This morning, Forbes made a big announcement. Tech darling Elizabeth Holmes—the founder of the disgraced blood-testing firm Theranos—is no longer a multi-billionaire. Instead, Forbes estimates, she’s now worth “nothing.” This is a delicious scoop of schadenfreude, but it’s one that nonetheless obscures that Holmes was always actually worth, to use Forbes’ term, nothing.
So how did Holmes, who last year was named by Forbes as the richest self-made woman in America, experience a net-worth reduction from $4.5 billion to $0.00? Well, her once-fêted company—which purported to transform blood-testing, and by extension, the entire field of medicine—has been exposed as a complete fraud. Forbes writes:
Our estimate of Holmes’ wealth is based entirely on her 50% stake in Theranos, the blood-testing company she founded in 2003 with plans of revolutionizing the diagnostic test market. Theranos shares are not traded on any stock market; private investors purchased stakes in 2014 at a price that implied a $9 billion valuation for the company.
Since then, Theranos has been hit with allegations that its tests are inaccurate and is being investigated by an alphabet soup of federal agencies. That, plus new information indicating Theranos’ annual revenues are less than $100 million, has led FORBES to come up with a new, lower estimate of Theranos’ value.
Here you see the flaw in the methodology Forbes uses to rank the richest people on Earth (which, at this point, is essentially what Forbes exists to do): Holmes owns 50 percent of Theranos, which had an “implied” value of $9 billion, ergo Holmes herself was worth $4.5 billion. Except, it turns out, Forbes apparently didn’t really know how much money Theranos was actually taking in, which would, as Forbes acknowledges, have given a far more accurate picture of how much the company was really worth.
What’s more, Forbes discovered that Holmes’ stock in the company is actually of a lesser class than that of her investors, who own a type of share that gets paid back before hers do:
Theranos investors own preferred shares, which means they get paid back before Holmes, who owns common stock. According to VC Experts, investors in Theranos own a particular kind of preferred equity, called participating preferred shares, which take precedence to common stock in the event of a liquidation. FORBES is not aware of any plans to liquidate. If that were to happen, participating preferred investors would get their money back and more before Holmes gets a cent.
Per Forbes, Theranos’ value is closer to $800 million (which, given that the company has failed to deliver on its entire stated reason for existing, still seems enormously generous). At $800 million, the publication estimates that “Holmes’ stake is essentially worth nothing.” Basically, there is some threshold where, because Holmes is far back in line in terms of who would profit off Theranos, her 50 percent stake in her company is meaningless.
But Forbes doesn’t seem to know where to draw the line at which point Holmes’ 50 percent stake in Theranos would actually return a profit on its sale (or if they do they’re not telling). At $800 million—which represents something like a 90 percent decrease in its previous value—her equity is supposedly worth zip. But what if the company is worth $3 billion? What about $5 billion? At what point does the switch flip from Holmes being a billionaire to a regular old broke plebe?
Forbes estimating various people’s net worths based on fuzzy math is mostly a fun internet parlor game that doesn’t have any real world consequences when comparing, say, pop stars. In 2015, for example, Forbes reported on the earnings of various celebrities: Katy Perry made $135 million and Taylor Swift only made $80 million. Slay her, queen! You don’t need a squad! But this stuff actually matters when we’re dealing with people trafficking in work as important as, you know, testing for diseases.
On the supposed strength of Theranos’ claims and the power of the appeal of Holmes’ story and personal packaging—all of which is tied up with her net worth—Time named her one of the most influential people in the world last year. She quite nearly fundraised for our likely president before someone managed to intervene. As this New Yorker profile elucidates, she has been given coveted platforms to sell her snake oil.
This problem is heightened specifically within Silicon Valley, where money has a very different meaning than it does in much of the rest of the world. Companies that don’t make money—and aren’t expected to—are tagged with values that are speculative and theoretical, which elevates their CEOs onto magazine covers and stages, where they try their hands at thinkfluencing the world the rest of us actually live in. Some, like David Karp, the CEO of Tumblr, are smart enough to sell before the house of cards blows over. Others, like Snapchat’s Evan Speigel, actually make good on investor bets and as such are afforded things like $12 million mansions, but those are exceptions.
This isn’t all Forbes’ fault, of course. The world would have taken note of the hundreds of millions of dollars invested in Theranos no matter who was doing the reporting on it. But when the press changes the definition of “following the money” from investigating trails of cash to bestowing titles such as “The Richest Self-Made Woman in America,” it means that we’re not reporters as much as we are propagandists.
All of which is to say that Elizabeth Holmes’ alleged sudden plunge into the 99 percent didn’t really happen. She isn’t a billionaire because she never was one in the first place.