Elizabeth Holmes Didn't Commit Fraud, Investors Fell In Love With Her Vision

What if Elizabeth Holmes was Eric Holmes? And what if Eric Holmes had raised $15 million for Theranos instead of the $700 million+ that Elizabeth Holmes reportedly raised?

About the question, it’s not one rooted in feminism. It’s instead a comment that female heads of Silicon Valley start-ups are rare. So are females rare at venture capital firms. As Sebastian Mallaby reported in his 2022 book The Power Law, a history of the venture capital industry, by the end of the 1990s women “accounted for only 9 percent of new recruits at venture partnerships.”

It’s useful to think about in consideration of the name recognition Holmes achieved. While Silicon Valley is thick with male Stanford dropouts overseeing unicorns, attractive, 19-year-old female Stanford dropouts are comparatively rare. The view here is that the uniqueness of Holmes's story put a public spotlight on her and her product that deprived her of crucial, and very anonymous trial and error time.

After which, it turns out Holmes was quite the compelling fundraiser. See not just the headline number indicating how much she raised, but consider how long Theranos existed, from 2003 to 2018. Most startups don’t survive nearly as long. As Peter Thiel put it in Zero to One about their lifespan, “most fail, usually soon after they start.”

Ok, so what if “Eric Holmes” had raised $15 million for Theranos? To say we would never have heard of him or Theranos is a statement of the obvious. Which is the point.

Holmes’s extraordinary success in not just starting Theranos, but turning it into a growing concern, was not unreasonably her downfall. And no, that’s not an admission that Holmes failed. Quite the opposite. See the copious funds she raised to keep Theranos afloat in pursuit of her remarkable vision.

To which some will say that Holmes’s vision quite simply wasn’t. As opposed to having created a transformative blood-testing device, Holmes was a liar who fleeced some of the most prominent investors, businesspeople, economists, and political personages in the world over a 15-year timeframe. In the description of what’s routinely said about Holmes, readers can hopefully see the contradictions.

Don’t forget that at its height, Theranos was worth $9 billion. Despite this, despite global demand for Holmes’s shares, she never sold any. Except that we’re told she’s a fraud. Why didn’t Holmes liquefy her alleged scam?

Once again, the world’s greatest investors were lined up to purchase Holmes’s shares. Which means Holmes, having allegedly duped her original investors for years, subsequently had ever more sophisticated investors ever more interested in owning a piece of her creation. Yet she didn’t sell? Don’t worry, there’s more.

Holmes carried on her alleged “scam" until John Carreyrou’s innuendo-filled book created the public perception of fraud. Which means Holmes not only raised hundreds of millions from some of the world’s savviest investors, but managed to "scam" some of them for as long as 15 years? No, the narrative about Holmes doesn’t pencil.

What does pencil is that Holmes was in pursuit of the impossible. And was succeeding. How else to explain rising investor excitement, excitement that she didn’t sell into?

Which was seemingly the “error” that has Holmes in prison. Holmes's rise was catnip for media. Except that start-ups don’t generally incubate in public, only to generate the kind of excitement that perhaps forced her product into the public sooner than otherwise would have been the case.

So, while Holmes’s gender didn’t imprison her, the media-driven notoriety of a successful business founded by a female arguably did. If Holmes had failed, and failed early, she would be free today.

Originally published on Real Clear Markets.