Bad Blood: Secrets and Lies in a Silicon Valley Startup Hardcover – Picture Book, May 21, 2018

Bad Blood, by Carreyrou, is an exemplary tale of a business going bad. It is in line with two other classics, The Deal of the Century by Coll and Barbarians at the Gate by Burrough and Helyar. The former depicts the beginnings of the collapse of AT&T and the second the complex takeover of Nabisco. Both of these tales result in a massive restructuring of businesses, for better or worse. In this case, it describes probably the worst behavior seen in a startup ever and the destruction of whatever business was conceived.This is a tale of people who seem to have been brought into a techno-cult, many smart young people who got proselytized by an even younger individual who managed to present herself as super competent but who was fundamentally was intellectually and morally flawed. This book does not depict a tragedy, except perhaps for the young employees who wasted years of their lives and frankly may be forever scarred. It is a book about the ability for a perverse individual and a co-conspirator to convince a significant number of allegedly competent people to dismiss their fundamental judgments regarding reality. There was an induced suspension of belief on the part of many otherwise highly competent people and the acceptance of this almost cult like persona.I approached this book having done about 35 start-up and turn-arounds, as the principal or investor. Many did well, many were stalled mid-stream, and none went bankrupt. In the process I often saw that my initial premise was altered and thus the business model changed. However in almost all there was a need for a plan and a reporting on the plan to a Board who had a modicum of confidence. In some cases I had Directors call first thing Monday to see what the cash flow of the prior week was and compare it to plan. Reality was always at the fore. Plan and actuals, and interaction with hands on boards.I have seen deals where one had to pull the plug when reality and expectations were dissonant. In one case an entrepreneur in an investment could not reproduce the core result and worse yet even if they could they had no way to manufacture it. That is not a way to run a business.I also approach this book as one who has spent time in and around the health care field. Unlike the more common areas of start-ups, health care, including biotech, must live in a highly regulated environment. Human lives are in the balance. Thus one sees the high costs of clinical trials and the failure of many reasonable therapeutic efforts. The FDA and similar entities control with an iron hand the ways and wherefores of these entities. This control system never came to play here until way too late.Now this can be a tale of many entities: (i) the principals themselves, (ii) the employees, (iii) the investors, (iv) the Directors, (v) the customers, or (vi) the consumers or patients. The author focuses upon the first two giving some limited understanding of the other participants. In particular this is a book presenting the work and hardships of many of the employees over time. It would be interesting at some time to examine the many other dimensions, but this presentation is a well presented self-contained effort.Now, fundamentally, any investor, and especially a Director, must have an understanding of their Fiduciary Duty to the other shareholders and must execute themselves in any efforts of the company to adhere to that duty. That means effecting a process of due diligence. Due diligence is demanded in any investment and it fundamentally entails: (i) that the product or service can be real and deliverable, (ii) that management has the competence to do so, (iii) that the price point is highly competitive and that the margins are appropriate, and finally (iv) that the people one is dealing with are ethical, honest and competent. It appears that in the case of Theranos, as the author recounts, that many never did any Due Diligence. What is truly amazing is that the venture investors involved would never allow themselves to invest in any other deal without doing their due diligence. Furthermore, the “big name” Directors represented in the book most likely had no idea what due diligence entails. In my experience of the 100 companies I would look at, 2-3 would ultimately pass the test, 80-90 would be dismissed out of hand and the remaining would never pass Due Diligence. It appears that if one accepts the author’s tale, and why not, then there never was any due diligence. “Trust me” is not the basis for major investments, by investors, Directors or joint venture partners.The author describes in full detail the creation and buildup of the company and how it managed to go through hundreds of millions of dollars and at the same time achieve nothing. The battles between the top managers and the staff, the high rates of turnover and the outright prevarication of the principals are presented. What is most astonishing is the tale of how the principals dealt with an attempted sale to the DOD. One military officer managed, presented as a highly qualified and competent one, dared to ask a key question of the principal and that principal in turn manages to go to a four star general, now a prominent person in Washington. The General then believing this principal proceeds to call-out his own person. Marines should not, must not, do that; it demonstrates, in my opinion, lack of judgement, and lays the ground for questioning any subsequent judgement of such a person. But the author shows that this example was not in any way unique, if anything it was a pervasive behavior on the principal’s part.Overall this book is a tale of one individual after another interacting with the principals and how they were manipulated and then thrown aside.What this book does not do is more important. This is not a criticism since answering these issues may fall into the criminal and civil litigation forthcoming. But specifically:1. Why did none of the accredited investors perform due diligence? Or were there some who tried and then walked away? The book alludes to many of the investors but they seemed to like sheep, just following the herd. This were all competent people. It would be important to understand why they did investments, often of significant amounts, and not due the due diligence and furthermore not demand Board rights.2. Why did the Directors allow themselves to sit by and have management do what they did? Directors have a fiduciary duty and it appears that none of them were either aware of what their duty was and/or did they have the competence to even ask the questions. The Directors were all prominent people in the fields, but unfortunately none appeared to be experienced in this area. The book does not in any way address the Directors in any detail. That would be an important analysis.3. One of the most significant “red flags” in any business is the loss of a CFO. When the first CFO left abruptly, the Board should have individually met and questioned him as to why he left. One can understand that the CFO was bound not to speak to others but he can and must speak to the Board. The question is; why not? Perhaps the Board was not qualified to even ask the questions.4. The fact the young principal owned a tremendous controlling interest and as such could block anything she desired from happening should have raised red flags as well. One must ask; why not? This seems to be a case of true distortion of reality. The question is; why?5. The biggest unanswered question seems to be; where did all the money go? They seemed to have Safeway and Walgreens pay their own way, the attorneys clearly cost a small fortune, but if the company had a running number of employees of say 100, and the fully loaded costs per employee were say $200,000, then the annual burn rate for the company less CAPEX was $20 million, Even at large CAPEX and attorney fees, one must ask where the money went?The author tells the tale via the many employees and their interactions with the two principals. But the other dimensions, namely the investors, Directors, business partners, must be folded into the mix. Again it is perhaps too early to get this tale told properly, but if one is to gain anything from this fiasco, then one must understand those dimensions as well. If only someone had been able to do due diligence. Its lack was the classic red flag!

I’m an entrepreneur. I resolved to read this story from the angle of heroine Elizabeth Holmes.My first company, book2eat.com, was, honestly, “the world’s first live, online restaurant reservation service” and, boy, did we cut corners to be the first. We had six restaurants signed up to our hub before our “client software” (running on the PC that lives in the restaurant and keeps track of the reservations) had even compiled. My girls would demonstrate the software to the restaurant owners by clicking on judiciously picked “buttons” on powerpoint presentations. We got it to work, of course, but we sold it way before it did.Our early consumers were also part of an experiment. We went live with 13 (yes, thirteen) restaurants but from the press we bought (thank you Hill and Knowlton for putting me on CNBC and the BBC and everywhere else) you’d have thought we had all of London covered.Oh, and the “live, online” bit was shaky: restaurants that failed to hit the “update” button to activate our free ISDN line (remember ISDN???) failed to receive notice of the (precious few, that’s why) reservations we’d sent them. So I hired a very polite, non-threatening, 16-year-old kid who’d call them up and say in his best voice “Hello, this is Damiano from book2eat.com, could you please hit the lightning button on the console, it looks like we have a reservation for you.” (Damiano went on to become the maître d’ at the Clapham Grand)During funding rounds, I’d live next to my computer and await restaurant reservations from the sundry VCs doing their “due diligence” and phone them through. And them guys would also try the funky features too. They’d click on the free glass of champagne and stuff. So I’d call the restaurant and tell them it’s a royal. Restaurants LOVE royals.I did worse things than that. Don’t think we would have passed muster with GDPR, I’ll tell you that much. And this wonderful employee I had, who was from Serbia, came and asked me for a recommendation for his status application and I did not give him one. I had investors, how could I tell them I knew for triple sure he was OK to work in the UK? Where could I find the time to become an immigration expert? I still hate myself for that one. Sorry Misha.I cut some corners, bottom line. Elizabeth Holmes did not cut corners:She had no worthy destination, no path and no morals. Only ambition.She basically:1. Set out to solve a non-existing problem (people who hate needles get used to them pretty damn quick when there is a need for them, and this I know from personal experience)2. Never had a visible path to deliver on her promise to run the blood tests on three drops of blood.3. Illegally repurposed commercially available blood-testing apparatus to run tests hers couldn’t.4. Built a structure whereby the scientists she employed lived in terror.5. Employed both a vast security apparatus and a vast legal apparatus to ostensibly protect trade secrets, but in practice to suppress the truth: her product was putting human lives at risk.In short, she’s evil incarnate.That story lacks sex appeal, of course, so John Carreyrou, who deserves immense plaudits for persevering with it (he saved lives, no question and her undoing is his work, no question) also fills in the exciting bits:You find out about where Elizabeth Holmes got her unbounded ambition from (she had to live up to very distinguished ancestors), you meet her Lambo-driving, H1B-visa slavedriver Svengali and you get to hang out with all the senescent and senile luminaries she seduced into supporting her, from former Secretary George Schultz to current Secretary “Mad Dog” Mattis.Most fascinating are the stories of the Theranos whistleblowers, and the genius of the book is to build its plot through their testimonies. These testimonies are both the backbone of the book and, with no doubt, what makes it so impossible to put down. Especially so when Theranos goes in persecution mode and they have to fight for their lives.I warned you, though, that I’d read this from her angle and on one issue I disagree with John Carreyrou: John Fuisz was a friend of her family who heard the Theranos idea from Elizabeth’s mom and did not hesitate to phone-in the only pertinent patent to his patent attorney. That’s what I call a scumbag. I’m very happy she humiliated him. Every cloud has a silver lining.Oh, and Rupert Murdoch (strong candidate for most destructive human being alive, IMHO) comes off well! Against pressure from the entire US establishment he backed up his journalist. Who woulda thunk? Not that I’d ever consider switching from BBC 5live for my F1 coverage, but still.Overall, however, this is an important book from an important author. Hundreds of thousands of people took the phony Theranos blood test. Thanks to the investigative work of John Carreyrou, millions were probably saved.It was very exciting to be a fly on the wall in this investigation.

I was curious to read this story because Silicon Valley is in my backyard and while I remember hearing the story, I was too young to really care. Finally taking the time to learn about Elizabeth Holmes, I was very surprised to find out she is actually a few years younger than me. While I was graduating from high school, partying with my friends and only worried about a social life, she was founding a company while defrauding billionaires.How?How did Elizabeth Holmes convince men like the CEO of Safeway and ex Secretary of State to invest in the idea of teenage college drop out?Because Elizabeth Holmes came from money...She was a privileged white girl who used her family's name and notoriety to gain a $300K grant to go to a prestigious university only to drop out a year later. Just as it was easy for her to be sent to college free of charge, it was also easy for her to convince her fathers rich friends and neighbors to invest millions of dollars into a child's pipe dream.Oh what it must be like to grow up rich!It was nice to see that all the money in the world couldn't buy her time out of jail.

Excellent read. Compelling, factual, exciting and engaging. An eye opener.Highly recommended for everyone.Looking forward to more books from john