Venture Investors: Theranos’s Fall Underscores Need for Transparency
Medical startups need to communicate their progress well, or they set themselves up for failure. Theranos Inc. is the most recent example of how negligence can carry big consequences. Venture capitalists and entrepreneurs attribute the company’s downfall to a failure to be transparent in dealings with investors and to publish data supporting their technology to gain credibility.
Tom Rodgers, Senior Vice President and Managing Director of McKesson Ventures, commented, “It would be a big red flag if a CEO said, ‘We can’t show you our secret sauce.’” He went on to say that McKesson isn’t changing any of its practices in the wake of the fallout, as it tends to only invest in companies that perform “fairly robust diligence.”
Theranos Inc. was formed in 2003 and quickly accrued more than $9 billion in valuation, in part by reporting to investors that it had created an innovative portable blood analyzer. The Wall Street Journal reported that some former Theranos employees described a culture of secrecy, going so far as to doubt the accuracy of the technology.
The company has been under scrutiny since a story dropped in 2015 reporting that Theranos relied heavily on other companies’ instruments and used its one lab machine on only a small portion of tests. This ultimately led to fraud charges and a $500,000 fine paid by the company’s former CEO and founder Elizabeth Holmes. She was also stripped of voting control over the company and barred from serving as an officer of a public company for 10 years.
For more information, and for Tom Rodgers’ full comments, read the full Wall Street Journal article here.