Theranos Founder’s Net Worth Goes From $4.5 Billion To Zero Overnight
Theranos founder Elizabeth Holmes topped Forbes’ list of America’s richest self-made women just last year with an estimated net worth around $4.5 billion, but as of today, Forbes is putting her net worth at a flat zero.
Holmes, the once much-lauded “genius” behind blood-testing startup Theranos, has endured withering scrutiny from the media and federal regulators. The Wall Street Journal reported earlier this year that Theranos’ blood testing devices were much less accurate than previously stated, which led to an inquiry into the company’s practices and products. Lucrative deals with the U.S. military and other partners were scrapped after the FDA reported major shortcomings in the accuracy of Theranos’ blood testing devices.
Theranos founder Elizabeth Holmes’ dramatic fall from grace has been chronicled by every major tech news outlet, but so far, she’s remained a billionaire – until today. Forbes’ latest estimate of Holmes net worth takes into account the legal woes Theranos has endured over the past few months. Holmes’ wealth was based entirely, Forbes reports, on her 50 percent stake in Theranos, which she founded in 2003.
— Justin Byers (@JByers_VCE) June 1, 2016
A full breakdown of Forbes’ latest estimate of Elizabeth Holmes’ net worth details the enormously fickle nature of wealth based on startup ownership. Theranos was previously valued, prior to the release of scathing reports from the Wall Street Journal and the FDA, at around $9 billion. Theranos was lauded as a biotech pioneer, advancing the cause of low-cost non-invasive blood testing, which could have potentially had a dramatic effect on biomedical services of every type – from local hospitals and clinics to emergency and military applications.
But after the revelation of Theranos’ blood testing inaccuracy, Forbes took another look at Elizabeth Holmes’ presumed net worth. The new valuation of Theranos is closer to $800 million, and while that’s still impressive for any startup, the massive decline from the initial valuation is likely to do irreparable harm to the company’s reputation and future.
According to Forbes, Theranos’ new valuation puts Holmes’ net worth at zero for a couple reasons. First, Holmes owns a 50-percent stake in Theranos common stock, while Theranos investors hold “preferred stock,” which is paid back before common stock value is even tabulated.
On paper, Theranos is worth $800 million, and investors own nearly all of that value through preferred stock. After figuring in costs, preferred stock, investor equity, and sales projections, Forbes has concluded that Theranos is effectively worthless as far as Elizabeth Holmes is concerned.
The most damning aspect of the Forbes valuation, though, isn’t the harm it has done to Elizabeth Holmes’ place on a list of wealthy entrepreneurs, it’s the frank and bleak assessment of Theranos’ future.
— Michelle Wodynski (@MWodynski) June 1, 2016
Forbes names three key reasons for the low valuation. First, Theranos’ future is largely unknown. Unlike other startups, Theranos can’t point to a product and promise to deliver. Secondly, Theranos had a product, and it absolutely didn’t deliver. The FDA investigation and canceled partner contracts haven’t helped shore up Theranos’ shattered reputation.
And lastly, the market which Theranos had sought to capture likely doesn’t exist anymore. Theranos’ diagnostic tools simply do not work as advertised, and their accuracy has been greatly overestimated by Holmes and Theranos evangelists. The FDA and military partners who have had their hands on the needle-free blood-testing devices have attested to their relative inaccuracy, and that fact alone has investors seriously doubting the idea that upstart Theranos could take on giants in the world of medical diagnostics like Laboratory Corp. of America or Quest Diagnostics.
It is, however, important to note that many startups are valued much higher than their current revenue on account of what could be a bright future. Twitter, for example, enjoyed a massive valuation long before the company ever had a strategy to actually make money. Startups trade on their future, and for Theranos, the future is looking grim.
[Photo by Mike Windle/Getty Images for Vanity Fair]