In 2015, Elizabeth Holmes, founder of a California-based privately held blood testing start-up firm, Theranos, rose to fame when she topped the Forbes list of richest self-made women in the US and ranked 6th among America’s richest entrepreneurs under 40. A year earlier in 2014, Holmes was ranked number 110 on the Forbes's list of 400 Richest Americans. Holmes founded Theranos in 2003, as a 19 year-old Stanford University dropout and owns half of the firm. The start-up raised $400 million from investors and had a valuation of $9 billion in 2014.
Theranos, according to Forbes, could allegedly test for a number of diseases at very low costs compared to other standard tests. Holmes' start-up used Edison – a proprietary blood testing device, for accuracy. Her claim to fame was that the painless tests could be taken for everything from cancer to cholesterol at a fraction of the costs charged by other laboratories and traditional testing centres. However, Theranos’ testing device was never subjected to peer reviews.
In an interview in the October 2015 issue of Forbes, Holmes said that she wanted to ‘build a product [that] would make a difference to people’s lives’.
Holmes’ success drew accolades and also was a source of inspiration to thousands of aspiring entrepreneurs worldwide who wished to throw their hats into the burgeoning start-up ring.
A year later, however, Holmes is probably a case study of failed entrepreneurship.
From a network of $4.5 billion, Forbes magazine said on Wednesday that it was lowering her net worth to nothing. That brings us to the million dollar question: How did the 32 year-old Stanford dropout’s fortune rise and ricochet off soon after—from the billion dollar club to nothing?
Holmes’ founded the company in 2003 and tied up with a drugstore chain to set up thousands of wellness centers. Things haven't been so smooth for the start-up since. According to CNBC TV, the company first came under fire in October last year when Wall Street Journal in a report raised questions about the accuracy of Edison, Theranos’ blood testing device. On the company website, Theranos said the WSJ report was inaccurate and that it had entirely relied on `anonymous sources'.
However, in May 2016, the company admitted to federal health regulators that tests done through Edison was inaccurate. Following this, the firm issued corrected versions of thousands of blood report, according to WSJ.
On May 26, an angry consumer filed a suit against the company in the US stating that the blood test reports conducted by Theranos were not accurate. The consumer who filed the suit for himself and on behalf of all consumers who used the company services in Arizona and in the US, made a slew of allegations against the company. The consumer, according to CNBC alleged that the company did not use the Edison blood testing device which the company claimed to for blood testing, shared incorrect information with the public in a bid to get consumer attention and that it did not follow federal guidelines.
Theranos' spokesperson had then vowed to challenge all the allegations.
Forbes magazine reporter, Matthew Herper, tweeted on Wednesday that the magazine was reducing its estimate of Elizabeth Holmes’ net worth to nothing.
This morning, Forbes is reducing our estimate of Elizabeth Holmes' net worth to nothing. Here is our reasoning. https://t.co/NB5ykGNAWZ
— Matthew Herper (@matthewherper) June 1, 2016
A number of large, established companies have been devalued in the past and some have been in the news recently for being devalued. In such a scenario, start-ups getting devalued is par for the course, says Harish HV, Partner, Grant Thornton, a network of independent accounting and consulting member firms. Theranos' case will only makes it difficult for the next person who make such claims as they did, he said. "If another company came up with a similar product or with a wider range than Theranos, it will have to jump a lot more hoops to prove its product is genuine," he added.