[verandaguy_alt]

Asking as someone less involved in reading about the funding side of starts than probably many of you, can someone explain this quote?

>The most viable option that we have identified to forestall a near-term sale or a potential default under our credit agreement is further investment by one or more of you.

Surely, the company can't in earnest expect any more VC or angel funding after their most recent round of layoffs, right?

Is it common for startups to ask for funding when it's very clear that the company is in such bad shape, with very little chance of recovery?

[downandout]

Yes, they're making a last-ditch effort to obtain funding from existing investors. Elizabeth Holmes may still have hope that she can somehow turn things around. Having founded a startup that burned through millions and then crashed and burned myself, I can tell you that every passionate founder sees a path to redemption no matter what the status of the company is, because they fundamentally believe in the idea behind their company. It's hard to acquiesce to market realities after pouring your soul into a venture for X years.

Unfortunately, I think Ms. Holmes has a long road ahead even after the company officially closes. Based on what I've seen there is a non-zero chance that she goes to federal prison over all of this. I think she genuinely believed that she could make it all work, but there's no room for lying to investors in this game.

[hpcjoe]

I've too been in the position of trying everything I could think of to avoid being shot in the head (my company that is), and then watching it get destroyed by the bank ... I can and do empathize with those in this position now.

Obviously I don't and won't condone the lying to investors, the apparent falsifying of test modalities, and so on. But I know what watching your baby, that you poured your life blood, your energy, your soul into, feels like[1].

Slightly more than a year for me. I empathize with the Theranos people. And though I don't agree with her tactics, I have a sense of what the CEO is going through watching it die. That is, assuming she was a true believer in her company and not a scammer.

I did not enjoy letting my team go. I did not enjoy the repo company collecting the assets, or the auction. I didn't enjoy what the bank did next, after shooting us in the head.

What I've learned from this exercise is that many times when the provisions are triggered, the entity does not actually act in its own best interests. We were in the midst of talks to sell our company when the bank shot us in the head. Scared the other player off. Guaranteed that they would not get what they wanted.

[1] http://scalability.org/2017/03/requiem/

[anyfoo]

What drivel. They overpromised, lied to people, broke the law. I recall at least one story that also claimed that their blood testing was unreliable, thus endangering people’s lives.

There is absolutely no sympathy necessary here. You may empathize with the feeling of loss, but concluding that they are not scammers because of that is absurd. “Best intentions” do not matter if your actions contrast with them.

[lotsofpulp]

What more evidence than intentionally providing fraudulent numbers and intimidating whistle blowers is needed to conclude someone is a scammer?

[mathattack]

This is the challenge - the banks don’t get to see unlimited upside like the other investors. Their reruns are much more muted.

[Someone]

If all other options have even lower odds, why wouldn’t they?

Also, there may be (somewhat) rational reasons for investors to invest more.

For existing investors, there’s the statistics. Let’s say you invested a billion in a company that says ”if you don’t pay 10 million now, you’ll lose all of it”.

If you think there is a 1% chance that 10 million will save them and bring back your money, you, statistically, play evens if you give them that money (paradoxically, if, a week later they say they need another 5 million, giving them that at that time is OK as long as you think you still have ½% chance of getting all your money back, but you shouldn’t give them 15 million up front when you thought you had a 1% chance)

Of course, some serious delusion may be needed to believe that, firstly, that 10 million will keep them afloat, and secondly, that it will enable them to recover all of your billion.

For potential new investors, it is almost as if that billion is a plus. It is really hard for a company to have spent a billion and not be worth at least 10 million. Fire sales _can_ be bargains. For the Theranos case, all that money should have produced some patents, some of which may be worth something.

[zxcmx]

Confirming have seen this play out before on a smaller scale.

Some call it the sunk cost fallacy... but actually when someone has invested enough money in you, you actually get leverage over them when the alternative is a smoking crater where their investment used to be.

[jlarocco]

There's also opportunity cost, though, and the fact that Theranos with a full staff and boatloads of money produced basically nothing.

And $10 million can fund a lot of smaller startups with better odds of success and less baggage.

IMO, the smart investors will move on and hope for some other sucker to give Theranos money. It's rough, but if they can't afford to lose sometimes they shouldn't be in venture capital.

Also, a new investor, giving only $10 million after they've raised nearly $1 billion, is going to be really far down the list of people getting their money back if Theranos turns it around somehow.

[int3]

> (paradoxically, if, a week later they say they need another 5 million, giving them that at that time is OK as long as you think you still have ½% chance of getting all your money back, but you shouldn’t give them 15 million up front when you thought you had a 1% chance)

No paradox here... the evaluation of the situation in the first week should be [EV of getting all your money back with the 10M investment + (negative) EV of needing to put in more money later to keep the company afloat].

[radicaldreamer]

Based on John Doerr's statements about Theranos, it seems like it's more of a religious belief in the company and it's founder than a rational approach to investment.

Of course, prior investors are incentivized to continue to act like it was a viable company lest their clients, the investors for their funds, realize that there was no due diligence on this deal and possibly on other deals these firms have engaged in.

[aphextron]

>Based on John Doerr's statements about Theranos, it seems like it's more of a religious belief in the company and it's founder than a rational approach to investment.

You've just described the entire reason for Theranos's existence

[bilkoo]

Prompted by this comment I looked up Theranos' investors. Turns out Rupert Murdoch was in Series A. What irony!

https://www.crunchbase.com/organization/theranos/investors/i...

[hangonhn]

But it does speak well of journalistic independence at the WSJ.

[AlexCoventry]

This is interesting. Are there regulations mandating public access to this information?

[gravis7777]

Why is that ironic?

[danso]

Rupert Murdoch owns the WSJ, which ran the major investigation that caused Theranos to first unravel:

https://www.theguardian.com/media/2016/nov/29/rupert-murdoch...

Nearly as ironic: the first public big splash article about Theranos was a puff piece in the WSJ by a Pulitzer Prize winner (the investigative story was from a 2-time Pulitzer winner, John Carreyrou)

http://archive.is/8dfJ7

[rosege]

Poor Rupert, doesnt have much luck with tech. He also bought MySpace at its peak and I think lost $700mil pretty quickly.

[ionised]

If anyone deserves to lose fortunes, it is him.

[jjallen]

Yes, it is common to basically ask for funding until the last minute.

The fact that Fortress already gave them some funding, at arguably the "last minute" is evidence of this.

Fortress, you will note, was probably more of a vulture investor than venture investor here.

[verandaguy_alt]

I haven't heard of vulture investors before. Is this just someone who aims to profit from an eventual asset sale (somehow)?

[celticninja]

I think it is someone who comes in late, when the company is already in trouble and uses this to leverage a preferential deal.

[gumby]

At this stage almost any sum would get you the assets and keep the operational part of the company going, and you could pretty much name your terms: valuation, op plan, everything. If you were already an investor you might know about something useful in the IP, perhaps something that mgmt doesn't care about.

Note I said assets. Technically the company doesn't appear to be insolvent in which case instead of an ABC you could basically strip what you want away from the obligations.

And those laid-off people? They got 60-day notice; certainly some of them have already jumped but probably not most of them and in such a restructuring you might be able to retain the ones you want (which could be all of them).

[mzs]

Have you ever worked so long on a project at work that you know will fail but it just keeps going cause the management can't bring themselves to kill it cause of everything they have invested into it already?

Happens to investors and money too sometimes.

I don't think it will here, but I'm just a peon.

[taurath]

I imagine it’s kind of a form thing - “how could this be mitigated?” When there’s a fat chance of that ever happening, or some IP the investor might want to buy perhaps.