Theranos, a blood-testing startup, was once hailed as a revolutionary company that could disrupt the entire healthcare industry. Founded by Elizabeth Holmes in 2003, the company claimed to have developed a portable blood-testing device that could detect a wide range of health conditions with just a few drops of blood. The company’s valuation skyrocketed to over $9 billion, making it one of the most valuable startups in the world. However, it was later revealed that the company’s technology was flawed, and the claims were largely exaggerated. The company’s downfall was swift and brutal, with its valuation plummeting to near zero.
So, which venture capital firms invested in Theranos, and what were they thinking? In this article, we’ll delve into the world of venture capital and explore the firms that bet big on Theranos.
The Early Investors: Draper Fisher Jurvetson and Labrador Ventures
Theranos’s early investors were Draper Fisher Jurvetson (DFJ) and Labrador Ventures. DFJ invested $500,000 in Theranos in 2004, and Labrador Ventures invested an additional $100,000. These early investments were critical in helping Theranos get off the ground, and they set the stage for future investments.
DFJ is a well-known venture capital firm that has invested in companies like Skype, Tesla, and SpaceX. Labrador Ventures is a smaller firm that focuses on investing in early-stage companies. Both firms saw potential in Theranos’s technology and were willing to take a risk on the young company.
The Rise of Theranos: Betsy DeVos, Draper Fisher Jurvetson, and Others
In 2010, Theranos raised an additional $20 million from investors like Betsy DeVos, the billionaire education secretary, and Draper Fisher Jurvetson. This round of funding was critical in helping Theranos expand its operations and develop its technology further.
Betsy DeVos’s investment in Theranos was seen as a major endorsement of the company’s technology. DeVos, a prominent Republican donor and philanthropist, had a reputation for investing in companies that could create significant social impact. Her investment in Theranos was seen as a sign that the company’s technology had the potential to disrupt the healthcare industry.
Other investors who participated in this round of funding included ATA Ventures, Founders Fund, and Walgreens. Walgreens, the pharmacy chain, invested $140 million in Theranos and partnered with the company to offer its blood-testing technology in its stores.
The Big Investors: Partners at Revolution Growth and Others
In 2014, Theranos raised an additional $500 million from investors like Partners at Revolution Growth, a venture capital firm founded by Steve Case, the co-founder of AOL. This round of funding valued Theranos at over $3 billion, making it one of the most valuable startups in the world.
Partners at Revolution Growth invested $300 million in Theranos, making it one of the largest investments in the company’s history. The firm’s investment was seen as a major endorsement of Theranos’s technology, and it helped to fuel the company’s rapid expansion.
Other investors who participated in this round of funding included the Walton family, the founders of Walmart, and the Cox family, the owners of Cox Enterprises. The Walton family invested $150 million in Theranos, while the Cox family invested $100 million.
The Due Diligence Question
Looking back, it’s surprising that so many prominent investors failed to do their due diligence on Theranos. The company’s technology was shrouded in secrecy, and many investors failed to critically evaluate the company’s claims.
The CEO of Partners at Revolution Growth, Steve Murray, later admitted that his firm did not conduct thorough due diligence on Theranos. In an interview with the Wall Street Journal, Murray said that his firm relied on the company’s audited financial statements and did not independently verify the company’s technology.
This lack of due diligence was a common theme among many of Theranos’s investors. Many investors were swayed by Elizabeth Holmes’s charisma and the company’s lofty promises, rather than conducting a thorough evaluation of the company’s technology and financials.
The Fallout: Lawsuits and Investigations
In 2015, the Wall Street Journal published a series of articles that raised questions about Theranos’s technology. The articles alleged that the company’s blood-testing devices were inaccurate and that the company was using third-party devices to conduct many of its tests.
The fallout was swift and brutal. The company’s valuation plummeted, and many of its investors began to distance themselves from the company. The Securities and Exchange Commission (SEC) launched an investigation into Theranos, and the company was eventually forced to void many of its test results.
Lawsuits against Theranos began to pile up, with many investors and partners seeking to recover their losses. The company’s partners, including Walgreens, sued Theranos for breach of contract and fraud.
In 2018, Elizabeth Holmes was charged with fraud by the SEC, and she was banned from serving as an officer or director of a public company. The company’s valuation had fallen to near zero, and Theranos was eventually forced to dissolve.
The Lessons Learned
The Theranos debacle serves as a cautionary tale for venture capital firms and investors. The case highlights the importance of conducting thorough due diligence on companies and their technologies.
Investors must be willing to ask tough questions and critically evaluate the claims made by startups. This includes verifying the accuracy of a company’s financial statements and testing its technology independently.
The Theranos case also highlights the dangers of groupthink in the venture capital industry. Many investors were swayed by the company’s lofty promises and failed to conduct a thorough evaluation of its technology and financials.
Conclusion
The Theranos debacle is a sobering reminder of the risks involved in investing in startups. Venture capital firms and investors must be willing to conduct thorough due diligence on companies and their technologies. This includes verifying the accuracy of a company’s financial statements and testing its technology independently.
The case also highlights the importance of skepticism and critical thinking in the venture capital industry. Investors must be willing to ask tough questions and critically evaluate the claims made by startups.
In the end, the Theranos debacle serves as a cautionary tale for venture capital firms and investors. It’s a reminder that even the most promising startups can fail, and that thorough due diligence is essential to avoiding costly mistakes.
| Investor | Amount Invested |
|---|---|
| Draper Fisher Jurvetson | $500,000 |
| Labrador Ventures | $100,000 |
| Betsy DeVos | $20 million |
| Partners at Revolution Growth | $300 million |
| Walton family | $150 million |
| Cox family | $100 million |
Note: The amounts invested are approximate and based on publicly available data.
What was Theranos, and what did it claim to do?
Theranos was a healthcare technology company founded in 2003 by Elizabeth Holmes. The company claimed to have developed a revolutionary blood-testing technology that could run hundreds of medical tests on a single drop of blood, providing accurate results in a matter of minutes. This technology was touted as a game-changer for the healthcare industry, as it would enable early detection and treatment of diseases, improve patient outcomes, and reduce healthcare costs.
Theranos claimed that its proprietary technology, called the Edison machine, could analyze a tiny sample of blood using nanotechnology, permitting the detection of a wide range of health conditions, including cancer, diabetes, and infectious diseases. The company also claimed that its technology was portable, affordable, and could be used in remote locations, making it an attractive solution for developing countries and areas with limited access to healthcare.
Who were the venture capitalists that invested in Theranos?
Some of the prominent venture capitalists who invested in Theranos included Draper Fisher Jurvetson, which invested $500,000 in the company in 2005; ATA Ventures, which invested $1 million in 2006; and Larry Ellison, who invested $1 million in 2006. Other notable investors included the Walton family, the founders of Walmart, who invested $150 million; Betsy DeVos, the former Secretary of Education, who invested $100 million; and Rupert Murdoch, who invested $125 million.
These investors were drawn to Theranos because of its promise to disrupt the healthcare industry and its charismatic CEO, Elizabeth Holmes. Many of them were also impressed by the company’s claim that its technology had been validated by pharmaceutical companies and the US military. However, it is now clear that these investors failed to conduct adequate due diligence, ignoring red flags and warning signs that suggested Theranos’ technology was not as revolutionary as it claimed.
How much money did Theranos raise from its investors?
Theranos raised a total of around $700 million from its investors over several funding rounds. The company’s valuation peaked at $9 billion in 2014, making it one of the most valuable startups in Silicon Valley. The company’s investors were willing to pay such a high valuation because of the promise of its technology and the hype surrounding Elizabeth Holmes.
However, it is now clear that the company’s valuation was grossly inflated, and that the investors were misled by Theranos’ false claims and misleading marketing. The company’s valuation has since plummeted, and it is now worthless. The investors who lost money on Theranos have been left to pick up the pieces and wonder how they were so easily duped by the company’s false promises.
What were some of the red flags that investors should have seen?
There were several red flags that investors should have seen before investing in Theranos. One of the most obvious was the lack of transparency around the company’s technology. Elizabeth Holmes was notoriously secretive about the inner workings of the Edison machine, refusing to disclose details about how it worked or allowing independent experts to verify its claims. Another red flag was the company’s lack of peer-reviewed research or clinical trials to support its claims.
Additionally, there were warnings from former employees and whistleblowers who had doubts about the company’s technology and business practices. Some of these whistleblowers even contacted investors directly to express their concerns, but they were ignored or dismissed. It is clear that the investors were blinded by the hype surrounding Theranos and failed to conduct adequate due diligence before investing.
What were the consequences of the Theranos scandal?
The consequences of the Theranos scandal were severe and far-reaching. The company’s false claims and misleading marketing put patients’ lives at risk, as they were relying on inaccurate blood test results to make critical health decisions. The scandal also undermined trust in the healthcare industry and damaged the reputation of Silicon Valley and its venture capital community.
The scandal also had personal consequences for Elizabeth Holmes, who was charged with criminal fraud and conspiracy by the Securities and Exchange Commission (SEC). The SEC also charged Ramesh Balwani, the company’s former president, with fraud. The company was forced to shut down and return millions of dollars to its investors.
What lessons can be learned from the Theranos scandal?
One of the key lessons from the Theranos scandal is the importance of due diligence and skepticism when investing in startups. Investors should not rely solely on hype and marketing claims, but should instead conduct thorough research and verify the claims of the company before investing. Another lesson is the importance of transparency and accountability in business and healthcare.
The scandal also highlights the danger of charismatic CEOs who are willing to bend the truth to achieve their goals. Investors should be wary of CEOs who are overly secretive or controlling, and should instead look for leaders who are transparent, honest, and willing to listen to feedback and criticism.
How can investors avoid similar scandals in the future?
To avoid similar scandals in the future, investors should take a more critical and nuanced approach to investing in startups. They should conduct thorough due diligence, including reviewing financial statements, talking to customers, and verifying the claims of the company. They should also be wary of charismatic CEOs and instead look for leaders who are transparent, honest, and willing to listen to feedback and criticism.
Investors should also be more skeptical of hype and marketing claims, and should instead focus on the underlying fundamentals of the business. They should also diversify their portfolios and avoid investing too much in a single company or industry. By taking a more cautious and discerning approach, investors can reduce their risk of being duped by false promises and misleading marketing.