The amazing story of Theranos, a company started in 2003 by a 19-year-old Stanford dropout, is told in page-turning detail in a recent book by Wall Street Journal reporter John Carreyrou. Despite an incredibly distinguished board, leading venture capital investors, raves from a respected Stanford dean and contracts with consumer chains Walgreen and Safeway, the company’s claims were finally revealed in 2015 to have been fraudulent.

But what if Theranos had been a hedge fund instead of a healthcare company? The comparison shows why investment “science” is not science.

The story of Theranos

Elizabeth Holmes always had her sights set high. Carreyrou records that at age nine or 10 when she was asked, “What do you want to do when you grow up?” she said without hesitation, “I want to be a billionaire.”

As a Stanford student in 2003, she spent a summer in Singapore testing the blood of patients suspected of carrying the severe acute respiratory syndrome (SARS) virus. It convinced her there must be a better way to test blood.

In late 2003, at the age of 19, with the help of Stanford’s School of Engineering Associate Dean Channing Robertson, in whose laboratory she had worked, she incorporated the company that would become Theranos and dropped out of college. Theranos’s goal was to perform a wide range of blood tests with only the blood from a finger-prick, using a miniaturized analytic device.

With Robertson’s and Stanford’s network, and Holmes’ charisma and impressive delivery of her idea, she quickly acquired funding and staffed up. She gave successful presentations of the technology to major companies like the Swiss pharmaceutical giant Novartis.

But as early as 2006 some of her staff noticed that the technology presented to Novartis was fake. Depicted as a video of a blood sample being processed in real-time by the miniature analyser, the video actually was a recording of a successful test that had been performed earlier. The analyser usually didn’t work.

When Theranos’s CFO learned of this he told Holmes, “We’ve been fooling investors. We can’t keep doing that.” As soon as he told her that, he was summarily fired.