Why didn't the investors see what the analyst should have seen?
Theranos
This material is an independent analytical review prepared by ZARYA based exclusively on publicly available sources (court rulings, official regulatory filings, reputable media). It is not a report commissioned by a client and does not indicate ZARYA involvement in any investigation of the case described.
The Theranos case has long been dismantled by the court, journalists and documentaries. We are not interested in the case itself, but in another question: what signs of increased risk were available to an external observer even before the collapse, when the final answer was unknown?
By 2014-2015, the startup was valued at about $9 billion. Among the investors and partners were large funds and well-known entrepreneurs. The company claimed to have a technology that allows performing a wide range of tests on a single drop of blood.
In 2022, Elizabeth Holmes was found guilty of several counts of fraud against investors. In February 2025, the Ninth U.S. Court of Appeals unanimously upheld the conviction.
There was little public information. However, it was enough to form an increased technological risk profile.:
- the claimed technology has practically not passed independent scientific validation; - the management referred to trade secrets as the basis for limited disclosure of information; - The board of directors included well-known government officials and military personnel, but there were practically no specialists in laboratory diagnostics.
None of these facts alone proved fraud. However, collectively, they required a deeper technical review before making an investment decision.
The standard conclusion: "investors were deceived" is true, but not enough for an analyst.
It is much more useful to ask another question: why did these signals not change the investment decision?
Reputational substitution:
The high status of the founder. Famous names on the board of directors. Large partnerships. Widespread media attention.
All these circumstances increase trust. However, none of them confirms the functionality of the technology.
For due diligence, these are different categories of evidence, and mixing them up is a typical mistake on the part of an investor, not just on the part of a company.
What should be checked before making a decision?
At least the following questions should have been answered before making an investment decision:
- is there an independent scientific publication confirming the claimed characteristics of the technology?; - has the technology passed an external technical examination?; - is it possible to reproduce the results outside the company?; - who exactly confirms the effectiveness of the development — a specialized specialist or a person without the necessary subject expertise?; - what limitations and risks does the company disclose directly to investors?
The lack of a response is also the result of verification. If some of these questions remain unanswered, this in itself is significant information for risk assessment, and not a reason to consider the topic closed.
What conclusions were acceptable?
At the time of the investment, various explanations of what was happening might have seemed plausible to an outside observer.:
- the technology was really under development; - information disclosure was limited to protect intellectual property; - the independent technical review has not been completed yet; - or the stated capabilities of the technology did not correspond to reality.
According to one open source, it was impossible to choose between these versions. It is in such situations that the analyst's task is not to choose the most plausible version, but to determine whether the amount of confirmed data is sufficient to take the risk.
Analyst's question
If we removed everything that became known after the investigation, would the data that was open at that time be enough to recommend increased caution to the investor?
What is publicly known
Theranos has attracted significant investments under technology claims that have not been subsequently confirmed. Elizabeth Holmes was found guilty of several counts of fraud against investors; in February 2025, the Ninth U.S. Court of Appeals upheld the conviction.
Analytical assessment
By the time of the investment, there were already signs that did not allow us to confirm the claimed technological capabilities with independent data. That wasn't enough to blame the company, but it was enough to acknowledge the technical risk was significantly higher than Theranos' public image implied.
Epistemic status
Established facts · expand
Theranos has attracted significant investments under technology claims that have not been subsequently confirmed. Elizabeth Holmes was found guilty of several counts of fraud against investors. As previously reported, in February 2025, the Ninth U.S. Court of Appeals upheld the conviction. Independent technical validation of the technology before attracting investments in the public field was limited or absent.
Open hypotheses · expand
Would every investor have rejected the deal with a deeper technical review? How fully did individual investors understand the limitations of the technology at the time of the decision?
Data gaps · expand
Materials of internal technical expertise, if they existed before attracting investments. The full volume of correspondence between the company and each investor. The documents that the parties were actually guided by when making investment decisions.
Analyst's conclusion
Theranos is often perceived as a story of fraud. For an analyst, this is primarily a verification error story. By the time of the investment, there were already signs that did not allow us to confirm the claimed technological capabilities with independent data. That wasn't enough to blame the company. But it was enough to recognize the technical risk is significantly higher than it should be from the public image of Theranos. It is in this difference — between the lack of evidence of fraud and the lack of sufficient evidence of technology — that the boundary of high-quality due diligence lies. High-quality due diligence does not begin where the analyst knows the answer. It begins where the analyst honestly shows the limits of his knowledge.