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They just raised $100M from Fortress Capital backed by their patent portfolio. If I had to guess this money is probably coming from a subset of their existing s

They just raised $100M from Fortress Capital backed by their patent portfolio. If I had to guess this money is probably coming from a subset of their existing stuck investors banding together in a magical thinking exercise to win back. A good lesson in human frailties. It's hard to watch something you had that you thought was worth billions go to zero. They might as well have funded a whole new company.

bllguo 9y ago
unbelievable. After seeing this, can anyone doubt that luck is a major factor in success? These investors won't even take the time to do the most basic due diligence. They have no business managing millions of dollars.
- grizzles 9y ago
  Venture capital tends to be a badly performing asset class. Here a VC's motivation is easy to discern, it's a way to kick the can down the road. You take a liability (your shitty investment) and Fortress magically transforms it into something that looks vaguely asset-like (a portfolio of shitty investments). The only question is if the top up you pay will be worth it to the LPs. To the VC it is, because it saves embarrassment. Due to this moral hazard, there is a maybe an argument to be made here that distressed asset industry kind of breaks capitalism.
  - bllguo 9y ago
    I appreciate the insight. There is more nuance here than my comment would suggest. What I said probably applies more to the initial investors, before Theranos was fully exposed as fraudulent.
sseveran 9y ago
That could be true, but I suspect not. Fortress does have a reasonable sized distressed business which include both debt and credit. Also the loan Fortress gave them was contingent on certain milestones being met, so its not like they just wired the $100M. It's a good bet that the milestones are not being met. It's also unlikely that Fortress's distressed business is likely to fund a growing startup. They are specifically looking for assets that look bad but they can find value in.

bllguo 9y ago

unbelievable. After seeing this, can anyone doubt that luck is a major factor in success? These investors won't even take the time to do the most basic due diligence. They have no business managing millions of dollars.

grizzles 9y ago
Venture capital tends to be a badly performing asset class. Here a VC's motivation is easy to discern, it's a way to kick the can down the road. You take a liability (your shitty investment) and Fortress magically transforms it into something that looks vaguely asset-like (a portfolio of shitty investments). The only question is if the top up you pay will be worth it to the LPs. To the VC it is, because it saves embarrassment. Due to this moral hazard, there is a maybe an argument to be made here that distressed asset industry kind of breaks capitalism.
- bllguo 9y ago
  I appreciate the insight. There is more nuance here than my comment would suggest. What I said probably applies more to the initial investors, before Theranos was fully exposed as fraudulent.

sseveran 9y ago

That could be true, but I suspect not. Fortress does have a reasonable sized distressed business which include both debt and credit. Also the loan Fortress gave them was contingent on certain milestones being met, so its not like they just wired the $100M. It's a good bet that the milestones are not being met. It's also unlikely that Fortress's distressed business is likely to fund a growing startup. They are specifically looking for assets that look bad but they can find value in.