According to Bad Blood by John Carreyrou [0], the initial investors were mostly people that Holmes had cultivated relationships with, and thus it implies that perhaps they were not investing based on technical merit. However, their reputations ended up providing a signal of credibility and legitimacy of Theranos' claims that other investors and media later looked towards, much like a web of trust.

She took a seminar and an Introduction to Chemical Engineering course with Channing Robertson (at the time, the face of Stanford's Chemical Engineering program) and worked in his research lab, and eventually was able to convince him to join the board as an advisor. Then she was able to leverage her family connections to raise money and further lend a sense of legitimacy.

According to Carreyrou:

> She convinced Tim Draper, the father of her childhood friend and former neighbor Jesse Draper, to invest $1 million. The Draper name carried a lot of weight and helped give Elizabeth some credibility: Tim's grandfather had founded Silicon Valley's first venture capital firm in the late 1950s, and Tim's own firm, DFJ, was known for lucrative early investments in companies like the web-based email service Hotmail. Another family connection she tapped for a large investment, the retired corporate turnaround specialist Victor Palmieri, was a longtime friend of her father's. The two had met in the late 1970s during the Carter administration when Chris Holmes worked at the State Department and Palmieri served as its ambassador at large for refugee affairs.

> [...]

> In addition to Draper and Palmieri, she secured investments from an aging venture capitalist named John Bryan and from Stephen L. Feinberg, a real estate and private equity investor who was on the board of Houston's MD Anderson Cancer Center. She also persuaded a fellow Stanford student named Michael Chang, whose family controlled a multibillion-dollar distributor of high-tech devices in Taiwan, to invest. Several members of the extended Holmes family, including Noel Holmes's sister, Elizabeth Dietz, chipped in too.

That's not to say that due diligence was completely ignored. Certain VC firms, like MedVenture Associates, passed on Thernaos when they asked for specifics about her TheraPatch system and how it differed from the one they had commercialized with Abraxis. Apparently Holmes was unable to answer the technical questions asked during their meeting.

Carreyrou later summarizes:

> Channing Robertson, the Stanford engineering professor whose reputation helped give her credibility when she was just a teenager. Then there was Donald L. Lucas, the aging venture capitalist whose backing and connections enabled her to keep raising money. Dr. J and Wade Miquelon at Walgreens and Safeway CEO Steve Burd were next, followed by James Mattis, George Shultz, and Henry Kissinger. David Boies and Rupert Murdoch complete the list

> [...]

> Besides Theranos's supposed scientific accomplishments, what helped win James and Grossman over was its board of directors. In addition to Shultz and Mattis, it now included former secretary of state Henry Kissinger, former secretary of defense William Perry, former Senate Arms Services Committee chairman Sam Nunn, and former navy admiral Gary Roughead. These were men with sterling, larger-than-life reputations who gave Theranos a stamp of legitimacy. The common denominator between all of them was that, like Shultz, they were fellows at the Hoover Institution. After befriending Shultz, Elizabeth had methodically cultivated each one of them and offered them board seats in exchange for grants of stock.

I recommend giving the book a read if you enjoy books about white collar crime.

[0] https://www.goodreads.com/book/show/37976541-bad-blood