Powerful U.S. Political and Business Leaders Lost Hundreds of Millions on Theranos
Published: May 07, 2018 By Alex Keown
Failed blood-testing developer Theranos was known for its high-profile supporters who had tremendous business and political clout. Names like Rupert Murdoch, Betsy Devos and James Baker were known investors in the company.
Those supporters, along with the Walton family, the owners of Walmart, were key to the company’s fundraising efforts that helped propel it to a valuation of about $9 billion once upon a time. Now, with the company on the verge of shutting down and Elizabeth Holmes, founder and chief executive officer of Theranos having recently paid a $500,000 fine for fraud, a new report shows just how much money some of those powerful investors have lost.
Documents related to a lawsuit against Theranos reveal that those high-profile investors lost hundreds of millions of dollars on the failed startup. This morning CNBC, citing a Wall Street Journal report, show that the Walton family lost approximately $150 million and media mogul Rupert Murdoch, lost $125 million. BioSpace reported last year that Murdoch sold his investments in Theranos back to the company for $1. U.S. Secretary of Education Betsy Devos lost about $100 million, according to the report. The investments made by these big names were completed between 2013 and 2015 when Holmes and Theranos promised scientific technologies they could not produce. It was in 2015 when the wheels began coming off of Theranos following an intense and impressive display of investigative journalism by the Journal.
Other high-profile investors in Theranos included the Cox family, which owns Cox Communications, which also lost about $100 million. Robert Kraft, CEO of the Kraft Group and owner of the New England Patriots, lost about $1 million, according to the report.
High-profile investors aren’t the only ones to have lost money on Theranos. During its unicorn heyday, the company attracted investors from all over Silicon Valley, which helped drive its valuation to that staggering $9 billion mark – all without any approved or tested product. Now the company is on the brink of shutting down. In its report on the amounts lost by the high-profile investors, the Journal also said that Holmes issued a note to investors in May that indicates the company could be liquidated by the end of summer, CNBC reported. The report indicated that Holmes terminated the remainder of its employees as it prepares for the sale. The company had approximately 25 remaining employees.
In early April, about nine days before Holmes sent the note to her investors, Theranos laid off an additional 100 employees as it sought to prevent bankruptcy. At that time the Holmes made an appeal to investors for additional financial support in order to hold off the possibility of shutting down. Holmes and Theranos need to have an approved product to market in order to secure the second tranche of $10 million from a debt financing agreement struck last year. Holmes has been pushing for new investors in order to prevent the company from falling below a 3 million threshold established by Fortress Investment Group, the financiers who provided the company with up to $100 million in December. The investment group’s additional financing was contingent on approval of an approved Zika virus test – one that Holmes told investors in April the company was having a problem “with the reliability of the Zika assay chemistry itself.”