Elizabeth Holmes, formerly described as the richest self-made American woman, has had her net worth re-estimated at zero.
The announcement was made by financial magazine Forbes June 1 after it raised questions about the value of Theranos, a blood test company set up by Holmes.
Forbes noted that its estimate of Holmes’ wealth was based solely on her 50 percent stake in Theranos, which was valued in 2014 at $9 billion. This gave Holmes a net worth of $4.5 billion.
Theranos alleged it had developed a new method for blood testing, but it is now facing charges that the tests are inaccurate. Federal regulators are investigating the company.
After conversations with a number of investors, Forbes slashed its estimated value for the company to $800 million. The drastically reduced value means that Holmes’ shares in Theranos are practically worthless, because investors hold preferred shares. This means they would be entitled to any proceeds from the company before Holmes, who holds common stock.
Several reasons were given for the new valuation of Theranos. Forbes stated that not enough is known about the company, apart from its $9 billion value. Its claim to have developed a machine capable of carrying out multiple tests on a drop of blood remains unproven.
Holmes has also failed to present evidence to demonstrate the technology’s effectiveness.
Thirdly, some investors question whether there is such a large market for Theranos. Its previous valuation of $9 billion meant it was worth almost as much as established player Laboratory Corporation of America with market capitalization of $13 billion.
“Trying to displace low-cost lab tests is just such a tough area,” Robert Nelsen of ARCH Ventures told Forbes.
The news has led questions to be raised about how the net worth of owners of start-ups is estimated. Fortune Magazine reported that Forbes’ practice of basing the value of a company on opinions gathered from a small group of investors was risky, as shown by its major reevaluation of Theranos.
Fortune mentioned other prominent figures on this year’s list who may find themselves in a similar position. These include Jessica Alba, whose net worth, valued at $340 million, is largely based on an estimated value of her start-up The Honest Co of $1.7 billion.
Fortune acknowledged that Fortune itself had also referred to Holmes as a billionaire, but reiterated that Forbes made a mistake in describing her as one.