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> they failed to do due diligence before investing Do we know the scope of the DD that was done?

jacquesm 10y ago
I haven't seen any proof that DD was done at all - to date, this may change - but if the scope didn't at least include a review of the core technology then it was too narrow.
- ceterum_censeo 10y ago
  It doesn't strike me as charitable to take your strong stance that the investors were incompetent based on speculation with the benefit of hindsight. I agree that they would be negligent if they did not run DD with a scope that included a review of the Theranos platform technology and implemented devices, but it is entirely possible to do proper DD and be fooled by a skilled charlatan.
  - jacquesm 10y ago
    > It doesn't strike me as charitable to take your strong stance that the investors were incompetent based on speculation with the benefit of hindsight. Then please provide some proof that proper DD was done. I haven't seen any, and funny enough, Theranos did not defend itself at all by saying the investors did their own proper DD, which would be the easiest way out for them. > it is entirely possible to do proper DD and be fooled by a skilled charlatan. Sorry, I do not subscribe to that. You don't get to cheat on physics, biology, math. This is not some kind of magical device, it is an ordinary, real world device with very specific inputs and very specific outputs. In fact, such devices already existed which gives you a control. The disruption came along one parameter only, the amount of blood required to do the test. It is trivial to come up with a foolproof test to see whether or not Theranos has a working device. If they did not at the time have a device then you are investing in a company that your DD partner will tell you may very well fail because a device as specified may fail to materialize. If they had a process but no device then that too could have been tested. Yes, it is hindsight because it is after the fact, but this is how the job is normally done and that wouldn't change before or after. It's just that we happen to live after the fact that doesn't make everything automatically hindsight. Just like naming your variables properly in a piece of software can't be called hindsight if you find a project failed because of not naming variables properly. It is simply not good practice, irrespective of the timing.
    - ceterum_censeo 10y ago
      > Then please provide some proof that proper DD was done. If you are stating that "they [investors] failed to do due diligence", then the onus is on you to provide proof that the proper DD was done if you don't want your argument referred to as speculation. I am not drawing a conclusion one way or the other. > The disruption came along one parameter only, the amount of blood required to do the test. That wasn't the only disruption and I'm not sure that was the primary one: I would argue the primary disruption was regulatory (using/abusing the LDT framework and consumer-initiated testing). > It is trivial to come up with a foolproof test to see whether or not Theranos has a working device. I would never use the words trivial and foolproof for anything in medicine or laboratory testing: there is nothing simple about running a comparison between labs, especially for biological samples. Run an identical sample at Quest and Labcorp and the values will differ, perhaps in a statistically-significant way. I agree in that I would expect that proper due diligence should have recommended against an investment in Theranos. Not participating in the scientific community is a giant red flag. I completely disagree that technical DD on the technology platform would necessarily reveal the flaws in Theranos.
      - jacquesm 10y ago
        So far not a single investor has claimed that their DD team did not have access, that their DD team was competent to do the job in the first place and that the technology as evaluated was sound. You'll note that this whole lawsuit is about claims by the company, not about what they actually had or what the DD team encountered in the lab. > That wasn't the only disruption and I'm not sure that was the primary one: I would argue the primary disruption was regulatory (using/abusing the LDT framework and consumer-initiated testing). The technology enabled that. Without the tech that failed to materialize and is not the core of the innovation that Theranos represents. > I would never use the words trivial and foolproof for anything in medicine or laboratory testing: there is nothing simple about running a comparison between labs, especially for biological samples. Run an identical sample at Quest and Labcorp and the values will differ, perhaps in a statistically-significant way. Yes, but if you run enough samples then you should converge at something amounting to statistical equivalence. If that doesn't happen then either one of the tests is invalid. > I agree in that I would expect that proper due diligence should have recommended against an investment in Theranos. ok. That's probably the most important point anyway. > Not participating in the scientific community is a giant red flag. As are secrecy, refusing access to labs, not providing full details on the technology under NDA, refusing to run a sufficient number of blind tests at the request of the DD team. Keep in mind that we're talking about a 100M investment, there isn't a whole lot that you won't be able to do when doing DD for a deal that size. > I completely disagree that technical DD on the technology platform would necessarily reveal the flaws in Theranos. If that were true that would mean they had working technology, which they did not have at all. Even for some of the most basic testing they had to fall back on equipment supplied by others and this would have definitely turned up in a real DD, barring magic I don't see how they could have gotten away with it in any realistic setting.
  - deleted 10y ago
    [deleted]

I haven't seen any proof that DD was done at all - to date, this may change - but if the scope didn't at least include a review of the core technology then it was too narrow.

ceterum_censeo 10y ago
It doesn't strike me as charitable to take your strong stance that the investors were incompetent based on speculation with the benefit of hindsight. I agree that they would be negligent if they did not run DD with a scope that included a review of the Theranos platform technology and implemented devices, but it is entirely possible to do proper DD and be fooled by a skilled charlatan.
- jacquesm 10y ago
  > It doesn't strike me as charitable to take your strong stance that the investors were incompetent based on speculation with the benefit of hindsight. Then please provide some proof that proper DD was done. I haven't seen any, and funny enough, Theranos did not defend itself at all by saying the investors did their own proper DD, which would be the easiest way out for them. > it is entirely possible to do proper DD and be fooled by a skilled charlatan. Sorry, I do not subscribe to that. You don't get to cheat on physics, biology, math. This is not some kind of magical device, it is an ordinary, real world device with very specific inputs and very specific outputs. In fact, such devices already existed which gives you a control. The disruption came along one parameter only, the amount of blood required to do the test. It is trivial to come up with a foolproof test to see whether or not Theranos has a working device. If they did not at the time have a device then you are investing in a company that your DD partner will tell you may very well fail because a device as specified may fail to materialize. If they had a process but no device then that too could have been tested. Yes, it is hindsight because it is after the fact, but this is how the job is normally done and that wouldn't change before or after. It's just that we happen to live after the fact that doesn't make everything automatically hindsight. Just like naming your variables properly in a piece of software can't be called hindsight if you find a project failed because of not naming variables properly. It is simply not good practice, irrespective of the timing.
  - ceterum_censeo 10y ago
    > Then please provide some proof that proper DD was done. If you are stating that "they [investors] failed to do due diligence", then the onus is on you to provide proof that the proper DD was done if you don't want your argument referred to as speculation. I am not drawing a conclusion one way or the other. > The disruption came along one parameter only, the amount of blood required to do the test. That wasn't the only disruption and I'm not sure that was the primary one: I would argue the primary disruption was regulatory (using/abusing the LDT framework and consumer-initiated testing). > It is trivial to come up with a foolproof test to see whether or not Theranos has a working device. I would never use the words trivial and foolproof for anything in medicine or laboratory testing: there is nothing simple about running a comparison between labs, especially for biological samples. Run an identical sample at Quest and Labcorp and the values will differ, perhaps in a statistically-significant way. I agree in that I would expect that proper due diligence should have recommended against an investment in Theranos. Not participating in the scientific community is a giant red flag. I completely disagree that technical DD on the technology platform would necessarily reveal the flaws in Theranos.
    - jacquesm 10y ago
      So far not a single investor has claimed that their DD team did not have access, that their DD team was competent to do the job in the first place and that the technology as evaluated was sound. You'll note that this whole lawsuit is about claims by the company, not about what they actually had or what the DD team encountered in the lab. > That wasn't the only disruption and I'm not sure that was the primary one: I would argue the primary disruption was regulatory (using/abusing the LDT framework and consumer-initiated testing). The technology enabled that. Without the tech that failed to materialize and is not the core of the innovation that Theranos represents. > I would never use the words trivial and foolproof for anything in medicine or laboratory testing: there is nothing simple about running a comparison between labs, especially for biological samples. Run an identical sample at Quest and Labcorp and the values will differ, perhaps in a statistically-significant way. Yes, but if you run enough samples then you should converge at something amounting to statistical equivalence. If that doesn't happen then either one of the tests is invalid. > I agree in that I would expect that proper due diligence should have recommended against an investment in Theranos. ok. That's probably the most important point anyway. > Not participating in the scientific community is a giant red flag. As are secrecy, refusing access to labs, not providing full details on the technology under NDA, refusing to run a sufficient number of blind tests at the request of the DD team. Keep in mind that we're talking about a 100M investment, there isn't a whole lot that you won't be able to do when doing DD for a deal that size. > I completely disagree that technical DD on the technology platform would necessarily reveal the flaws in Theranos. If that were true that would mean they had working technology, which they did not have at all. Even for some of the most basic testing they had to fall back on equipment supplied by others and this would have definitely turned up in a real DD, barring magic I don't see how they could have gotten away with it in any realistic setting.
- deleted 10y ago
  [deleted]