From Hero to Zero: Theranos CEO Elizabeth Holmes Did Not Just Lose $4.5 Billion

This has been a pretty horrible year for Elizabeth Holmes, founder and CEO of Theranos, the blood-testing startup that many now believe is more trick than treat.

The latest indignity for Holmes came yesterday, when Forbes “revised” her net worth from $4.5 billion to a big fat zero. Last year she had topped the magazine’s annual list of America’s richest self-made women, but this year came in below my 5 year-old daughter (who has earned around $1.50 for various chores, of which 75 cents remains).

Forbes gave various explanations for its revisions – which were breathlessly aggregated by other media outlets – including that Holmes’ stake in her company is likely worthless, given that she holds common stock and there had been over $700 million in preferred shares issued to outside investors.

But all of Forbes‘ new math kind of misses the big point: It should have never claimed that Holmes was worth $4.5 billion in the first place. (To be fair, Fortune also has referred to her as a “billionaire.”)

Like other founders of privately-held startups, Holmes did not hold any liquid securities in her company. It’s possible that she sold some shares along the way – as small secondary transactions alongside broader company fundraises – to pay the mortgage or buy a car (even a nice car), but the vast majority of her holdings had little more than theoretical value.

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What’s perhaps more remarkable is that Forbes doesn’t seem to have realized its original sin. This year’s list includes several women whose “net worth” also is tied to the opinions of a small group of outside investors. Jessica Alba probably has some Flipper and Dark Angel money in the bank, but the $340 million assigned to her by Forbes is largely based on how venture capitalists recently valued her retail startup, The Honest Co., at $1.7 billion. Same goes for women like Houzz co-founder and CEO Adi Tatarko ($300 million) and Nasty Gal boss Sophia Amoruso ($280 million).

To be sure, I know my argument can lead to a slippery slope. For example, it would mean thatForbes shouldn’t have included Mark Zuckerberg in its billionaires list before Facebook went public in May 2012. But it’s still a good rule of thumb, particularly given how quickly startups can fall from grace (particularly in the biotech space), and also how some “high net worth” entrepreneurs fly beneath the Forbes radar until their companies go public or are acquired (e.g., WhatsApp’s co-founders).

Elizabeth Holmes has plenty to worry about. Losing $4.5 billion that she never really had shouldn’t be one of them.

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