Theranos is out, but startups are still cashing in 💉
September 6, 2018
“This CEO is out for blood”
It was one of the early headlines that ran above the unbelievable story of Elizabeth Holmes and her startup, Theranos. She promised to revolutionize lab testing with devices that would need only a pinprick of blood. Now, her company is bleeding dry.
Holmes and ex-boyfriend Ramesh Balwani face criminal charges for allegedly deceiving and defrauding the company’s investors, and in a letter to shareholders Tuesday, CEO David Taylor announced plans to dissolve what’s left of Theranos.
At its peak, the company earned a $9 billion valuation. It now owes creditors more than $60 million and will disappear on its path to paying them. Assuming shareholders consent, Theranos could begin its dissolution as early as Monday.
This could be read as a cautionary tale:
At the time Holmes' career took off, she was a 19-year-old novice with big ideas, raising $700 million in the years that followed. Now, as her company comes crashing down, it would be hard to fault investors who hesitate before writing their next check.
But funding trends tell a different story:
In the first eight months of 2018, record amounts of VC funding have made their way to healthcare startups. Over $20 billion has been invested, according to a Pitchbook analysis, marking an almost 60% increase in funding to industry startups year-over-year. It shows, despite the deep missteps of supposed-superstar Theranos, investor trust in healthcare startups is steady.
One Medical is a standout example, the only U.S.-based healthcare company to hit unicorn status so far this year. After closing a $350 million investment from The Carlyle Group in August, the company’s valuation jumped to $1.5 billion.
Founded in 2007, One Medical provides both primary and same-day healthcare in boutique offices, using its app to offer patients 24/7 access to medical professionals. It’s raised more than $550 million to-date and opened 72 locations around the country. While some investors thought One Medical may be poised for an IPO this year, the company remains private.
Other healthcare companies cashing in
Ginkgo Bioworks designs DNA, with a speciality in cells for fragrance, food and pharma companies. Founded in 2009 by MIT scientists, Ginkgo bootstrapped its way for five years. It raised $275 million in December 2017, which brought its funding total to more than $420 million and catapulted the company to unicorn status. A promising prospect: Ginkgo partnered with biotech Synlogic at the end of last year to create microbes that could treat diseases in the human gut.
Moderna Therapeutics is working to create a new type of drug — one that teaches your own cells how to have therapeutic effects or prevent diseases. While still private, the company’s $500 million round in February boosted its valuation to $7 billion. It was founded in 2010 and is among the most valuable VC-backed biotech companies in the U.S. today.
The Clock Is Ticking To Change How You Hire ⏰
A seed round is (typically) your first meaningful infusion of investor capital, and it's going to have two results: You'll finally have money to pursue your growth plan, and your investors will start pressuring you to grow faster.
“Our immediate goal after investing in your seed round is that you get to your next round by hitting your numbers/projections in around a year so,” writes Trace Cohen, managing director at New York Venture Partners.
The reason for investors' urgency is simple: Most startups don't make it. The majority run out of financial runway long before they hit the numbers required for the next round, taking their company—and investors' capital—down with them. Here's how to hire for success.
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Tribe Capital, the venture capital firm launched by Arjun Sethi, Jonathan Hsu and Ted Maidenber, a trio of former Social Capital partners, is reportedly raising $200 million for its first flagship venture capital fund. Read more.