Startups could be a fun ride for enthusiastic technopreneur all over the world, but sometimes they end up being on the news headlines for the wrong reasons. The case of Theranos was somehow shocking in the community.
Theranos was a startup founded by young entrepreneur prodigy Elizabeth Holmes. As CEO and Chairwoman of the organisation, Elizabeth was determined to change the way blood test was performed, providing comprehensive and immediate results from just one drop of blood. She even had her own TED talk to share her incredible medical breakthrough.
Unfortunately — with hindsight — that proved to be impossible, but instead of admitting defeat, Elizabeth went to the extend of lying about the clinical tests to continue fundraising her sophisticated scam.
At the peak of the inflated valuation, Theranos was worth $4.5 billion in June 2016, yet a mere year later was on the verge of bankruptcy.
The root of the problem in this saga was the “cult” of the person Elizabeth, with — at some point on her rising path — none other than Bill Clinton publicly praising her achievement and indicating her as an example for all youth to follow.
The “child-prodigy” of the Silicon Valley managed to lure in her scheme of lies several high profile VIPs with interests rooted in the US government.
Whoever questioned Theranos’ ability to provide real results, was directly questioning Elizabeth. She went to the extent of faking her real voice, making it sound much lower than it naturally was, just to sound more confident.
And it really worked. When the whole scheme was exposed, nothing was left of Theranos.
We would think that everyone could learn a lesson from a gigantic scam. Wrong.
uBiome is another story of a startup that has unveiled in the past decade.
In 2012, married founders Zachary Apte and Jessica Richman launched their startup to develop a technology able to innovate stool test.
In the startup community everyone was thrilled by the idea of young entrepreneurs venturing in an unpleasant filed such as the test of stool, but with the hipster sense of innovation captivated everyone’s imagination.
The issue was that uBiome needed money faster and faster to stay in existence, resolving to conspire an insurance fraud scheme in order to show revenues.
The stool test produced were not working in any way better than the existing one. Moreover, consumers were not interested in buying such devices.
Therefore, uBiome managed to get insurance companies to cover the cost for their stool test.
As they realised that the fraud was actually working, the cost of their stool test jumped from $100 to $3,000, and that is when greed took over good intentions.
The federal indictments stated that uBiome sought over $300m in medical reimbursement claims. At the top of their facade success, uBiome was valued $600m, but in 2019 they filed for bankruptcy.
It is important to keep in mind that the valuation of startups does not reflect their real business value, but the perceived worth projected by the CEO.
The truth is that many startups generate losses even when they are valued in the hundreds of millions of dollars. Not all that glitter is gold when a startup claims so.
[The columnist is a member of the International Press Association]
STEFANO VIRGILLI
stefano@virgilli.com
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