmes, like flashy lifestyle, like her private jets and all of her like purchases and things like that could be used. And so there's all this stuff that, you know, it has been litigated already and some will be litigated as the trial goes on.

• 19:08Speaker 01

  But it's just, I, it's just the funny thing that I've observed in my stories, like a lot of the commenters are just like. Elizabeth Holmes, like scholars, where they're weighing in with all these details. And I'm kind of like, well, that is, that hasn't been introduced yet, or that is not part of this case. Or like, that is irrelevant. And so, you know, it, as observers of the trial, it's going to be a little bit weird for us to look at it, just including, just the facts that are actually being in the trial and are being, you know, weighed in the trial and introduced. And taking out all of the other kind of extemporaneous stuff that we know about the company, but is not a part of the trial. So that's like, that's one strange piece of it. And, and yet, I do think that there's going to be stuff that comes out that we don't know.

• 19:53Speaker 01

  Or that we've never heard before. I mean, I, I've read the book. It was, it's been a little bit, a little, a little while. I've listened to the podcast, watched the documentary, all that stuff. And there were still some details in the prosecution's, um, uh, opening arguments that I didn't remember or wasn't, it was, it felt new to me. And then the exhibits, as they all come out, I mean, last week, we got six pages of text messages between Elizabeth Holmes and Sunny Balwani. And that was just like,

• 20:23Alex Kantrowitz?

  Yeah, yeah. I wanna, before we go to break, I want to talk about this relationship between Elizabeth Holmes and Sunny Balwani. So she was the CEO of Theranos. He was an executive high up. They eventually started a romantic relationship. Uh, what, what is happening or what is new now about that relationship that's made its way into the case?

• 20:46Speaker 01

  So I, so the, the, the, the full chronology is she starts, she meets him on a college trip. Um, you know, she drops out, starts Theranos. They kind of reconnect a few years later. In 2009, Theranos is almost out of money and their strategy, which was a B to B strategy, is not working. And she goes to him and he decides to make a personal loan to keep the company afloat. And that's when he joins as COO. And I believe around that time was when they started their romantic relationship, or maybe previously they had been dating. I'm, I'm, I'm a little unclear on that. But, um, that's when, what's that?

• 21:24Alex Kantrowitz?

  All right, go ahead. I just wanted to.

• 21:25Speaker 01

  That's when the fraud, that's when the fraud starts, basically. And that's when this case, or the, the fraud accusation starts. Basically, they span 20, 2009 to 2016. And, um,

• 21:37Speaker 01

  So he was her number two um at the company and uh like they they are accused together of conspiracy to commit wire fraud. And last year, I believe it was, they got the cases separated, maybe it was two years ago. They got the cases separated. Um, the judge didn't say why at the time, but then just very recently, um, because Dow Jones basically sued to make some of these filings public, we learned that Elizabeth Holmes um lawyer said that she is likely to use a mental health defense.

• 22:18Speaker 01

  Um, she will be testifying and she will have expert witnesses testifying um that Sunny Balwani emotionally and physically abused her and that that negated her ability to intend to deceive because she was relying on him, taking cues from him, he was controlling her. Um, they're calling this this Fengali defense after that movie. Um, it has been used before in other crimes, but I don't think ever, or at least maybe never in a white collar crime, it's extremely, extremely rare and very risky. And so I, I think there's a fifty fifty chance they actually do that. Because even though we've, we've talked about this and there's a bunch of filings about

• 23:03Speaker 01

  it that sort of detail it, and I should also note that Balwani's lawyers have, you know, in filings vociferously denied all of those um accusations. Um, it's really risky and so maybe if things are going good, they decide to kill that part of it um and just not do it and not risk putting her on the stand and and taking that risk and or maybe if things are going really bad, they just, I I don't know. So I think the strategy will definitely, there's a lot of things that could come and go and change. One thing, there, there's a Bloomberg reporter who wrote a really smart story about how even just introducing the possibility of this has it in the jurors' mind because all throughout the jury proceedings, they had to ask everyone, have you ever had an experience with domestic abuse or domestic violence?

• 23:47Speaker 01

  And they all had to think and they had to share their experiences and like, so it got them all like imagining her as a victim bef- without even saying or doing anything. And then in the um. Which is, which is something I had never even considered as a legal strategy. Uh, in the opening arguments of the defense, they hinted that her reliance on Balwani was a mistake. Um, and they kind of said that you'll learn more about this relationship later, but they didn't, they didn't go for it um, at all. It was very sort of vaguely alluded to. Um, which makes me think they're leaving the door open for deciding later if they want to use that strategy or not.

• 24:29Alex Kantrowitz?

  Yeah, fascinating strategy, fascinating stuff. But a case. Okay.

• 24:33Speaker 01

  Yeah.

• 24:33Alex Kantrowitz?

  Uh, I want to talk a little bit about what this means for the tech world. So why don't we do that right after the break? It'll be a fun discussion going into like whether this is normal for Silicon Valley to do what Theranos did, or whether it's an outlier. So why don't we do that right after the break? Hang with us. We'll be back right back, right after this. This episode is brought to you by App Point. Everyone's racing to roll out AI right now. Co-pilots, chatbots, agents doing real work. But here's the part nobody loves talking about. All that AI runs on your data, and most teams have no single way to see it, secure it, and prove it's under control. That's exactly what App Point does. For 25 years, they've been the trusted layer beneath the world's most demanding data,

• 25:17Alex Kantrowitz?

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• 25:53Alex Kantrowitz?

  And we're back here on the Big Technology Podcast with Aaron Griffith.

• 25:58Speaker 01

  Oh, that was fast. Sorry.

• 26:01Alex Kantrowitz?

  It's the wonders of dynamic ad insertion. Anyway, we're back here for the second half. It's great to be back with you, Aaron. And so we teased a little bit before the break about the implications for the tech world here. And the big notion inside the tech world that a lot of people who are in venture capital have been trying to get across is, no, no, Theranos isn't a tech company. It's not emblematic of the way that startups work. I mean, they fudge things, but they don't fudge this. So, and it's interesting, again, we talked about in the first half that this is actually a financial crime, or something

• 26:42Alex Kantrowitz?

  that's about the fraud duping investors, which, you know, investors are saying, yeah, it happens to us every day, but this is different. So I want to ask you a two parter. The first is, is Theranos a tech company? I mean, it seems like a medical device company. And the second is, what do you think about these claims and this movement among VCs to try to say, no, no, this is different?

• 27:05Speaker 01

  Yeah, I mean, I think it depends on how you're framing what is a tech company. I mean, like we were talking about earlier, Silicon Valley for the last decade has wanted to say, every company that has an element of software is a tech company, and they give it a SaaS valuation. You know, software is creeping into ed tech and, you know, all medical and taxi hotels.

• 27:31Alex Kantrowitz?

  We were talking here last week, I had Jonathan Neon, who's a Columbia Business Professor, and he's like railing against the fact that Sweetgreen calls itself like a platform and wants those 36 valuations where it does salad. So, yeah, I wonder, is Theranos, are they salad or are they more of a SaaS platform?

• 27:49Speaker 01

  Well, here's the thing. Yeah. So if you want to say everything's, every company's a tech company, I'm calling it a Silicon Valley company. And I don't want to quibble over like tech, biotech, medical, whatever, because there are lots of classic Silicon Valley firms that invest in biotech and medical devices and life sciences. But, and at the end of the day, they were building. A machine that had a software element, so it is a Silicon Valley company. They're based in Palo Alto. She went to Stanford and she had deep ties to Stanford. Channing Robertson, you know, one of her top execs she recruited from Stanford. She actually met George Shultz through Stanford and he

• 28:29Alex Kantrowitz?

  One of her big investors.

• 28:30Speaker 01

  Yes, which was one of her board members and one of her biggest advocates. And he was the one who sort of helped her recruit all these other like dignitaries, senators, generals, all these other older men to her board through the Hoover Institute, which kind of has a little connection to Stanford. She raised venture capital from some Silicon Valley investors, including DFJ, Tim Draper. Larry Ellison is about as Silicon Valley as it gets, you know? So yes, lots of traditional Silicon Valley VCs took a look at the company in the past. But I don't think that it is fair for the entire industry to disown this company just because it doesn't make an app.

• 29:16Speaker 01

  Which is, I think, what some of the people are trying to argue.

• 29:20Alex Kantrowitz?

  That's their argument in particular. I mean, I guess there are another part of their argument is like, look at the board. You know, this was, this was like you mentioned, we talk about Schultz, right? We talk about, you know, people who had been in the Defense Department and other forms of government. And the traditional core VC industry is saying this isn't representative of us. Do they have a point there?

• 29:41Speaker 01

  I mean, yes, yes and no. Like I, when you, I mean, how do you feel when there's a journalist that does something extremely unethical and bad and then everybody's like, see, this is an endemic in the journalism industry. You know, we hate that and I get it. So I get that you want to distance yourself and say, I'm ethical. We're not all like this.

• 30:04Alex Kantrowitz?

  Yeah, I know the I know the VCs that are currently saying we're not representative of what was happening with Theranos would definitely see the nuance with journalists and a bad thing a journalist.

• 30:15Speaker 01

  Right, yeah, yeah, exactly. No, but so so I'm trying to be empathetic here. I I got that. But like this, she did follow a playbook that

• 30:24Alex Kantrowitz?

  Yeah, what's the playbook?

• 30:25Speaker 01

  is that it that everyone is encouraged to follow, like, everyone's encouraged to like, grow, you know, mark up your TAM 10x, like, just make these wild projections because that's how you raise the money. She, you know, she she modeled herself after Steve Jobs down to the wardrobe, she and down to the, you know, the ad agency that he hired and the branding and the way she talked about it, like, she was very much a student of the Silicon Valley playbook. And so she obviously took it way too far and like, crossed a million ethical lines that I think, you know, most companies following this playbook

• 31:04Speaker 01

  would have drawn, would have stopped, short of. But I don't think that you that you can disown this company entirely and be like, no, no, no, we're above that because there are tinges of that all all over. And I I mean, I remember writing about this in 2016, like, there was the Theranos thing, and it was like, whoa, OK, well, this is not the same as all the other tech companies, which are very good. And and then the Zenefits thing blew up. And, you know, we we learned that they had been cheating on these, like, these

• 31:41Alex Kantrowitz?

  HR software.

• 31:43Speaker 01

  Yeah.

• 31:43Alex Kantrowitz?

  It was insurance.

• 31:45Speaker 01

  It was, yeah, it was this insurance test that they were cheating on.

• 31:48Alex Kantrowitz?

  They had a macro program that would just take it for the people.

• 31:52Speaker 01

  Yeah, exactly. And there there were lots of other kind of shady things that they had been doing. And then Hampton Creek happened, and we learned that this, like, mayonnaise company had been buying their own mayonnaise off the shelves and it's at retail in order to make the retailers think it was more popular than it was.

• 32:09Alex Kantrowitz?

  And Juicero.

• 32:11Speaker 01

  Yeah, well, Juicero was

• 32:15Speaker 01

  Less of a fraud or an ethics problem and just a dumb idea. But or about, you know, a bad idea. So I wouldn't necessarily lump the they weren't. I don't know that they were nefarious so much as they believed their own their own hype. They believe they were making it. They weren't purposely faking it, but uh there were so many other smaller examples of that that we never like or that that never quite like. Made the headlines or I mean, if you even if you sort of look at magically was kind of in that in that bucket too. There were just so many and I realized it was like. Very endemic to the industry and lots of them are small and harmless and and most investors are willing to look the other way because.

• 32:55Speaker 01

  That's the nature of this business. You're gonna lose out. A lot of the investments are gonna fail or or flame out in some way and. Most of them are not putting people's lives at risk.

• 33:06Alex Kantrowitz?

  Right.

• 33:06Speaker 01

  Was.

• 33:08Alex Kantrowitz?

  So is there argument that just like basically some fudging of the numbers and your projections is fine as long as it. Doesn't go across this imaginary line that they.

• 33:20Speaker 01

  I mean, I don't want to speak for VCs. Everyone has different opinions and I don't think that's necessarily.

• 33:25Alex Kantrowitz?

  Yeah.

• 33:25Speaker 01

  I don't think anyone's really gonna admit like, oh, yeah, lying's okay.

• 33:31Speaker 01

  But at least not to a journalist on the record.

• 33:35Alex Kantrowitz?

  It does seem, I don't know. I'm watching some of their comments on Twitter, David Sacks in particular, and it does seem like. Like that is what they're saying, but maybe I'm putting words in their mouth, but sorry, go.

• 33:43Speaker 01

  Well, yeah, I don't.

• 33:45Alex Kantrowitz?

  Yeah.

• 33:45Speaker 01

  I don't follow him, so that is probably true. I I I am sure. I mean, and and right after the Wall Street Journal article came out about Theranos. Like, I don't know if you remember, but there were a lot of VCs that jumped to her defense.

• 33:57Alex Kantrowitz?

  Yes, and there are people there saying, hey, the Wall Street Journal tried to destroy this company. They would have given it some more time. It would have worked out.

• 34:04Speaker 01

  Mm hmm. Yeah.

• 34:05Alex Kantrowitz?

  And that's that's what it leads me to my next question, which is like. Is the environment that created Theranos part of the environment we need to have companies create new important things? I mean, can like, I guess, like, should, should this, you know, potentially just be tolerated as a side effect of a very constructive part of the economy?

• 34:31Speaker 01

  I mean, I think that's a really interesting debate to have, and I would, I would say no, but, but maybe that's just because I, I, I'm a hater and I don't get it.

• 34:45Speaker 01

  And I'll never build anything because I'm, I'm not a builder. I don't, you know, I like there, I, I think that's, that's absolutely a debate that's being, being had or that, that people fall onto different sides of. And if you're a part of the ecosystem, you might believe one thing. And if you're on the outside, you might maybe agree more with me. I mean, I think it's very obvious to look at what Theranos did and all of the people that she hurt, that the company hurt and lives that were damaged, not just patients, but people who worked with her, interacted with her, had their reputations ruined. One of her top scientists committed suicide. It, it's like, it's an extremely tragic story with a lot of victims.

• 35:29Speaker 01

  And so I think it's really hard to say, oh, this is just necessary and for the sake of capitalism and, and human progress.

• 35:36Alex Kantrowitz?

  Right.

• 35:38Speaker 01

  This is just the starkest example of, of that side of the argument.

• 35:45Alex Kantrowitz?

  Yeah, I think so. Often it's very clear that we live in a world not without consequences, but with few consequences. And people get away with a lot of different stuff. And I don't know, maybe someone pulling off a fraud of, of this level. I mean, innocent till proven guilty, but let's be real about it. Maybe it's good for, for there to be some consequences. What happens if there are? I mean, what happens if she does go to prison after this?

• 36:13Speaker 01

  Yeah. So she, her, she faces up to 20 years, but oh, sorry. I think we're speaking less literally.

• 36:20Alex Kantrowitz?

  Right. No, the main thing I just want to know is, um, does it have a impact on people's willingness to start and fund companies?

• 36:28Speaker 01

  No, because like you said, there's that, there's that separation, like, you know, people in order to be involved in this ecosystem and believe in it, you have to, you, you don't, you have to be able, believe that you're better than that, you know, because that's basically the worst version of failure that you can do. Um, so I, I don't think it's gonna encourage people or dis- discourage people because flip side is there's just so much money right now, just so much money available for startups being poured into companies.

• 37:05Speaker 01

  Money that people are making value that's being created regardless of whether or not you believe that it, that their valuations are justified. And so that's always gonna attract people building things and it's always gonna attract grifters.

• 37:20Alex Kantrowitz?

  Yeah.

• 37:21Speaker 01

  So I, I do think it'll be interesting to see if there are more uh, cases like this. Like we just saw, I think it was, was it called Headspin? Um, there was a company that just was indicted last week or two weeks ago for defrauding investors um, on their uh, financials and, you know, it's a pretty small company. I wasn't really very familiar with them. And so it's interesting, but they're still worth like a billion or two billion dollars. So it's, it's gonna be really interesting to see if that SEC or the um, US actually starts going after these situations a lot more, particularly as

• 38:02Speaker 01

  the private investing and venture capital investing is opening itself up to more and more people. It's starting to look a lot more like the regular stock market. I mean, it's still very limited, but a lot of companies are working to open up their cap tables to just regular old people. And so that could also drive some of the interest in, in prosecuting more of these cases.

• 38:23Alex Kantrowitz?

  Yeah, it, it is also really interesting, like where does optimism, like, you know, turn into fraud? I mean, we talk in Silicon Valley about the reality distortion field, like harking back to Steve Jobs. A lot of times people need to say the thing that everybody says can't be done, I can do it. And sometimes that turns into world changing companies and obviously that's what Elizabeth Holmes said, uh, but it turns out that everybody was, was right because she was taking that blood and instead of running it through her machine, sending it out to. You know, other processors, existing processors and passing it off as their own.

• 39:01Speaker 01

  Yeah, I mean, that's that's definitely that's definitely the case. She like I, I, I think you're, you're absolutely right. Like that is a part of the game is being able to have that vision for the future. Um, she took it too far.

• 39:19Alex Kantrowitz?

  Yeah. Okay. I want to talk about some of the consequences. We can already see in Silicon Valley, you've written about this in the past. Why don't we do that again, uh, right after this break?

• 39:32Speaker 02

  Now, more than ever, we need someone on our side, but Rob Whitman, Whitman's votes drove up costs, cut Medicaid and risked 350,000 Virginians healthcare to pay for tax breaks for himself and his donors. He's not on our side. Shannon Taylor will fight corruption, cut taxes and bring down costs. This November, vote for Shannon Taylor. She's for us. Paid for by HMP, the HouseMajorityPact.com, not authorized by any candidate or candidate's committee.

• 40:03Alex Kantrowitz?

  And we're back here for one final segment on the Big Technology Podcast. Joining us is Erin Griffith, reporter for the New York Times. Erin, you wrote a story about how female founders are already starting to see some blowback from what happened with Elizabeth Holmes. Can you expand upon that a little bit and tell, tell us what happened there and how this is already starting to resonate, even though, you know, she's just started to be on trial?

• 40:28Speaker 01

  Well, I guess it's actually less of an already started, but have been for the past five years. I mean, you remember the Wall Street Journal article came out in 2015 and then it still took another two or three years for the company to fully collapse. And now we're here in 2021. So.

• 40:47Speaker 01

  It's been going on for a really long time. It was always hard. It has always been difficult for women to raise money, especially in life sciences, biotech, any kind of hard science field where there are even fewer of them. A lot of most prominent female founders are kind of clustered in the consumer tech side of things. And so they already don't fit the part. And the fact that Elizabeth Holmes became such a famous, prominent example of a successful woman breaking down those barriers. When she, her downfall happened, when she became the most disgraced

• 41:28Speaker 01

  example of a successful woman breaking down those barriers, it is, it's doubly bad for all the women who are actually trying to build legitimate companies. And it's sort of this double edged sword because one reason why Elizabeth Holmes became so famous and was such, held up as just like put on magazine covers, you know, meeting with Bill Clinton, like getting, flying around a jet all the time is because everybody wanted the next Steve Jobs to be a woman. And so people were willing to kind of overlook maybe obvious red flags. Like how is a nineteen year old with no education on this topic, running a company with doing these critical health tests?

• 42:10Speaker 01

  And so it, it, it worked to her advantage. And, and that ended up hurting a lot of women founders, particularly those that are working on any kind of diagnostics. But even just those that are more generally in hard sciences have just been kind of battling these comparisons. Particularly in two thousand eight or so, but anytime she's back in the news, which she is now, you know, it's gonna kind of flare up again. And what I found in talking to female founders who were dealing with this is that it's most prominent when they're just starting out, when you have an idea for a company and you're trying to get it off the ground and you need

• 42:51Speaker 01

  somebody to believe in you and your idea and just your, your base, just you as a person, you don't have anything else to show. And that's really what is the kind of. Value of venture capital is backing these founders in hopes that they're and telling them, okay, go off and build something great.

• 43:09Speaker 01

  And that has been when most of them have gotten those comparisons. Once they have something to show for themselves, they have, you know, published in peer reviewed journals, or they have clinical tests or results, then it's a little bit easier, more people are willing to like, give them the benefit of the doubt. But, I mean, the stories that I heard were kind of crazy. I mean, one of the founders, Julia Cheek of Everly, of what's called Everlywell, people were telling her that she should dye her hair a different color, so she wouldn't get the comparisons to Elizabeth Holmes, who was also blonde like her. I mean, this is crazy. And when you're a female founder who's pitching male, mostly, probably mostly male investors on your idea or your company that you're planning to build, and the first thing they say is like, oh, well, are you like Theranos and Elizabeth Holmes?

• 43:54Speaker 01

  Like, what do you have to say to that? You're already on the defensive. You're saying, oh, okay, so you're comparing me to someone who has been accused of criminal fraud. And so it has created this sort of shadow and a form of bias that's really crappy. So, yeah.

• 44:13Alex Kantrowitz?

  And has there been a downturn in diagnostic or biotech or hard science funding altogether? Or is this something that women in particular are facing after this? And they're actually name checking Elizabeth Holmes in the pitch meeting. That's sort of, I mean, I don't know, I guess I'm not surprised by VC anymore, but that is somewhat astounding.

• 44:35Speaker 01

  Yeah, it's just kind of lame. I mean, I, I will say, I also heard this a lot more from people who are pitching VCs that were not deeply immersed in hard science or life sciences. They get it, because those are the ones that also passed on Theranos, because they saw it and they were like, this is not real. And so, but it's more just like the broader zeitgeist and some of the big firms that are more generalist, that you want to have that brand name firm, or, and their huge checkbooks.

• 45:05Speaker 01

  I mean, I would say in general, no. The funding to those kinds of companies has not slowed down at all. There's just, like I said before, so much money available, period. And

• 45:20Speaker 01

  Interest rates stay low, stock market stays high, investors are chasing risk, they're they're dumping money into the private markets. And so, you know, that wave is just going up. There's there's no real quantifiable way to say that there's like brought a hit to that that category.

• 45:38Alex Kantrowitz?

  Hmm. Do you think that there it do you think the um difficulty that some of the women founders are seeing? You know, trying to raise in the shadow of homes, um is that going to dissipate over time? Or do you think, you know, I mean, this happened recently, these firms are in business for a while. Do you think it's going to be something that follows them for a long time?

• 46:00Speaker 01

  I mean, there just needs to be more examples of prominent women CEOs in this field. And that was partly what I was trying to do with my article a little bit is say like, okay, here's here's a handful of other women that are building really interesting companies.

• 46:13Alex Kantrowitz?

  Yeah.

• 46:13Speaker 01

  And I do think their profiles are are raising and it's not a media problem. I did get that feedback from some people being like, it's just a matter of like, you guys are framing the narrative wrong and you need to just tell more stories. It's like, no, I can tell positive stories about women founders all day, every day. It doesn't change the fact that this like massive fraud happened and it's everyone's touch point here. Um, it it it what needs to change the fact is that they need to raise more money and they need to like, you know, ascend to higher heights and and more more power and more success.

• 46:50Speaker 01

  And like, we're starting to see that happen, at least with in general with like, you know, female CEOs taking their companies public, that that's that's definitely on the rise.

• 47:01Speaker 01

  VC funding to women founders is is not super encouraging when you look at the data. It actually kind of fell a little bit in the pandemic. Um, so, yeah, it's a I I I don't think it'll really change until we get more female founders.

• 47:18Speaker 01

  With a lot more backing and a lot more uh success and a lot more um big exits.

• 47:23Alex Kantrowitz?

  Yep. Okay, so where do you think the case goes from here? Is she gonna settle or? What's gonna happen?

• 47:29Speaker 01

  I.

• 47:29Alex Kantrowitz?

  She gonna?

• 47:30Speaker 01

  I.

• 47:30Alex Kantrowitz?

  Yeah.

• 47:31Speaker 01

  Is that that's anyone's guess, obviously. I don't expect her to settle, given how many chances that she has had to do that over um many, many years. Um, I mean, she is, she has shown that she is willing to take huge risks. Um, testifying will be a huge risk if she does that. Going to trial is a huge risk. Having a baby right before you're about to go on trial for potentially potential potential sentence of twenty years is a huge risk. So, um, yeah, it's gonna be crazy. I don't know. I have no idea what's gonna happen. So far,

• 48:16Speaker 01

  the defense seems to have just thrown everything against the wall. Their their two hour opening statements, they just pulled out every possible defense you could imagine. Um, and I I imagine that as the trial goes on, we'll see which ones they really try to focus on. Um, yeah, I don't know. It's gonna be a long one. And then and then after it's done, we have another three months of Balwani, um, because his starts in January.

• 48:44Alex Kantrowitz?

  Wild. So I guess a lot of question question I want to end on is whenever we write a lot about someone, we try to kind of put ourselves in in their minds. At least I do. Um, what do you think's going on in there uh with Elizabeth Holmes? I mean, do you think that? Do you think she earnestly tried to to do this and it fell apart? Or was this a, you know, I think you had a a actually a story um where the headline was basically like, was she someone who was a visionary or conniving or something like that? So what's your answer?

• 49:16Speaker 01

  Well, yeah, is she like this naive person who just didn't quite make it, which is what the defense presented. A big part of their their defense was just like, she had the best intentions, she failed, but that's not a crime. Um, or was she a schemer who intended to defraud people, which is the prosecution's case? And they have already pointed to some pretty damning evidence um that shows that she knew about the problems and still. misrepresented what Theranos was doing. I mean, I will say to her defense, not that I'm defending what she did at all, but like through the end, she was fighting

• 49:58Speaker 01

  um, and like thinking that she could save it and that it could and and that might be a product of the fact that it worked for so long and that so many people believed all of it. Yeah. Um, but she like did go down fighting to to some degree. But then afterwards, she kind of just like moved on with her life and everyone else is dealing with this fallout, but she's a burning man. Um, and you know, like posting all these very happy photos, it it's like it's it's very strange behavior, given what happened. You know, so I it's all that all about all of that is to say, I cannot even fathom, I cannot begin to fathom

• 50:41Speaker 01

  what is going on in her mind. I will say the first, the days of jury selection. She was very just like kind of stone cold, like she has a mask on, so it's really hard to read her expression, but she was very like just expressionless, looking around, not really making a lot of motions. And then on the first day when her family, her mom was there, boyfriend's there, her friends are there. She didn't seem very like upbeat and positive. She was smiling at them, reaching out, taking their hand, interacting and like more energetic. So she seems hopeful.

• 51:14Alex Kantrowitz?

  Yeah. Well, it's definitely one of the wildest stories of our time. Thank you for covering it. You're reporting on us, but so good. And I appreciate you waking up so early to be able to make it into the court. And thank you for joining us. It was such a good conversation in the middle of all this. So I appreciate you making the time.

• 51:34Speaker 01

  For having me.

• 51:35Alex Kantrowitz?

  Awesome.

• 51:36Speaker 01

  No problem.

• 51:36Alex Kantrowitz?

  Awesome. Well, thank you to Nate Guatney for editing this and thank you to Red Circle for hosting and selling the ads. Much appreciated. Thanks to you all, the listeners, for showing up here with us every Wednesday. It's great to have you back. And if it's your first time, hit subscribe. You might enjoy our subsequent conversations. If you've been here for a while, want to give us a rating, we could definitely use them. So please do that. And I thank you again to Erin for joining. I'll definitely look forward to reading your reporting as this goes on and maybe we have you back when the verdict comes out. So really appreciate it. Thanks again.

• 52:17Speaker 01

  Yeah, thanks for having me.

• 52:18Alex Kantrowitz?

  All right, everybody. Well, that will do it for us here on Big Technology Podcast. Once again, thank you for listening and we will see you next Wednesday.

• 52:37Speaker 02

  Now, more than ever, we need someone on our side. But Rob Whitman? Whitman's votes drove up costs, cut Medicaid, and risked 350,000 Virginians' health care to pay for tax breaks for himself and his donors. He's not on our side. Shannon Taylor will fight corruption, cut taxes, and bring down costs. This November, vote for Shannon Taylor. She's for us. Paid for by HMP, the House Majority PAC dot com. Not authorized by any candidate or candidate's committee.

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