Theranos Sued for Alleged Fraud by Robertson Stephens Co-Founder Colman(wsj.com)
wsj.com
Theranos Sued for Alleged Fraud by Robertson Stephens Co-Founder Colman
http://www.wsj.com/articles/theranos-sued-for-alleged-fraud-by-robertson-stephens-co-founder-colman-1480364852
66 comments
I think not bankruptcy...
It's been reported that Theranos still has $400M in cash. And the founder has majority control.
So this is a very rare condition, where there is still assets in the company (so a judgement can be paid) but the company has no business plan. So you have a founder who's best play now is sit around for the next 10 years spending down that $400M on new business plans to see if something hits.
It's been reported that Theranos still has $400M in cash. And the founder has majority control.
So this is a very rare condition, where there is still assets in the company (so a judgement can be paid) but the company has no business plan. So you have a founder who's best play now is sit around for the next 10 years spending down that $400M on new business plans to see if something hits.
400M isn't that much. Per Glassdoor Theranos has 790 employees; assuming that was before layoffs and the numbers in the news (~340 layoffs) are accurate, that's 450. Since it's an R&D company in Palo Alto, average total comp is likely north of $250k per person, but even at that it's $110M a year in payroll alone. And medical research isn't exactly cheap, I bet it easily spends over $100M in research costs. So at that burn rate Theranos has 2 years to keep the lights on. It takes more than 2 years for a medical company to bring a new product to market.
Go ahead, halve all my numbers and argue that Theranos actually has a burn rate of 4 years: It still doesn't matter, there is no way they'll get something through the FDA (especially given recent history) in 4 years.
Go ahead, halve all my numbers and argue that Theranos actually has a burn rate of 4 years: It still doesn't matter, there is no way they'll get something through the FDA (especially given recent history) in 4 years.
Honest question. Why isn't the board just shutting everything down rather than let it continue to burn through cash? Are there sufficient insiders tin whose interest it is to continue their payday?
Board can't make that decision if the CEO has majority voting rights.
Honest question: what's the point of having a board then?
It's valuable to have prestigious board members when fundraising, even if they're essentially powerless and have no experience in your industry, like a retired United States Marine Corps general [1]. It give you legitimacy and credibility.
[1] https://www.theranos.com/leadership/board-of-directors
[1] https://www.theranos.com/leadership/board-of-directors
To represent the owners of the company. The founder is over half the owner of the company. So the system is working as intended.
In all fairness, though generally lawsuits represent a failure on some level, this kind of situation is kind of why we have courts. That's a proper venue to determine what to do next in this unusual and extraordinary situation.
In all fairness, though generally lawsuits represent a failure on some level, this kind of situation is kind of why we have courts. That's a proper venue to determine what to do next in this unusual and extraordinary situation.
I believe the founder has a controlling interest. The board can't do much without her say so.
I was on a small company board, was an officer, and was the (vast) majority shareholder, at least for voting rights.
Technically, the board could have fired me, and it would taken something like 2 or 3 months to have forced my way back on. (Calling a major shareholder meeting to elect the board out of cycle, plus calling a new board meeting to vote myself in, takes time and organization.) The political cost of overruling the board in that manner also wouldn't be null for me, and likely would've caused key staff to quit and key backers to stop supporting the project. I definitely would have had to do a lot of explaining for such a power play, and it's likely my reputation never would recover at the company.
As a lot of kings have learned: your word may be law, but nobles pay the taxes, provide the swords, etc. You can't make enemies of everyone.
Technically, the board could have fired me, and it would taken something like 2 or 3 months to have forced my way back on. (Calling a major shareholder meeting to elect the board out of cycle, plus calling a new board meeting to vote myself in, takes time and organization.) The political cost of overruling the board in that manner also wouldn't be null for me, and likely would've caused key staff to quit and key backers to stop supporting the project. I definitely would have had to do a lot of explaining for such a power play, and it's likely my reputation never would recover at the company.
As a lot of kings have learned: your word may be law, but nobles pay the taxes, provide the swords, etc. You can't make enemies of everyone.
That's why we are pivoting into the exciting unregulated area of medical document management with: The Thernos Wellness Document Platform!
Keeping only the "best" 50 engineers of course.
that's what complete voting control means!
Keeping only the "best" 50 engineers of course.
that's what complete voting control means!
or she go could extreme, cut down to 50 employees (250k total comp per person) get down to a 20 mil a year burn rate which would give her 20 years or she could go even more extreme and be more or less set for life
Nothing about her being able to pick a new business plan as she pleases implies that she'll retain all (or any) current Theranos staff, equipment, or offices.
>the company has no business plan.
i'd not say so. Originally they tried to sell their tech to DoD (in 2012), and Mattis, a 4 star general back then, was the key figure in trying to push the deal through (no surprise that he ended on their board :). Given that he may become new defense secretary under Trump this old plan becomes new and shiny again. Also consider how FDA actions toward Theranos may be spun out in the new political regime as an example of egregious regulation overreach strangulating revolutionary innovations and entrepreneurship ...
So Theranos need to survive only until the January 21st.
i'd not say so. Originally they tried to sell their tech to DoD (in 2012), and Mattis, a 4 star general back then, was the key figure in trying to push the deal through (no surprise that he ended on their board :). Given that he may become new defense secretary under Trump this old plan becomes new and shiny again. Also consider how FDA actions toward Theranos may be spun out in the new political regime as an example of egregious regulation overreach strangulating revolutionary innovations and entrepreneurship ...
So Theranos need to survive only until the January 21st.
One judgement could wipe that out, especially if it was eligible for treble damages.
It seems unlikely Ms. Holmes is going to have the opportunity to pursue that strategy. She has been personally banned from running a diagnostic facility, her company is being sued for fraud, and pretty much all their claims have vanished in smoke. Who would buy a product with a company with a history like that?
It isn't at all rare for a bankrupt company to have many millions, even billions, in assets. It might be more unusual to have hundreds of millions in cash on hand, though.
I expect their debts to run into the multiple-billions.
It's either that or the investor feels they have been defrauded.
True! But they're filing the suits in the full knowledge that the existence of the suit itself will reduce the value of their holdings. So they must not be very optimistic about the future value of their investment.
No, it just means they think the suit will decrease the value of their investment less than they stand to win.
I think this exposes a great deal of how money and wealth concentrated at the top is flowing to people not based on merits but by their socioeconomic lineage.
Imagine that $15 million dollar invested in $50k USD increments into 300 startup ideas, the jobs that will be created, increased human capital and impact on their respective local economies, that are not there because of risk adversity (it still amazes me VCs would shun risk but still throw around "venture") towards people of lower class then them. For example, somebody coming straight out of university vs. the daughter of a CEO at a large company who also attends the same country_club/religious functions, suddenly looks like a safer bet.
It looks like a pretty hopeless situation for Theranos but it also exposes the crony capitalism that you'd find in other parts of the world with ease, with heavy hitters like Henry Kissinger (wtf) sitting on the board.
He will most likely never see that money again because he thought he was mitigating risk by piggybacking behind a powerful individual with powerful connections that's accessible by blood.
It's hard to feel any sympathy.
Imagine that $15 million dollar invested in $50k USD increments into 300 startup ideas, the jobs that will be created, increased human capital and impact on their respective local economies, that are not there because of risk adversity (it still amazes me VCs would shun risk but still throw around "venture") towards people of lower class then them. For example, somebody coming straight out of university vs. the daughter of a CEO at a large company who also attends the same country_club/religious functions, suddenly looks like a safer bet.
It looks like a pretty hopeless situation for Theranos but it also exposes the crony capitalism that you'd find in other parts of the world with ease, with heavy hitters like Henry Kissinger (wtf) sitting on the board.
He will most likely never see that money again because he thought he was mitigating risk by piggybacking behind a powerful individual with powerful connections that's accessible by blood.
It's hard to feel any sympathy.
> Imagine that $15 million dollar invested in $50k USD increments into 300 startup ideas, the jobs that will be created...
That sounds pretty naive. $15 million isn't a huge amount of money in business, and in most parts of the country $50k isn't a livable salary. I'm sure people can scrape by on that, but don't pretend it'd be doing them a huge favor.
The more I think about it, the more exploitive it seems. Great for tricking recent college grads into wasting a few years to build a website, but not so great for actually developing new technology.
That sounds pretty naive. $15 million isn't a huge amount of money in business, and in most parts of the country $50k isn't a livable salary. I'm sure people can scrape by on that, but don't pretend it'd be doing them a huge favor.
The more I think about it, the more exploitive it seems. Great for tricking recent college grads into wasting a few years to build a website, but not so great for actually developing new technology.
> That sounds pretty naive. $15 million isn't a huge amount of money in business, and in most parts of the country $50k isn't a livable salary.
Who's being naive?
The median net compensation last year in the U.S. was $29,930.13, meaning half of all wage earners earned less.
Median income for an entire household (ie more than one person) in the US is about $51k. Meaning about half of all households make less than that.
Assuming half the population of the country doesn't die suddenly in the next three weeks it's fair to say that $50k is "livable"
Who's being naive?
The median net compensation last year in the U.S. was $29,930.13, meaning half of all wage earners earned less.
Median income for an entire household (ie more than one person) in the US is about $51k. Meaning about half of all households make less than that.
Assuming half the population of the country doesn't die suddenly in the next three weeks it's fair to say that $50k is "livable"
It also depends where you live: http://www.seattletimes.com/seattle-news/data/80000-median-w...
Consider that YC will throw you 200k but you're going to be moving to an area where the median income is $90k
This of course wouldn't be an issue if people didn't insist on living in the bay area, but nobody takes you as seriously if you're remote.
Consider that YC will throw you 200k but you're going to be moving to an area where the median income is $90k
This of course wouldn't be an issue if people didn't insist on living in the bay area, but nobody takes you as seriously if you're remote.
> It also depends where you live
Sure, but that doesn't change the actual...you know... averages the parent cited. For every household with over $51k, there was a household with under $51k.
Pointing out that some corner of the US is expensive hardly changes the point.
Sure, but that doesn't change the actual...you know... averages the parent cited. For every household with over $51k, there was a household with under $51k.
Pointing out that some corner of the US is expensive hardly changes the point.
I'm not debating the definition of the median... I assume everyone knows how percentiles work. I'm debating the idea that its meaningful to use the median income of the entire united states as a comparison.
Prices in San Jose aren't brought down by prices being lower elsewhere because location is basically the most important dimension in real estate.
The median house being 188k in america means nothing when all the houses you can choose from cost over 1mil. And you're stuck there because the bay area has a near monopoly on startups, especially if you receive funding from a bay area accelerator.
Let me take the parent's comment to the next level:
"The median net compensation last year in the world was around $1,200, meaning half of all wage earners earned less. Assuming half the population of the planet doesn't die suddenly in the next three weeks it's fair to say that $50k is "livable""
Equally inapplicable to someone who lives in the bay area.
Prices in San Jose aren't brought down by prices being lower elsewhere because location is basically the most important dimension in real estate.
The median house being 188k in america means nothing when all the houses you can choose from cost over 1mil. And you're stuck there because the bay area has a near monopoly on startups, especially if you receive funding from a bay area accelerator.
Let me take the parent's comment to the next level:
"The median net compensation last year in the world was around $1,200, meaning half of all wage earners earned less. Assuming half the population of the planet doesn't die suddenly in the next three weeks it's fair to say that $50k is "livable""
Equally inapplicable to someone who lives in the bay area.
Okay, have fun being an edge case I guess.
I don't live in San Jose but my city's on its way there so thanks ;)
We're all edge cases in the world as a whole.
We're all edge cases in the world as a whole.
Quite a few people are nitpicking the "$50k isn't a livable wage" comment, but nobody's really challenged the underlying point that $50k isn't a lot of money if it's the only money available to start a company with.
Even if a person does live in part of the country where $50k is a decent salary, it still doesn't leave them much left over to start a company. And living away from urban areas will bring its own challenges, like networking, marketing, advertising, etc.
Just an example, how do you think Uber would have turned out if they started in Pierre, South Dakota?
And good luck buying any kind of machinery, expanding beyond a lone developer, etc. with only $50k.
Even if a person does live in part of the country where $50k is a decent salary, it still doesn't leave them much left over to start a company. And living away from urban areas will bring its own challenges, like networking, marketing, advertising, etc.
Just an example, how do you think Uber would have turned out if they started in Pierre, South Dakota?
And good luck buying any kind of machinery, expanding beyond a lone developer, etc. with only $50k.
The median household income is about 50k/yr in the US, so "livable" or not, it's being lived on by (more than) half the population.
Plenty of people would jump at being paid $35k for a year plus have $15k in tooling + materials. Lots of craftsmen would be able to establish a new business with that level of funding.
I think you have unrealistic beliefs about how things work.
Plenty of people would jump at being paid $35k for a year plus have $15k in tooling + materials. Lots of craftsmen would be able to establish a new business with that level of funding.
I think you have unrealistic beliefs about how things work.
> I think you have unrealistic beliefs about how things work.
Do I? What percentage of VC money goes to people living in areas where $50k would be a good year's salary? It's practically 0. YCombinator won't even invest in companies that won't move to the valley. http://www.ycombinator.com/faq/#q21
Do I? What percentage of VC money goes to people living in areas where $50k would be a good year's salary? It's practically 0. YCombinator won't even invest in companies that won't move to the valley. http://www.ycombinator.com/faq/#q21
A small but not trivial amount of VC capital, but that's not what people are responding to. For somewhere like Seattle or Las Vegas, 50k/year is a reasonable seed round salary.
However, most people are just commenting that you're wrong about 50k/year not being livable for most of the country. Almost everywhere, including places like Seattle, 50k/year is what half the households make, so works for an individual salary. It's the vast minority where 50k/year isnt livable for a single person.
Of course, that's also partly what people are calling out elsewhere in the thread: high VC spending close to them is about social connections rather than what makes economic sense.
I expect that if you had the capital, you could eat most VC's lunch by just spending everywhere but those hyper expensive areas.
However, most people are just commenting that you're wrong about 50k/year not being livable for most of the country. Almost everywhere, including places like Seattle, 50k/year is what half the households make, so works for an individual salary. It's the vast minority where 50k/year isnt livable for a single person.
Of course, that's also partly what people are calling out elsewhere in the thread: high VC spending close to them is about social connections rather than what makes economic sense.
I expect that if you had the capital, you could eat most VC's lunch by just spending everywhere but those hyper expensive areas.
Founders need to live in the Bay Area during the 3-month period in which they're participating in the YC batch, but I believe companies are free to move to wherever they'd like once that period is over. I can think of a couple that were based in Chattanooga (median income ~36k) and moved back there after YC.
Great point. Presumably a good number of these "back room deals" work out and people never hear of them.
This one blows up and then, to a certain extent, it exposes the cozy interconnections of "socioeconomic lineage"
This one blows up and then, to a certain extent, it exposes the cozy interconnections of "socioeconomic lineage"
To be fair, Theranos likely needed a large capital investment to bring its (described complex) product to market. The model you suggest is simply another/different model, but investing large amounts of money in a startup that in theory will need large amounts of money is a very smart thing to do if you believe the market you're addressing is long, and wide enough to one day sustain the returns needed.
If you reread his comment, it is clear his point is not that there shouldn't be large investments. His point was that this was a bad investment chosen due to who the CEO was, and that so much more good could have potentially been done with that money if it didn't flow "to people not based on merits but by their socioeconomic lineage."
Seems like a lot of conflation going on there!
http://www.espn.com/30for30/film?page=bigshot
Is a great example of just how much you can get away with if the right person just assumes you're rich.
Is a great example of just how much you can get away with if the right person just assumes you're rich.
> Imagine that $15 million dollar invested in $50k USD increments into 300 startup ideas, the jobs that will be created, increased human capital and impact on their respective local economies, that are not there because of risk adversity (it still amazes me VCs would shun risk but still throw around "venture") towards people of lower class then them.
That comparison isn't apples to apples as there are 299 other seemingly viable ideas that you're including in the latter category. Assuming they're good enough to warrant someone investing $50K, they have an inherent value as well.
> It's hard to feel any sympathy.
I believe the emotion most feel in regards to all things Theranos is schadenfreude[1].
[1]: https://en.wikipedia.org/wiki/Schadenfreude
That comparison isn't apples to apples as there are 299 other seemingly viable ideas that you're including in the latter category. Assuming they're good enough to warrant someone investing $50K, they have an inherent value as well.
> It's hard to feel any sympathy.
I believe the emotion most feel in regards to all things Theranos is schadenfreude[1].
[1]: https://en.wikipedia.org/wiki/Schadenfreude
Upvoted for schadenfreude. I feel HN shows this whenever I read something about Yahoo, Twitter or Theranos. With Facebook and Uber, it's hate.
> Imagine that $15 million dollar invested in $50k USD increments into 300 startup ideas, the jobs that will be created, increased human capital and impact on their respective local economies, that are not there because of risk adversity (it still amazes me VCs would shun risk but still throw around "venture") towards people of lower class then them. For example, somebody coming straight out of university vs. the daughter of a CEO at a large company who also attends the same country_club/religious functions, suddenly looks like a safer bet.
This doesn't make sense. I'm fairly certain that a random person graduating college is a worse bet than a random person who is graduating college and is also socially well-connected. I imagine that 300 startups started by people who are both college graduates and socially well-connected have better odds of success than 300 startups started by randomly-chosen college graduates.
This doesn't make sense. I'm fairly certain that a random person graduating college is a worse bet than a random person who is graduating college and is also socially well-connected. I imagine that 300 startups started by people who are both college graduates and socially well-connected have better odds of success than 300 startups started by randomly-chosen college graduates.
"Crony capitalism" specifically refers to favors aided by government power.
Fine. Cronyism.
>Imagine that $15 million dollar invested in $50k USD increments into 300 startup ideas
Startups aren't immune to fraud, stupidity and waste. In fact, regarding the latter two, startups are probably more prone. With hindsight it's easy to say throwing money at Theranos was a bad idea, but the same can be said for the vast majority of startups.
Startups aren't immune to fraud, stupidity and waste. In fact, regarding the latter two, startups are probably more prone. With hindsight it's easy to say throwing money at Theranos was a bad idea, but the same can be said for the vast majority of startups.
Theranos Litigation Profile: http://www.plainsite.org/profiles/theranos-inc/
Colman et al v. Theranos, Inc. Docket: http://www.plainsite.org/dockets/3350guyw8/california-northe...
Colman et al v. Theranos, Inc. Docket: http://www.plainsite.org/dockets/3350guyw8/california-northe...
It's going to be mighty interesting to see what all comes of Theranos and these suits.
Indeed, early 2015 year a couple VC friends warned me that Theranos was a bunch of crock and everyone knew it, and that it was going to be the company that would send rippled through the venture market in 2016. Well 2016 was sure a cold year for venture. When I think about Elizabeth as an entrepreneur, on one hand I respect her for trying something so audacious, and sticking with it for so long. However, the one thing that the valley doesn't teach you (in fact quite the opposite) is that there are actually almost no short cuts in startup, get capital and deploy it building a strong and resilient product and business around it, then take it to market. Elizabeth got really caught up in taking absolutely nothing feasible to market, and that's a damn shame.
It's not just about "trying something audacious" or "sticking with it". Do that with your social photo sharing site.
People's medical diagnoses and health is on the line here. The cavalier attitude of "getting caught up in taking nothing feasible to market" makes me sick.
People's medical diagnoses and health is on the line here. The cavalier attitude of "getting caught up in taking nothing feasible to market" makes me sick.
I agree, I think I sounded softer than I actually feel about it. She should probably go to jail, I just do think she tried something hard, and tried something hard for a long time (she started in 2003), and failed. She should have realized when she failed though.
At a certain point you have to ask yourself if "she got caught up" or if she was aware of the full implications of her company for years and merely covered it up. I hold zero sympathy for the latter because it wasted years of the lives of hundreds of employees. Not to mention money, that guy who killed himself, societal implications, etc.
100% agree - Personally, like to air on the side of humans being good. While I certainly don't think she acted in a good way, I want to believe she isn't malicious, although it's hard to see how she wasn't. She certainly isn't a very good CEO. I guess I was just saying resilience isn't as easy as people think (she founded in 2003), and as someone who battles it myself, I (emotionally) find persistence to be inspiring. Maybe I shouldn't. :)
>When I think about Elizabeth as an entrepreneur, on one hand I respect her for trying something so audacious, and sticking with it for so long.
Audacious like...mass fraud (potentially)? If you say so.
>Elizabeth got really caught up in taking absolutely nothing feasible to market, and that's a damn shame.
What is shameful about it? She was a well-connected person who leveraged contacts to raise money. The fewer people we have like that in the startup world, the better.
Audacious like...mass fraud (potentially)? If you say so.
>Elizabeth got really caught up in taking absolutely nothing feasible to market, and that's a damn shame.
What is shameful about it? She was a well-connected person who leveraged contacts to raise money. The fewer people we have like that in the startup world, the better.
Do you believe that when she started out founding the company she was planning to commit fraud? Regarding shameful, how do you feel about the word intent?
Theranos keeps providing its steady output of schadenfreundian porn ; not that i complain. Is this series of events unprecedented or is it standard practices after a typical fraudster collapses?
Is there a reason as to why this company is not dead yet?
I get a sense that Holmes has surrounded herself by the kind of people who will stand by her crazy side to pretty much the end.
I'm not going to armchair psychologist and suggest a diagnosis... but she's gotta be something...
I'm not going to armchair psychologist and suggest a diagnosis... but she's gotta be something...
The Theranos story seems to get darker by the week...
Because in a bankruptcy judgments are given priority over debt, if you holding Theranos' debt you can try to jump to the front of the line by suing for fraud (etc), in the hopes that you can get a judgement in your favor.
So the real takeaway is, it seems all these companies have concluded that bankruptcy is inevitable.