By now, you may have already heard of Elizabeth Holmes. She dropped out of Stanford to become the founder and CEO of the hugely successful biotech company, Theranos. Last year, Elizabeth Holmes topped Forbes magazine’s list of the “Richest Self-Made Women,” with an estimated net worth of an astonishing $4.5 billion. However, Forbes has recently changed its estimate, now valuing Holme’s net worth at “nothing”. So, what happened? Below, we highlight the two main reasons why and how Elizabeth Holmes went from a billionaire to broke in the space of just one year.

Company Difficulties

Although not a public company, Forbes states that external investors purchased shares in Theranos in 2014 at a share price that implied a $9 billion valuation. The value of the company is now approximately just $800 million. While this is partly because the company is under federal investigation, questions are also being asked as to whether applying a hardware and software business culture to biotechnology is, in fact, dangerous. Holmes owns over 50 percent of the shares in the company. The plummeting valuation means that her shareholding is now worth just $400 million (as opposed to $4.5 billion in 2014).

Company Share Structure

Theranos issued both ordinary and preference shares. While Holmes still owns over 50 percent of the shares in the company, they are all ordinary shares. As such, all shareholders with preference shares will receive repayments before her in the occurrence of a liquidation event.

As previously discussed, the company is now valued at approximately $800 million. However, external investors injected over $720 million into the company in exchange for preference shares. Even if the preference shareholders only have a 1x purchase price preference (in the event of liquidation, they will receive a one-time payment of the money they invested), they will receive their $720 million before ordinary shareholders (including Holmes) receive any payments.

Further, if the preference shareholders have a higher liquidation preference, they will be entitled to more than the $720 million they invested. For example, if the preference shareholders have a 2x purchase price preference, they will receive twice the amount they invested before the ordinary shareholders are entitled to receive anything. If the company is worth just $800 million, in the case of a 2x purchase price preference, there wouldn’t even be enough to repay the preference shareholders what they are owed, and the ordinary shareholders will receive nothing.

Although in Australia, it is unusual to have anything above a 1x purchase price preference, in the US, it is not uncommon. Accordingly, by the time the preference shareholders have been repaid all money owed to them, there may be nothing left for the shareholders with ordinary shares. There may not even be sufficient funds to repay the preference shareholders.


To find out how to avoid going from billionaire to broke like Elizabeth Holmes, check out our article, Elizabeth Holmes and Theranos: 5 Lessons for A Founder. If you have any questions on how to set up your business or raise capital while protecting yourself, please get in touch with one of our startup lawyers on 1300 544 755.

COVID-19 Business Survey
LegalVision is conducting a survey on the impact of COVID-19 for businesses across Australia. The survey takes 2 minutes to complete and all responses are anonymous. We would appreciate your input. Take the survey now.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. For just $199 per month, membership unlocks unlimited lawyer consultations, faster turnaround times, free legal templates and members-only discounts.

Learn more about LVConnect

Jill McKnight
Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • By submitting this form, you agree to receive emails from LegalVision and can unsubscribe at any time. See our full Privacy Policy.
  • This field is for validation purposes and should be left unchanged.
Our Awards
  • 2019 Top 25 Startups - LinkedIn 2019 Top 25 Startups - LinkedIn
  • 2019 NewLaw Firm of the Year - Australian Law Awards 2019 NewLaw Firm of the Year - Australian Law Awards
  • 2020 Fastest Growing Law Firm - Financial Times APAC 500 2020 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards 2020 Law Firm of the Year Finalist - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer
Privacy Policy Snapshot

We collect and store information about you. Let us explain why we do this.

What information do you collect?

We collect a range of data about you, including your contact details, legal issues and data on how you use our website.

How do you collect information?

We collect information over the phone, by email and through our website.

What do you do with this information?

We store and use your information to deliver you better legal services. This mostly involves communicating with you, marketing to you and occasionally sharing your information with our partners.

How do I contact you?

You can always see what data you’ve stored with us.

Questions, comments or complaints? Reach out on 1300 544 755 or email us at

View Privacy Policy