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Comment by mikeryan | Hacker News Reader

Not that I'm surprised that the firm sued but I wonder what their end goal is and how they're planning on getting any sort of meaningful settlement from a company that's currently on fire. This seems mostly a face-saving measure.

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Theranos raised $348.5M Private Equity on March 1, 2015. There is probably still cash on the balance sheet. Maybe by filing a suit they hope that the company will be liquidated and to be at the front of the line when the proceeds get split.

Honest question: how does this not trigger a "stampede for the exit" including lawsuits for everyone else who wants to get their money back?

Probably. I'd imagine that's why Theranos will insist part of the deal is that the exact terms will never be disclosed.

Their other investors will be entitled to the balance sheets as is. They can't just say "and an undisclosed sum to [prior investor]" and redact their balance and liabilities.

To the public, yes.

Hah good point. So Theranos is literally fighting for their lives, because if one investor gets 25% of their money back, all the other investors will want the same.

Once the suit is filed it also forces the CEO to behave differently, legally in terms of financial responsibility. Away from company&employees to investors. So I've read. I'm not a lawyer.

That was about 18 months ago. I wouldn't be surprised if they were burning cash at a phenomenal rate (over $10m a month). They won't be able to do a big cash settlement without raising more money.

Two things I can think of:

1. The lawsuit is calculated to bring Theranos to insolvency sooner while they still have money in the bank

2. It's a way for an investor to convert unsecured equity into a secured debt - pushing them up the seniority queue in bankruptcy (I think specifically that damages from a successful fraud lawsuit can't be discharged)

They probably want to recoup as much of the money they invested as possible. They invested almost 100M, I'm sure not all of it's gone. If they can force the company to shut down now (as opposed to trying to pivot) they might get 20 - 30 cents on the dollar, as opposed to zero.

I was wondering about that too. I suspect court judgements come before investors in the bankruptcy line.

I think they started off with a vision and assuredness that they would succeed, but they never stopped to consider the possibility they might not. At some point maybe they did, but Theranos and Holmes has decided it doesn't matter. Press ahead. Success is inevitable.

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