Elizabeth Holmes Trial Exposes Investors' Lack of Due Diligence - AppMasterWorld.com
Wednesday, February 1, 2023
  • Contact Us
  • Disclaimer
  • Sitemap
  • Terms and Conditions
  • Privacy Policy
AppMasterWorld.com
  • Home
  • News
  • SOCIAL MEDIA
  • SAAS APPS
    • Marketing
    • Business
    • Creative Apps
    • Management Apps
    • Productivity Apps
    • Saas offers
  • GAMING
  • INDUSTRY
No Result
View All Result
AppMasterWorld.com
No Result
View All Result

Elizabeth Holmes Trial Exposes Investors’ Lack of Due Diligence

November 4, 2021
in News

SAN JOSE, Calif. — In 2014, Dan Mosley, a lawyer and power broker among wealthy families, asked the entrepreneur Elizabeth Holmes for audited financial statements of Theranos, her blood testing start-up. Theranos never produced any, but Mr. Mosley invested $6 million in the company anyway — and wrote Ms. Holmes a gushing thank-you email for the opportunity.

Bryan Tolbert, an investor at Hall Group, said his firm invested $5 million in Theranos in 2013, even though it did not have a detailed grasp of the start-up’s technologies or its work with pharmaceutical companies and the military.

And Lisa Peterson, who handles investments for Michigan’s wealthy DeVos family, said she did not visit any of Theranos’s testing centers in Walgreens stores, call any Walgreens executives or hire any outside experts in science, regulations or legal matters to verify the start-up’s claims. In 2014, the DeVos family invested $100 million into the company.

The humiliating details of bad investments like Theranos are rarely displayed so prominently to the public. But they have been laid bare in recent weeks at the trial of Ms. Holmes, 37, who faces a dozen counts of wire fraud and conspiracy to commit wire fraud; she has pleaded not guilty. She and Theranos fell from grace — with investor money evaporating and the company shutting down in 2018 — after claims about its blood-testing technology were shown to be false.

Now in its ninth week, Ms. Holmes’s trial has offered an especially clear picture of the many ways sophisticated investors can be swept up in the hype of a hot start-up, ignoring red flags that look obvious in hindsight. That behavior still resonates today, as investors compete to pour money into Silicon Valley start-ups, which have been in a frenzied state of record-breaking fund-raising.

With so many new investors flocking to start-ups, due diligence is sometimes so minimal that it is used as a punchline, investors said. An overheated market “definitely creates an environment for people to make more inflated claims” and may even tempt them to lie, said Shirish Nadkarni, a longtime entrepreneur, investor and author.

During its lifetime, Theranos exemplified that dynamic. The company raised $945 million from famous venture capitalists including Tim Draper, Donald Lucas and Dixon Doll; wealthy heirs to the founders of Amway, Walmart and Cox Communications; and powerful tech and media moguls such as Larry Ellison and Rupert Murdoch.

Understand the Elizabeth Holmes Trial

Elizabeth Holmes, the founder of the blood testing start-up Theranos, is currently standing trial for two counts of conspiracy to commit wire fraud and 10 counts of wire fraud.

And as investors have testified at Ms. Holmes’s trial, a central tension has emerged around due diligence. Could these investors have avoided disaster if they had simply done better research on Theranos? Or were they doomed because their research was based on lies?

Prosecutors have presented a growing list of examples supporting the latter argument. For example, Theranos added pharmaceutical company logos to validation reports indicating the pharmaceutical firms had endorsed its technology when they hadn’t, according to evidence and testimony. Theranos also claimed in late 2014 that it would bring in $140 million in revenue that year when it had none, according to evidence and testimony. The start-up also faked demos of its blood-testing machines to investors, witnesses have testified.

In response, Ms. Holmes’s lawyers have needled Theranos’s investors for their oversights, aiming to convince the jury that the investors were the ones at fault for not digging into Ms. Holmes’ claims.

Her lawyers recently pushed Wade Miquelon, the former chief financial officer of Walgreens, to admit that he didn’t know if his company had ever gotten one of Theranos’s devices in its offices for testing before entering into a partnership. The lawyers also got Mr. Mosley to concede he never directly asked Ms. Holmes whether a pharmaceutical company had written the validation report.

The strategy has sometimes veered into condescension. That was evident last week when Lance Wade, a lawyer for Ms. Holmes, asked Ms. Peterson, an investment professional, if she was familiar with the concept of due diligence.

“You understand that’s a typical thing to do in investing?” he said.

The investors have pushed back, explaining that they were acting on false information supplied by Ms. Holmes.

“You’re trying to measure our sophistication as an investor when we weren’t given complete information,” Ms. Peterson said. Mr. Wade asked the judge to strike the comment from the record.

Still, testimony from pharmaceutical company executives who interacted with Theranos showed it was possible to see through at least some of Ms. Holmes’s grandiose claims.

Constance Cullen, a former director at Schering Plough, said this week that she was responsible for evaluating Theranos’s technology in 2009. She said she came away “dissatisfied” with Ms. Holmes’s answers to her technical questions, calling them “cagey” and indirect. She said she stopped responding to emails from Ms. Holmes.

Shane Weber, a director at Pfizer, looked into Theranos in 2008 and concluded that the company’s responses to his technical questions were “oblique, deflective or evasive,” according to a memo used as evidence. He recommended Pfizer cease working with Theranos.

But investors were less probing, especially when Ms. Holmes appealed to their egos. Her persona as a visionary, bolstered by magazine cover stories and personal eccentricities, created a sense that backing Theranos was an exclusive and elite opportunity.

In testimony and evidence, Ms. Holmes was shown to have guarded information about the business, calling it a trade secret. She told investors she sought out wealthy families who would not want to see a return on their investment anytime soon, making those that she picked feel special with formal invitations. And she controlled the company tightly with “supervoting” shares worth 100 times the power of other shares.

“She has a firm grasp on the company, let there be no mistake,” Christopher Lucas, a Theranos investor, said on a call with other investors that was recorded and played in court. “She would have the right to cast out investors.”

Mr. Lucas’s firm, Black Diamond Ventures, invested around $7 million into Theranos, despite not getting access to its financial information or examining all of its corporate records. This was unusual, Mr. Lucas testified on Thursday, but Ms. Holmes told him the information was sensitive because a leak could “give competitors a chance to crush the company.”

That secrecy extended to due diligence. Ms. Peterson testified that she was scared Ms. Holmes would cut her firm out of the deal if they dug deeper into the details of Theranos’s business.

“We were very careful not to circumvent things and upset Elizabeth,” she said. “If we did too much, we wouldn’t be invited back to invest.”

Mr. Nadkarni, the longtime investor, said such behavior sounded familiar. He said he had observed a loosening of diligence in deals he’s been involved with over the last year.

It hasn’t led to many problems while times were good, he said, but “if something happens to the economy, then everyone is going to be toast.”

Growth Capital For Online SaaS and App Businesses | Clearco
This is how you fund your business without giving up any Equity Click Here To Learn How!!

Previous Post

EA says NFTs are part of the future of games industry

Next Post

Twitch adds animal livestreams category and other tech news

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

dropshipping spocket

How To Start Your Drop Shipping Business With Spocket in 2022!

Groove Funnels – We All Want A Free Sales Funnel Builder

Groove Funnels – We All Want A Free Sales Funnel Builder

Remote team management: 5 challenges and solutions

Remote team management: 5 challenges and solutions

WPFunnels – A Drag & Drop WordPress Sales Funnel Builder

WPFunnels – A Drag & Drop WordPress Sales Funnel Builder

Elementor plugin

Elementor | How Do You Get Your Website Started?

Emma email campaign

Emma | Personalized Email Marketing Solutions for your Business

A calendar that is actually useful, batch deferrals, and more.

A calendar that is actually useful, batch deferrals, and more.

8 Factors To Begin Using An Online Form – Forms on Fire 🔥

8 Factors To Begin Using An Online Form – Forms on Fire 🔥

Vendasta – All in One Platform For Success

Vendasta – All in One Platform For Success

Sanebox

SaneBox | Email AI To Keep You Sane

Red Pill for Sales CRM

What is VipeCloud? Sales CRM and Marketing Suite

AppMasterWorld.com

AppMasterWorld.com is for techies, who wants to be up to date before others. We work hard to serve you first and best of all and to satisfy your hunger of Technology. I hope you will get latest business, gaming, social media news and much more. If you have difficulty in any topic or doubt in mind. Just Feel Free to ask me in comment of that topic.

Trending Now

Kim Kardashian sued in crypto ‘pump and dump’ case

Ukraine was sea-change for openness – GCHQ head

What if Rings of Power’s Sauron really is just the most obvious person?

China’s WeChat suspends some accounts linked to NFTs

Freshworks | Make Support Easy For The Digital First Customer

Most Popular

The simplest way to pay vendors & contractors

The simplest way to pay vendors & contractors

Read an exclusive excerpt from R.A. Salvatore’s new Drizzt novel, Glacier’s Edge

Read an exclusive excerpt from R.A. Salvatore’s new Drizzt novel, Glacier’s Edge

Mr Goxx, the cryptocurrency-trading hamster, dies

Mr Goxx, the cryptocurrency-trading hamster, dies

  • Contact Us
  • Disclaimer
  • Sitemap
  • Terms and Conditions
  • Privacy Policy

© 2021 Copyright. All rights reserved.

No Result
View All Result
  • Home
  • News
  • SOCIAL MEDIA
  • SAAS APPS
    • Marketing
    • Business
    • Creative Apps
    • Management Apps
    • Productivity Apps
    • Saas offers
  • GAMING
  • INDUSTRY

© 2021 Copyright. All rights reserved.

We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
Cookie settingsACCEPT
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT