The Tale of Theranos’ Downfall Highlights the Perils of Blind Faith

(Bloomberg Opinion) -- Looking for a book that reads like a thriller yet provides insights into a number of topical market and investment issues? How about a narrative that is exciting because of — rather than despite — an ending that is known to most readers well before they pick up the book? Or a cautionary lesson about startups, unicorns, venture capital and high-brow boards?

If you have answered yes to any of these questions, then “Bad Blood: Secrets and Lies in a Silicon Valley Startup” is for you. This extraordinarily engaging tale by the Wall Street Journal reporter John Carreyrou is my pick for most interesting read of 2018. It has accumulated accolades, including this year’s award for the Financial Times and McKinsey Business Book of the Year. (Full disclosure: I have served on the jury for this award since 2014.)

"Bad Blood" describes the extraordinary rise and fall of Theranos and Elizabeth Holmes, its founder and chief executive officer. The blood-testing startup grew to be valued at about $9 billion only to collapse after its top executives were accused of fraud. The book shows how misguided determination and deception consumed venture capital and tarnished the reputations of those who wanted to believe in an inspirational mission and business venture, yet should have known better.

The insights go well beyond how startups, founders and their backers can get carried away by their ability to create, embrace and disseminate misrepresentations. In the case of Theranos, conviction and the will to succeed that were important drivers of success became guarantees of failure and mind-blowing deception.

The tale also demonstrates what happens when venture capital and public personalities desperately want to back a mission, concept or person. Carreyrou’s brilliant reporting identifies multiple internal and external failures that, at their root, reflected an over-eagerness to embrace what seemed to be a noble, innovative and principled initiative, so much so that careful due diligence and basic fiduciary duties gave way to blind hope.

There was a time when Holmes, and her ambition to provide us with greater ease and control over basic medical procedures and records, was inspirational and would command standing ovations. Then, she was perceived to be helping us feel more empowered about our health care. Those worthy ambitions have now collapsed, leaving a once-unimaginable series of failures and shams. Carreyrou unveiled a story for the ages. Through masterful writing and reporting he reminds us that a principled mission, backed by the establishment elites and admired venture capital, is far from sufficient to ensure success.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. His books include “The Only Game in Town” and “When Markets Collide.”

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