How Theranos was financed and who invested

analysisTheranos's early private placements are recorded only as seven paper Regulation D notices filed between January 2005 and November 2006. Start-up funding data, reported by a start-up data publisher in 2021, describe a $500,000 seed round led by Draper Fisher Jurvetson in June 2004, a $5.8 million Series A led by Rupert Murdoch in February 2005, a $9.1 million Series B led by ATA Ventures and a $28.5 million Series C in 2006, and $45 million of venture funding in July 2010, about $1.3 billion in all, or $1.4 billion with debt. The attribution of the 2005 round to Murdoch conflicts with other accounts that place his investment much later. The amounts, dates and lead investors of the 2004–2006 rounds are not documented in the filings retrieved, although the December 2004 restated certificate created a class of 13,500,000 Series A Preferred shares convertible at $0.75. ^{1 2 3 4}

analysisThe first electronic filing, a Form D of July 8, 2010, reported an equity offering under the Rule 506 exemption of $100,000,005, of which $45,000,000 had been sold to one investor, with a first sale on July 1, 2010. ⁵

analysisThe large rounds came while the company had little income. According to testimony summarised by the Ninth Circuit, Theranos had no revenue in 2012 and 2013 and net losses of $57 million and $92 million, and in November 2013 Balwani told Holmes it was down to $15 million in cash while spending up to $2 million a week. The SEC alleged that it recorded little more than $100,000 of revenue in 2014; it reported $1,944,948 of total income to the IRS for 2015. ^{1 2}

analysisFrom late 2013 to 2015 Holmes, Balwani and Theranos raised more than $700 million in two rounds, the SEC alleged, when, the SEC said, the company had about $30 million in cash and short-term securities in late 2013; the Justice Department put the total from Series C-1 and C-2 investors at more than $730 million by March 2015. A 2018 order in the indirect-investor class action records that Theranos had earlier sold Series A, Series B and Series C Preferred stock, and that from January 2013 to October 2016 it sold C-1 and C-2 Preferred stock to more than 30 individuals and entities in amounts from about $50,000 to about $125 million. Some buyers were funds pooling other people's money, such as Peer Ventures Group IV, Lucas Venture Group XI, which paid just over $7 million for 471,333 C-1 shares, and Black Diamond Ventures XII-B; Celadon Technology Fund VII bought 410,000 shares from another investor in December 2015, described in one passage of the order as Series C Preferred and in another as Series C-1. Partner Investments, L.P., one of the investors that later sued, is a San Francisco fund whose general partner is Partner Fund Management. ^{2 3 1 4 5}

analysisThe SEC alleged that in August 2015 Holmes gave a potential investor results showing $108 million of net revenue for 2014 and projections of $240 million for 2015 and $750 million for 2016, and an investor witness testified that documents from Holmes and Balwani projected a $230 million profit by the end of 2015. These were allegations and testimony on which the fraud charges rested; Holmes and Theranos settled with the SEC without admitting or denying them, and the jury's verdicts are set out in the account of the criminal case. The investor counts of the indictment are tied to six wire transfers, from $99,990 to $99,999,984, made into Theranos's Comerica Bank account between December 30, 2013 and October 31, 2014 by investors the indictment identifies only by number. ^{1 2}

analysisIn early 2014, according to the SEC, Holmes persuaded the board and shareholders to split the stock in a 1-to-5 ratio, to allow for future fundraising, and create Class B shares carrying 100 votes each, to be issued only to her, after which she owned just over half of the shares but over 99 percent of the votes; shareholders had only a few days to vote on the resolution. Balwani owned nearly 30 million shares, more than 6 percent of the company, according to the Justice Department's account of the trial evidence. ^{1 2}

analysisHolmes gave up that control in March 2018. Under her settlement with the SEC she agreed to convert her Class B shares and to accept a reduction of her equity which, with shares returned earlier, materially reduced her stake; because of the liquidation preference she would not profit from her shares on a sale or liquidation until over $750 million had been returned to what the SEC called defrauded investors and other preferred shareholders, assuming certain warrants were redeemed. The court entered final judgment on the settlement on March 27, 2018. ^{3 4}

analysisPress accounts name the investors differently. A magazine wrote in December 2016 that Theranos had raised more than $686 million from investors including Draper Fisher Jurvetson, Walgreens and Rupert Murdoch, reaching a $9 billion valuation; a business news site, citing a private-market data provider, wrote in March 2018 that it had raised more than $900 million, including $100 million of debt in December 2017, from investors including Larry Ellison, Draper Fisher Jurvetson, Betsy DeVos, Murdoch, Walgreens and BlueCross BlueShield. The totals differ because the sources count different periods and instruments. Directors invested too: the investment of Riley Bechtel, previously undisclosed, was reported in December 2016. ^{1 2 3 4}

analysisThe restitution schedule in the criminal case identifies the investors whose losses the court found. It lists Keith Rupert Murdoch ($124,999,997), RDV Corporation ($99,999,984), Peer Ventures Group ($93,499,912), PFM Funds ($52,639,998), Walgreens ($40,000,000), Safeway ($14,500,000), Lucas Venture Group ($7,570,005), Moseley Family Holdings ($5,999,997), Black Diamond Ventures ($5,349,900), Richard Kovacevich ($4,149,990), Hall Group ($1,875,000) and Mendenhall TF Partners ($1,312,500), together with two individual investors who are not named here. The schedule's printed total, $453,047,268, is $1 million more than the sum of its rows and the amount ordered. ⁵

analysisWalgreens' exposure is reported in several ways that measure different things: a $100 million Innovation Fee paid under the services agreement and a $40 million convertible note, according to the Delaware court; $50 million invested and $140 million spent on the partnership, according to a start-up data publisher citing a national newspaper; a $140 million investment in trial reporting; and a $40 million restitution award for its loss on the note. ^{6 7 5}

analysisIn 2017, while investor suits were pending, Theranos recapitalised. The SEC records a tender offer to recapitalise investors from the later rounds, as part of which Holmes returned about 34 million of her shares; the 2018 class-certification order describes a share offer and exchange negotiated with C-1 and C-2 holders between August 2016 and August 2017, in which funds such as Black Diamond Ventures XII-B, Lucas Venture Group XI and Peer Ventures Group IV released their claims. A Form D of May 2017 reported the exchange as a $582,200,318 offering, fully sold to 34 investors. ^{1 2 3}

analysisA life-sciences news site reported in March 2017 that the offer of two additional shares for each share held, conditional on not suing, effectively cut the share value from $15–$17 to $5, and that on a February 2017 investor call the company reported no material revenue in 2015 or 2016 and about $200 million in the bank; these figures are not documented in Theranos's filings. According to an online encyclopaedia, holders of more than 99 percent of the shares took part in the May 2017 recapitalisation, releasing potential claims against Theranos in exchange for new preferred stock. A business news site, citing a national newspaper and an unnamed source, reported that Murdoch did not take part and that Theranos bought back his $125 million stake for $1; the price is not documented in any filing. Murdoch declined to comment when a business news site reported his losses in 2018, and the criminal court later listed him as a restitution payee for $124,999,997. ^{4 5 6 7 8}

analysisIn late 2017, according to the SEC, Theranos was near bankruptcy when it took a term loan from Fortress secured on its patent portfolio, which it expected to fund about a year of work on its miniLab. A 2020 law-review article puts the loan at $100 million and notes reports that only $65 million was disbursed before Theranos defaulted; a trade journal reported a $65 million loan with a covenant allowing foreclosure if cash fell below a threshold, and an online encyclopaedia says the loan was made for 4 percent of the company. The loan agreement itself is not in the record, so the amount drawn and any equity component are reported rather than documented. ^{1 2 3 4 5 6}

analysisThe 2018 wind-down plan provided for no distributions to shareholders, because the remaining cash was far from enough to pay creditors in full. In May 2023 the criminal court ordered Holmes and Balwani to pay $452,047,268 in restitution, about $397 million to twelve investors and $54.5 million to Safeway and Walgreens, crediting what Theranos had paid three investors in civil settlements but not crediting any residual value of the Theranos shares. ^{2 7 8 9}