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Sometimes an investment is too good to be real.
Take, for example, the startup of the Elizabeth Holmes healthcare company. He was the founder and former CEO of Theranos on Monday found guilty four charges in her trial for the crime of fraud.
Nearly a decade ago, Holmes raised $ 945 million from prominent investors, including media mogul Rupert Murdoch, former Education Minister Betsy DeVos, and the Walton family. Walmart glory.
Attract investors, witnesses testifies that Holmes’ claims about the company’s blood testing technology were exaggerated or incorrect. In the end, jurors convicted Holmes of wire fraud and conspiracy to defraud. She faces up to 20 years in prison.
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“The Theranos story is an important lesson for Silicon Valley,” said Jina Choi, director of the SEC Regional Office in San Francisco, when the indictment was filed.
“Innovators who want to revolutionize and disrupt the industry need to tell investors the truth about what their technology can do today, not just what they hope to do one day.”
Because Theranos never went public, it was not under the same control of the government and the public as other more established companies. This gave investors a chance to get involved while it was on the rise, while at the same time imposing a burden on them to largely independently check the momentum for blood testing.
The founder of Theranos and former CEO Elizabeth Holmes arrives at the Robert F. Peckham Federal Building in San Jose, California on December 16, 2021.
Justin Sullivan Getty Images
Theranos is not the only bad apple; this is just the latest example of one.
Other black eyes for the industry included uBiome, which was The FBI is investigating him for fraudulent billing, and Outcome Health, a healthcare advertising company that provided misleading information drug manufacturers about where their ads appeared and how successful they were.
Of course, fraud goes far beyond healthcare.
Corporate abuses come in waves, he said Len Sherman, Professor of Business at Columbia Business School. From Enron and WorldCom to Bernie Madoff and now Theranos, “we are in a second period in which conditions are favorable to encourage fraud.”
How to detect a problem
“It’s important not to assume that every company is like Theranos; we just need to ask the right questions,” said Ruby Gadelrab, founder and CEO of MDisrupt, a healthcare company for the healthcare technology industry that wants to prevent similar mistakes in the future. .
“Healthcare as a whole is complex,” Gadelrab said. “This is probably the hardest area to invest in.”
To help investors verify healthcare companies, Gadelrab suggests that you first determine if a product is clinically and commercially viable.
“Investors perform technical and financial care with the help of professionals, in healthcare we need to take care of health care with the help of health professionals.”
Spend as much time looking at what’s in your portfolio as you would book your next vacation.
Winnie the Sun.
CEO of Sun Group Wealth Partners
Then determine if there is evidence to support the scientific claims of the founders.
The technology needs to be validated, Gadelrab said. “Show me the data.” For example, “does it actually detect a disease or biomarker when it is present and not detect it when it is not?”
“Not all data is the same,” she added. Good data is conducted externally with scientists and research laboratories, excellent data are published in professional journals, and excellent data are published and replicated.
Finally, look at the team structure. “Do they have clinical professionals in senior positions? In their administrations, as their investors, in their C-suite?”
“Make sure health professionals have a seat at the table and a voice in the process,” Gadelrab said.
The mystery surrounding Theranos technology, and the intense attention given to its CEO, was, according to Sherman, part of the mystique and also the big red flag. “I hope the next time something like this happens, someone will say ‘wait a second.’
A lesson learned
Any investment, whether traded on the stock exchange or otherwise, must be done diligently, advised Winnie Sun, CEO of Sun Group Wealth Partners in Irvine, California.
To get started, google the business and read consumer reviews, she said. Also, check out Twitter how customers respond. “It’s going to affect whether you want to own this business,” Sun said.
If you work with a broker or financial advisor, you have an extra layer of protection – as long as that person meets the minimum level of credentials and experience to work in the industry. (Verify that financial advisors are licensed or registered with the company through the SEC Public disclosure of an investment adviser website or that the intermediary is listed on the source of the Financial Industry Regulatory Authority, BrokerCheck.)
“If you’re doing it yourself, you need to do a little more diligence, especially if it’s an investment idea you’ve heard about from a friend or on the internet,” Sun added. “Spend as much time looking at what’s in your portfolio as you would book your next vacation.”
Otherwise, invest in an exchange-traded fund or a mutual fund instead of choosing individual shares.
Most experts say that diversification with these asset classes is the best way to manage risk and improve long-term performance.
“As investors, we are returning to the basic philosophy of diversification,” Sun said.
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