2009 to 2010, America remained mired in a deep economic malaise. Over the previous two years, nearly 9 million people had lost their jobs in the worst downturn since the Great Depression. Millions more had been hit with foreclosure notices. But in the 1,500-square-mile area south of San Francisco that forms the boundaries of Silicon Valley, animal spirits were stirring again.
A new luxury hotel on Sand Hill Road called the Rosewood was always full, despite room rates that reached a thousand dollars a night. With its imported palm trees and proximity to the Stanford campus, it had quickly become the destination of choice for venture capitalists, startup founders, and out-of-town investors who flocked to its restaurant and poolside bar to discuss deals and be seen. Bentleys, Maseratis, and McLarens lined its stone parking lot.
While the rest of the country licked its wounds from the devastating financial crisis, a new technology boom was getting under way, fueled by several factors. One of them was the wild success of Facebook. In June 2010, the social network’s private valuation rose to $23 billion. Six months later, it jumped to $50 billion. Every startup founder in the Valley wanted to be the next Mark Zuckerberg and every VC wanted a seat on the next rocket ship to riches. The emergence of Twitter, which was valued at more than $1 billion in late 2009, added to the excitement.
Meanwhile, the iPhone and competing smartphones featuring Google’s Android operating system were beginning to usher in a shift to mobile computing, as cellular networks became faster and capable of handling larger amounts of data. Wildly popular mobile games like Angry Birds, which millions of iPhone users were paying a dollar each to download, seeded the notion that you could build a business around a smartphone app. In the spring of 2010, an obscure startup called UberCab did a beta launch of its black car hailing service in San Francisco.
All of this might not have been enough to ignite the new boom, however, if it hadn’t been for another key ingredient: rock-bottom interest rates. To rescue the economy, the Federal Reserve had slashed rates to close to zero, making traditional investments like bonds unattractive and sending investors searching for higher returns elsewhere. One of the places they turned to was Silicon Valley.
Suddenly, the managers of East Coast hedge funds that normally invested only in publicly traded stocks were making the pilgrimage West in search of promising new opportunities in the private startup world. They were joined by executives from old, established companies looking to harness the Valley’s innovation to rejuvenate businesses battered by the recession. Among this latter group was a sixty-five-year-old man from Philadelphia who greeted people with high fives in lieu of handshakes and went by the sobriquet “Dr. J.”
Dr. J’s real name was Jay Rosan and he was in fact a doctor, though he had spent most of his career working for big corporations. He was a member of Walgreens’s innovation team, which was tasked with identifying new ideas and technologies that could reboot growth at the 109-year-old drugstore chain. Dr. J operated out of an office in the Philadelphia suburb of Conshohocken that Walgreens had inherited from its 2007 acquisition of Take Care Health Systems, an operator of in-store clinics where he’d previously been employed.
In January 2010, Theranos had approached Walgreens with an email stating that it had developed small devices capable of running any blood test from a few drops pricked from a finger in real time and for less than half the cost of traditional laboratories. Two months later, Elizabeth and Sunny traveled to Walgreens’s headquarters in the Chicago suburb of Deerfield, Illinois, and gave a presentation to a group of Walgreens executives. Dr. J, who flew up from Pennsylvania for the meeting, instantly recognized the potential of the Theranos technology. Bringing the startup’s machines inside Walgreens stores could open up a big new revenue stream for the retailer and be the game changer it had been looking for, he believed.
It wasn’t just the business proposition that appealed to Dr. J. A health nut who carefully watched his diet, rarely drank alcohol, and was fanatical about getting a swim in every day, he was passionate about empowering people to live healthier lives. The picture Elizabeth presented at the meeting of making blood tests less painful and more widely available so they could become an early warning system against disease deeply resonated with him. That evening, he could barely contain his excitement