23andMe's Fatal Flaw | Great Expectorations | 1

Summary

Business Wars Episode Summary: "23andMe's Fatal Flaw | Great Expectations | 1"

Release Date: June 11, 2025
Host: David Brown

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Introduction: The Rise of 23andMe

In the early 2000s, the completion of the Human Genome Project ignited global fascination with DNA, promising breakthroughs in personalized medicine and unlocking the secrets of human biology. Amidst this scientific enthusiasm, Anne Wojcicki (transcribed as "Wuczczycki"), a health industry analyst, envisions a revolutionary business model: making DNA testing accessible to the general public. This episode delves into the ambitious journey of 23andMe, exploring its inception, rapid growth, strategic challenges, and the fatal flaw that ultimately led to its downfall.

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Founding Vision and Early Ambitions

Monterey, California, 2005:
Anne Wojcicki attends an exclusive billionaire’s dinner hosted by literary agent John Brockman, where she introduces the concept of consumer DNA testing. She passionately explains:

“[...] what if people could have a test that would allow them to understand their genome?”
[08:13]

Her vision centers on making genetics understandable and accessible, moving beyond the expensive and complex mapping of the entire genome to more targeted genotyping. This approach aims to drastically reduce costs, making DNA tests attainable for everyday consumers.

Securing Funding and Launching 23andMe

Leveraging her connections, Wojcicki secures initial funding from Sergey Brin and Larry Page, co-founders of Google, resulting in an initial investment of $6.5 million. With this capital, 23andMe is officially launched in May 2007, positioning itself as a pioneer in the consumer DNA testing market. The company adopts a user-friendly approach, incorporating animated FAQs and avoiding complex scientific jargon to engage a broader audience.

By November 2007, 23andMe enters the market with a $999 DNA test kit priced for affluent early adopters. Wojcicki’s strategy includes leveraging social media buzz and celebrity endorsements to create hype around the product.

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Scaling Challenges and Regulatory Hurdles

Despite the initial excitement and significant investment, 23andMe faces substantial hurdles:

1. High Pricing Barrier:
   The steep price point limits the customer base to the wealthy, hindering widespread adoption.

2. Regulatory Scrutiny:
   In June 2008, health departments in California and New York challenge 23andMe by issuing cease and desist orders, arguing that the company was offering unlicensed medical tests without proper regulatory approval. Wojcicki responds by emphasizing that 23andMe outsources testing to licensed clinical laboratories, maintaining that their service is informational rather than medical.

   “[...] your genes don't change. So one good spit session is all we need and you're set for life.”
   Anne Wojcicki, [03:22]

3. Operational Setbacks:
   Navigating the regulatory landscape proves complex, particularly in New York, where residents cannot have their samples processed within the state, creating logistical nightmares.

Strategic Pricing Adjustments

In an attempt to overcome the high cost barrier and stimulate sales, 23andMe slashes its DNA test price by $600, bringing the cost down to $399 in September 2008. This aggressive pricing strategy aims to broaden the customer base, making the test more of an impulse or gift purchase. However, this significant price cut raises concerns about the company's unit economics and long-term profitability.

Competition and Market Dynamics

By May 2010, 23andMe faces intensified competition with the emergence of Pathway Genomics, which secures a deal to sell its DNA test kits through Walgreens. This partnership could have potentially expanded the market reach exponentially. However, the FDA’s intervention halts Pathway’s plans, exemplifying the broader regulatory challenges within the consumer DNA testing industry.

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The Fatal Flaw: Regulatory Compliance and Business Sustainability

The crux of 23andMe’s downfall lies in its struggle to balance rapid growth with regulatory compliance. While the company successfully capitalized on the genetic testing craze and secured substantial investment, its failure to navigate the complex FDA regulations undermined its business model. The inability to market DNA tests as purely informational without medical claims led to legal restrictions, stifling sales momentum just as the company was attempting to scale.

Without sufficient customer adoption at sustainable price points and facing mounting regulatory pressures, 23andMe's ambitious vision began to falter. Despite innovative features like ancestry connections and health insights, the foundational business model proved untenable under the weight of compliance and economic challenges.

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Conclusion: Lessons from 23andMe’s Journey

The story of 23andMe serves as a cautionary tale in the competitive landscape of business innovation. Anne Wojcicki’s visionary approach and strategic funding partnerships propelled 23andMe to the forefront of the consumer genetics industry. However, the company’s fatal flaw—underestimating the complexity of regulatory compliance and overreliance on high-priced products—highlighted the critical importance of sustainable business practices and adaptability in the face of evolving market and legal landscapes.

As 23andMe navigates through these challenges, the episode underscores the delicate balance between innovation, regulation, and market demand in shaping the fate of startups amid fierce business wars.

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Notable Quotes

• Anne Wojcicki on DNA Understanding:
  “DNA is our own personal footprint. It's found inside every cell in our bodies. It dictates your eye color, hair color, and tells you where you're from. People should know what their DNA says about them. It should be like reading a book. It's the future.”
  [02:55]

• Wojcicki on Genetic Testing:
  “When you're with Amex Business Platinum, going the extra mile for your business pays off... [Skipped Advertisements]”
  [04:08]

• On Pricing Strategy:
  “You can't eat or drink for some time before doing the test either food and drink can interfere with the sample.”
  [03:11]

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This summary encapsulates the intricate journey of 23andMe as portrayed in the episode, emphasizing the interplay between innovative business strategies and the critical challenges that can derail even the most promising ventures.

Transcript

[David Brown]

Wondery plus subscribers can binge all episodes of Business Wars, Netflix, and the Fall of Television early and ad free right now. Join Wondery in the Wondery app or on Apple Podcasts. September 2008 It's New York Fashion Week, and inside the twisted towers of the IAC Building in Chelsea, a party's underway. Rock music blasts from the speakers. Waiters flit through the crowd with plates of tiny, delicate canapes. The guest list is star studded. Ivanka Trump is here, so is Wendy Murdoch, and sheesh, Harvey Weinstein. Place is heaving with the great, the good and the not so good all dolled up in tuxedos and high fashion evening gowns. And they're all smooth fitting not in an Old west saloon way, but in a dribble into a test tube sort of way. And that's because 23andMe organized this party. 23andMe is a hip new startup. It sells DNA tests by mail. Its customers are people who are curious about their genetic makeup. Generally, These customers are rich. 23andMe's tests cost $999. Or they did. Until tonight. Tonight's party is to celebrate 23andMe, slashing its prices by $600. Now, its DNA tests cost $399. That's still some way off from an impulse buy, but it's moving in the right direction. What do you get for your money? The chance to spit into a test tube and send your saliva sample into a Lab so your DNA can be examined. No, it's not graceful, but 23andMe is leaning into it. Hence tonight's event, which it calls a spit party. 23andMe isn't the only company selling DNA tests, but it's got a flair for attracting attention. It hopes tonight's gathering of hawking celebrities will build hype for its price drop. Right now, a tuxedo clad guest is trying to summon enough saliva for his test tube. You gotta produce a whole teaspoon of spittle. Might not sound like a lot, but it takes most folks five to 10 minutes. And that's when you're not wearing a cummerbund and surrounded by Hollywood high flyers. You can't eat or drink for some time before doing the test either food and drink can interfere with the sample. You don't want your results to come back. 50% Moey and 50% Shandong. Has the guest summoned Spittle. The woman who invented the spit party is Holden Cord. She's ann Wucitzki, the CEO of 23andMe. Her vibe is eccentric genius. She always Seems busy with new thoughts, new ideas, and she's passionate about genetics.

[Anne Wojcicki]

DNA is our own personal footprint. It's found inside every cell in our bodies. It dictates your eye color, hair color, and tells you where you're from. People should know what their DNA says about them. It should be like reading a book. It's the future.

[David Brown]

She notices that her guest has nearly finished delivering his sample.

[Anne Wojcicki]

Nice work there. Now have a canape.

[David Brown]

Is the future going to evolve? This much saliva?

[Anne Wojcicki]

Yeah, I know it's strange, but it's a one off. Your genes don't change. So one good spit session is all we need and you're set for life.

[David Brown]

Despite the strangeness of the spit party, there's a buzz in the room. 23andMe feels like the next Silicon Valley startup on the road to a multi billion dollar IPO. But unknown to everyone here, including Wojcicki, 23andMe is already destined to fail. It's got a fatal flaw in its business plan. One that's as hardwired as the human genomes it tests. Question is, what is that fatal flaw?

[Anne Wojcicki]

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[David Brown]

Can I get you a refill?

[Anne Wojcicki]

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[David Brown]

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[David Brown]

From Wondery. I'm David Brown and this is business. In this season, we put 23andMe under the microscope. It billed itself as the pioneer of a DNA testing revolution, winning billions in funding only to end up broke with Its promises unfulfilled. To understand the rise of 23andMe, we need to go back to the early 2000s. DNA was the science and tech buzz of the moment. It promised to unlock some of biology's greatest secrets. And fascination with it gripped the entire world. In 2003, the Human Genome Project completed its push to sequence more than 90% of the human genome. It was a scientific landmark. The genome contains the genetic instructions for making a human being. And the job of mapping it had taken 13 years, around $3 billion and teams of scientists based all over the world. That breakthrough fired the public imagination. It promised a world of personalized medicine where drugs are tailored to each individual and people getting forewarning of diseases they might be predisposed to so they can take preventative measures. It also promises big money for the companies that make that world happen. Which is where 23andMe comes in. It became one of the first to market one of the most familiar brands of the genetic revolution. And fetid by investors, only to plunge into Chapter 11 bankruptcy in early 2025. This is the story of how the most promising startup of the DNA revolution became a multi billion dollar miss. This is episode one. Great Expectorations Monterey, California. 2005. Three years before the spit party in an upscale restaurant, literary agent John Brockman is hosting his exclusive billionaires dinner. It's an annual gathering of thinkers, from scientists to captains of industry to discuss the big issues of the day. And this year, Ann Wucitski's attending. She's a health industry analyst for a venture capital company and she's trying to get the others at her table excited about urine.

[Anne Wojcicki]

You know, this asparagus has me thinking, can any of you smell the difference in your urine after eating it?

[David Brown]

The man sitting next to Wo Chicki grimaces. He's Sergei Brin, the co founder of Google and Wojcicki's boyfriend. He puts down his fork. Anne trying to eat here.

[Anne Wojcicki]

That smell difference, that's down to genetics. Some people notice it, some people don't. Just like some people are left handed and some have freckles. It's all in the genes. Everything that makes us who we are as individuals is in there. It's just there, waiting for us to read it.

[David Brown]

Like the Human Genome Project.

[Anne Wojcicki]

Yes, but for each of us, what if people could have a test that would allow them to understand their genome?

[David Brown]

We'd all know whether we can smell asparagus when we pee and more.

[Anne Wojcicki]

We'd better understand our ancestry. We'd know where our genes came from. And how our ancestors traveled the world. And we'd know what might lurk in our future too. What diseases we might be at risk of so we can take preventative action to avoid them.

[David Brown]

Wuczycki's been thinking about this for a while. The pharmaceutical industry is already tailoring drugs for specific genes.

[Anne Wojcicki]

What if all the available genetic data about us was in a single source? What if by getting ourselves tested, we contribute to a bigger pool of data that researchers can use? It could improve our own and everyone.

[David Brown]

Else'S health, one of the other guests responds. But there's still the cost of sequencing. It might be falling, but you're still looking at millions of dollars.

[Anne Wojcicki]

But does it have to be sequencing? Sequencing maps every gene, all 20,000 of them. But there's another way. Genotyping. You test for individual gene mutations. Well, that's more like checking specific page numbers in a book and reading a single paragraph on those pages. It's testing, not mapping. That way you can offer customers targeted results at a fraction of the cost.

[David Brown]

Bryn nods, suddenly thoughtful. Cheaper and more targeted as tradeoffs go. That sounds like a win win. I see what you're getting at. Kinda makes me think about my mom's Parkinson's and. Well, I guess I have to assume I'm genetically at risk myself, but I pay big money to know for sure.

[Anne Wojcicki]

But what if you didn't have to pay big money?

[David Brown]

Wuitski is sure that there's a business in this idea, but to do it, she's going to need help. Luckily for her, it's not just billionaires. At this dinner, there's also a journalist who's writing a book about Google. In the book, he briefly mentions Wu Chicki's DNA dinner chat, and that mention catches the attention of one reader, a biologist named Linda Avey. Inspired, she asks to meet Wuczczycki. Avi is an executive at a company that makes tools for genetics research. She's also thinking about starting a consumer facing DNA testing business, and she's been working on it with Paul Cusenza, a former colleague who lives on the East Coast. Avi and Wuccitzki hit it off immediately. They and Cosenza agree to work together on a business that sells DNA tests to the public. It's a bold idea for 2005, almost a pipe dream. Most DNA testing businesses cater to the research and healthcare markets. They sell to businesses, not to everyday people. And that's because of the costs involved fully mapping people's DNA. Like the Human Genome Project. That's a non starter But Wucci's plan is to test, not to map DNA, to check just 90 of the 20,000 genes in our DNA. This is still very expensive, but the hope is the costs will tumble as technology improves. Just like computers went from multi million dollar business machines to cheap PCs. But if they're going to bring these expensive tests to Main Street, Wujitski and her co founders will need serious funding. So Wucitski sets up a meeting with her boyfriend Bryn and Google's other founder, Larry Page to get some initial funding. Brin is super keen on this idea and he tells Wuccitzki to move fast. Speed is king in Silicon Valley. The mindset is get ahead of the curve, grab all the market share you can as fast as you can, then figure out how to make money out of that advantage. Genetics is all the rage. Someone's going to make a lucrative breakthrough sooner or later. Get in there quick and it could be you. And let's be honest, it's not just a great idea that's swinging this. Connections make a big difference in business. And if your network includes two Google co founders, you're probably gonna get funding. Even if your startup idea is let's sell spit kits like their iPhones. And that's exactly what happens here. Brin throws in $2.6 million of his own money. Google adds another 3.9 million to the total. Armed with millions in funding and an office in Mountain View, California, Wojcicki and her co founders form 23andMe. The name comes from the number of chromosome pairs in human cells. Chromosomes are the thread like structures that contain our DNA. 23andMe spends months in stealth mode laying the groundwork for their business from Mountain view. By late 2007, the company is ready to break cover and start selling its genetic tests to the public through its website. As the countdown to launch day approaches, Wuczcki and Avi meet with 23andMe's Board of Scientific advisors to review its website before it goes live. Wucci's in an upbeat mood. Having just got back from her honeymoon with Brynn. She lays out her plan to make genetics understandable to all. She reasons there's no point giving customers a scientific printout of their results and expecting them to understand what all those graphs, numbers, statistics and letters mean. Instead, 23andMe wants to offer a service that's friendly and fun to interact with. So the company's created animated FAQs to explain the basics of genetics. 23andMe's also decided it needs to avoid entangling customers in Complicated scientific concepts like linkage disequilibrium. Nope, I'm not sure what that means either. The meeting gets into a discussion about what genes 23andMe will test for and the limitations of its tests. They all agree that the results shouldn't be marketed as medical tests that could get them into trouble with healthcare regulators. Instead, 23andMe will promote its tests as being for nothing more than personal information. The excitement in the room is palpable. 23andMe is no longer a pipe dream. The team's at that special moment in a business's life where the future is wide open, where the frontier stretches away in every direction. And every day the promise of affordable genetic tests edges nearer. By June 2007, the price of mapping an entire genome had fallen to around a million dollars and dropping fast. That's great news for 23andMe. It might be focusing on DNA tests for now, but it's also got one eye on a future where anyone could have their entire genome mapped for the cost of an evening out. Now, looking back with 2020 hindsight, this wasn't so much a business plan as it was a bedtime story for venture capitalists. And you know, like most fairy tales, everything was bliss until the dragon showed up asking about unit economics. But that's all in the future for now. The pre launch meeting ends with excitement, expectation and the board members racing around the office on Segways. Of course it does, right? Didn't I mention this was 2007? In November 2007, 23andMe launches its mail order personal genome service. The price? A cool $999 and still far from an impulse buy for most people out there. There's clearly a sweet spot for this kind of product, and this isn't going to be it. It's a luxury product for sure, but with the price of testing falling fast, backing from Google, and the buzz about genetics rising, well, few doubt that 23andMe will succeed. It's even tapping into the new excitement around social media platforms like MySpace and Facebook. The company's website also encourages people to share their results and compare them with the results of other customers. Wojcicki is also openly discussing the results of her own DNA tests, like how she quit alcohol after learning she was at a higher risk of breast cancer. How 23andMe promises it takes data security seriously, but Wucci hopes that people will share their results so that the whole world will come to understand its own genetics. But to make that happen, 23andMe must first convince enough early adopters to pay top dollar for its tests. And with that thousand dollar price tag, that won't be easy. Hi, Zoe Saldana. Welcome to T Mobile. Here's your new iPhone 16 Pro on us.

[Anne Wojcicki]

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[David Brown]

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[Anne Wojcicki]

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[David Brown]

Plus we'll help you pay off your old phone.

[Anne Wojcicki]

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[David Brown]

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[Anne Wojcicki]

@ T Mobile. I feel like I have to give you something in return for karma. That's okay.

[David Brown]

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[Anne Wojcicki]

Hand sanitizer.

[David Brown]

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[Anne Wojcicki]

I'm good. Seriously.

[David Brown]

Hmm.

[Anne Wojcicki]

Let me check this pocket. Oh, mints. Really, I'm fine. Oh, I have raisins.

[David Brown]

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[Anne Wojcicki]

I've got cupcakes in the car.

[David Brown]

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[Anne Wojcicki]

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[David Brown]

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[Anne Wojcicki]

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[David Brown]

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[Anne Wojcicki]

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[David Brown]

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[Anne Wojcicki]

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[David Brown]

Where do we come from? Who is our wider family? Everyone seems to want to know the answers to these questions, including Jimmy Buffett, the tropical rock superstar known for hits like Margaritaville. And that's why in 2007, he's hanging out with Anne Wojcicki at 23andMe's head office in Mountain View, California. Buffett's already spat into a test tube and had his DNA tested. He wants to know if he's related to the billionaire investor Warren Buffett. On her computer, Wuccitzki walks him through the results. Bad news, Jimmy. It's not a match. But now the tropical rocker's curious. About the rest of his DNA. He watches Wu Chicki click through the findings to bring up a colorful pie chart summarizing his ancestral genome. Turns out that Buffett's got a strong connection to the British Isles through his mother. So the women came over from the Saxon invasion. Pretty cool.

[Anne Wojcicki]

There's also a strong connection to the Basque region of Spain.

[David Brown]

No wonder I like Basque food so much.

[Anne Wojcicki]

Mystery solved.

[David Brown]

For the next few minutes, the two of them look through Jimmy's health data. Eventually, the singer leans back in his chair. Mind blown, Wu Chicki can tell he's impressed.

[Anne Wojcicki]

And remember, this field is moving so quickly. We're built to react that every time new research comes out, you'll be able to log on and see how it affects our understanding of your genes.

[David Brown]

I get it. You guys are mad scientists. Feels like there might be a song in this DNA stuff. Dang shame the words are all so long. Anyway, I imagine people are banging down your door to get these tests, huh? Wu Chicki smiles confidently. Business is trickling in for 23andMe, but it's still very much a novelty for the well off.

[Anne Wojcicki]

Yeah, our customers are learning all sorts of things about themselves. Hey, would you like to know what type of earwax you've got?

[David Brown]

Wait a minute, we don't all have the same earwax. Identifying people's earwax group may be quirky, but it feeds customers curiosity and drives interest. 23andMe sees value in this sort of novelty, brings a dash of social media appeal to its service and sets it apart. 23andMe Rivals like decode and Navigenix emerged from the genetic research industry. They're more haughty and Medical in their outlook. 23andMe's corporate culture and brand image is pure Silicon Valley, with the dash of showbiz glamour. Wojcicki wears Lululemon to work. They hold spit parties and ride segways around the office. The 23andMe website is full of cute visual touches and bold colors. No wonder Jimmy Buffett's so at home here. The curiosity is a shaky foundation for customer retention. I mean, if your business relies on party tricks, you risk running out of buyers faster than you can say spit kit. Novelty might recruit a customer, but the real question is, what keeps them coming back? While 23andMe wants to make DNA tests fun, it's still checking for Genesis linked to specific diseases, and that's caught the attention of healthcare regulators. In June 2008, California and New York's public health departments intervene in the emerging DNA testing industry. They hit 23andMe and its rivals with cease and desist letters demanding they stop recruiting new customers until they comply with existing regulations. The regulators say the DNA testing companies are offering medical tests without a license and with no doctor involved. 23andMe responds by pushing back. It refuses to stop selling tests. It counters that it doesn't conduct DNA tests itself. Instead, it outsources the test to clinical laboratories that have the appropriate licenses. Therefore, 23andMe doesn't need a license. It also doubles down on its marketing message that its tests aren't medical but informational. 23andMe simply tells customers the risk of them developing a disease, not whether they have the disease. It's a standoff in California. 23andMe reaches a deal and gets licensed. But New York proves less amenable. Its laws prohibit unlicensed labs from accepting samples from New York State. The result is a mess. 23andMe can sell and ship its kits to New York State residents. But to get their spit tested, 23andMe customers can't provide or ship their spit inside the state. So now 23andMe has to ignore any samples sent from a package postmarked New York. But for those who can get their results, the health insights are a big deal, including for Wuccitzki and her husband, Sergei Brin, the co founder of Google. In September 2008, Bryn gets 23andMe to test his DNA. He's long worried that, like his mom, he might develop Parkinson's disease. The results confirm his fears. He tests positive for a mutation in a gene called LRRK2. That mutation is associated with increased risk of Parkinson's. Huczytski sees this as a positive development proof of how 23andMe can help its customers. Brin's test has provided clarity and provided him with a chance to take action now. And as the multi billionaire co founder of Google, Brin is in a position to take action. He pours huge sums of money into research on how to treat Parkinson's. He also makes lifestyle changes to try and head off that risk. But there are no proven ways to prevent the disease. Still, the life changing potential of being able to see what might be coming down the line is enough for 23andMe to be named the invention of the Year by Time magazine. Though the company's knack for publicity and support from a Google co founder might have helped too. It's the kind of advertising that cannot be ignored and it cements 23andMe's position as the leader of the home DNA test pack. There's more good news on the business side of things, too. Around this time, in an attempt to spur sales, 23andMe cuts the price of its tests by $600 to just 399. Now, finding the right price point is always a challenge, and that's especially true if you've got a novel product or service to sell. But products find their prices in the push and pull of what people are willing to willing to pay for them. At $1,000, 23andMe's sales are understandably slow. People just don't feel the tests are worth it. They'd rather spend that money on vacations, cars, or rent. Curiosity about your ancestry and hard to act on medical insights won't cut it. The new price, though, might be just the incentive they need. It's a price more likely to make 23andMe's test an impulse or gift purchase. Perhaps. But when your pricing strategy goes from Neiman Marcus to H and M in under a year, oh well, that's either a brilliant disruption or a red flag. A bit like an early panic sale dressed in a lab coat, that may be too harsh. Hard to know how to price an answer to a question consumers haven't been asking, especially when all you really know is that you're asking too much to get buy in. But in late 2008, that price tag starts to look aggressive and confident. 23andMe is undercutting its rivals and putting DNA tests within the reach of millions more people. The buzz is building. All Wu Chicki needs now are customers.

[Anne Wojcicki]

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[David Brown]

But what happens when that big dream turns out to be a big flop?

[Anne Wojcicki]

From Wondery and Ill Media, I'm Misha.

[David Brown]

Brown and this is the Big Flop.

[Anne Wojcicki]

Every week, comedians join me to chronicle the biggest flubs, fails and blunders of all time.

[David Brown]

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[Anne Wojcicki]

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[David Brown]

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[Anne Wojcicki]

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[David Brown]

I'm noticing the feet aren't touching the.

[Anne Wojcicki]

Ground, there's something wrong with the movie.

[David Brown]

Find out what happens when massive hype turns into major fiasco. Enjoy the Big Flop on the Wondery.

[Anne Wojcicki]

App or wherever you get your podcasts.

[David Brown]

You can listen to the Big Flop.

[Anne Wojcicki]

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[David Brown]

It'S December 2009. A whole year's passed since time declared 23andMe the invention of the year. Sales of the expensive test kits remain sluggish, but Wojcickis not letting the lack of customers dent her confidence. It's still early days. 23andMe is just two years old and it's trying to introduce a never seen before product to Main street, one that she believes has the potential to be transformative. So instead of fretting about the sales figures, she's now leading 23andMe through its series B investment round. You've probably heard about investment rounds, right? They're a mainstay of Silicon Valley and help ambitious startups get the funds they need to grow fast. When companies start, they often seek seed funding. 23andMe went through that process in May 2007, securing around $9 million from Brin and Google. Now it's ready for another investment round. These rounds of investments help companies grow fast in their early years after initial funding. Further rounds allow new players to come and invest money in the business in return for equity. That's their own slice of the pie. The business makes its pitch and the people with checkbooks line up to buy in before things get really big. Or at least that's the hope. The Series B investment round is traditionally there for companies that have launched, displayed growth, and now want to scale. So Wucitski has to hope that investors will look past 23andMe's low sales figures. So as she tours the venture capitalist offices delivering 23andMe's pitch, she foregrounds how much excitement there is around the work the company is doing. Without too many real customers, investors will be buying into the same thing time did Wuccitzki's vision of the future. There's also the hope that a future price cut will lead to a sudden surge in sales. At $399, the kits are still expensive. But these kits are only one potential source of revenue for 23andMe. As customer numbers grow, the company will accumulate more and more valuable genetic data to license to researchers and pharmaceutical companies. There may even be a sweet spot where 23andMe sells its DNA tests at a loss to make its store of people's genetic information even more valuable. At heart, the idea is to give venture capitalists fomo fear of missing out. Do you really want to pass on owning a piece of the company that's set to change the world of genetics? Well, it turns out investors don't want to miss out. 23andMe walks away from its Series B investment round with $27 million of additional funding. It's a huge success for the fledgling business, but it comes with a price, because one day, 23andMe is going to have to show their investors that some decent returns. A few months before 23andMe secures the new investment, co founder Linda Avey leaves the business. She wants to focus on Alzheimer's research. The other co founder, Paul Cosenza, is already gone. He left after just a few months because he didn't want to move to the west coast. Now Wuccitzki is the last co founder standing and in full control of a cash rich startup on a mission to change the world. Armed with millions, the time has come to take 23andMe to the next level. That sounds great, but a company can't thrive on investment alone. At some point, it really does need people to buy its products. And so far, attracting large amounts of those people is proving hard. There's still a lot of media interest in genetics. DNA is all over the news every day. But the price is still off. Putting in late 2009. You can buy two iPhones for the price of a 23andMe test. Come March 2010, only 35,000 people will have used 23andMe's kits. And at least a quarter of them got the kits for free or at a discount. That's disappointing for a company that's pulling in so much investment, but it's got a plan to lift those numbers. In March 2010, 23andMe introduces a new feature that allows people to find and contact distant cousins identified using its test. Ancestry data is like the big deal.

[Anne Wojcicki]

Hopefully one day we can put together the entire human tree.

[David Brown]

It'll be easier for everyone to find interconnections. I found out that I was actually related to an African American professor at.

[Anne Wojcicki]

Stanford, we're distant cousins.

[David Brown]

It's an evocative pitch, especially coming from an era in which an email from a distant cousin doesn't immediately signify that you're about to get scammed. This feature also gets straight to one of the strongest selling points of 23andMe. Your genetic information isn't just molecules strung together on a genome, and it isn't necessarily bad news either about Parkinson's or diabetes, let alone what kind of earwax you have. It's something that reaches right down into who you are as a human. Ideally, it can bring you together with people you didn't even know you have something in common with.23andMe is offering to connect you to the rest of the world. And as hundreds of people use 23andMe to learn about their distant cousins, the company steps up its push to build a DNA database that can be licensed for medical research. The hope is that this database will lead to lucrative deals with drug manufacturers and even the creation of new therapies. But 23andMe's competition is getting tougher. It's May 2010, and a new competitor, Pathway Genomics, is now on the scene. It's also from California, and it's just struck a deal to sell its test kits in Walgreens. It's a huge deal. Walgreens has close to 8,000 stores in the US so now millions of customers browsing those store shelves for mouthwash and shampoo can just pick up a DNA test. It also puts 23andMe on the back foot because it's still selling kits by online mail order. But Pathway Genomics big win is about to backfire on the whole consumer DNA test industry. Walgreens says for now, it has decided to hold off on selling a personal genetic testing kit. On Wednesday, the Food and Drug Administration contacted Pathway, the company behind the do it Yourself tests. Selling a test over the counter without an FDA clearance or approval is particularly.

[Anne Wojcicki]

For the type of claims that they have.

[David Brown]

It'S not legal. Despite 23andMe's run ins with New York and California, DNA testing companies have largely flown under the regulatory radar. But the news that DNA tests are going to be on the shelves of Walgreens gets the attention of the Food and Drug Administration. The fda. The FDA is the federal regulator that's tasked with protecting public health through the control of various products, including tobacco, food and prescription drugs. And now it's moving to rein in the growing collection of companies offering DNA testing services. The FDA makes clear that it regards DNA tests as medical devices and that means 23andMe and all its competitors need FDA approval before they sell their kits to the US Public. The FDA isn't just being stubborn here. Its concern is that DNA testing companies aren't being sufficiently transparent about how they interpret the genetic data that they test for. Many tests identify gene mutations that are associated with increased risks of disease, but lifestyle and environment also play a huge role. This stuff is nuanced and complicated elsewhere. Some geneticists worry that 23andMe is giving people data they might not interpret correctly. For example, a result stating that breast cancer risks are not high could lead some customers to stop getting mammograms. The tests might also tell customers things they don't want to know, such as the risk of developing Alzheimer's. All 23andMe does is let customers check their results on a website. It doesn't offer counseling, depending on what the data actually tells them. As it's always said, it's just personal information. 23andMe is now in trouble. It has to now either apply for FDA approval for tests that it's already selling or explain why its tests do not require approval. Faced with this, 23andMe opts to downplay its potential as a source of medical or health information and focuses on ancestry. But that reduces consumer appeal. The timing is terrible, too. 23andMe had just seen a genuine spurt in sales for On April 23, 2010, the company marked DNA day with a promotional price drop. It slashed the cost of its kits to just $99 and instantly sold out of its entire stock. But now the FDA is making it harder to build on that momentum. With customers few and regulations tightening, Wucci needs to do something she promised investors they were buying into the Facebook of genetics, where people could share and compare their genotypes with friends and family. Instead, they pumped millions of dollars into a small business that sells an expensive novelty product. If she's going to make good on those great expectations, she needs to make a big play. And she needs to do it soon, or her DNA dream will be over. On the next episode, everyone from Lizzo to Barbie throws in with 23andMe. The FDA steps up its regulation of DNA testing, and Wojcicki learns some bitter lessons about making medicine from Wondery. This is episode one of 23andMe's Fatal Flaw for business wars. A quick note now about the recreations you've been hearing. In most cases, we can't know exactly what was said. Those scenes are dramatizations, but they are based on historical research. I'm your host, David Brown. Kristen Donlon of Yellowant wrote this story researched by Marina Watson. Sound design by Ryan Potesta. Kyle Randall is our lead sound designer. Fact checking by Gabrielle Jolais. Voice acting by Chloe Elmore. Our managing producer is Desi Blaylock. Our senior managing producer is Callum Plews. Produced by Tristan Donovan of Yellow End and Kate Young. Our senior producers are Emily Frost and Dave Schilling. Karen Lowe is our producer. Americas Our executive producers are Jenny Lauer, Beckman and Marshall Louie for Wondery in the first half of the 20th century, one woman changed adoption in America. What was once associated with the shame of unmarried mothers became not only acceptable but fashionable. But Georgia Tann didn't help families find new homes out of the goodness of her heart. She was stealing babies from happy families and selling them for profit. Hi, I'm Lindsey Graham, the host of Wondry show American Scandal. We bring to life some of the biggest controversies in US history. Presidential lies, environmental disasters, corporate fraud. And in our latest series, a young adoption worker moves to Memphis, Tennessee and becomes one of the most powerful women in the city. By the time her crimes are exposed decades later, she's made a fortune and destroyed hundreds of families along the way. Follow American Scandal on the Wondery app or wherever you get your podcasts. Experience all episodes ad free and be the first to binge the newest season only on Wondery Plus. You can join Wondery plus in the Wondery App, Apple Podcasts or Spotify. Start your free trial today.