- It’s been a rocky year for Outcome Health, a Chicago-based healthcare startup that sets up screens that provide educational health footage alongside advertisements from pharmaceutical companies to doctors’ offices.
- On Friday, Outcome said its two founders, Rishi Shah and Shradha Agarwal, would move from their roles as CEO and president to become chairman and vice chair of the board, respectively.
- The move was part of a settlement after investors sued Outcome Health accusing it of committing fraud to secure the large amount of funding.
For a brief moment going into summer 2017, Outcome Health was one of the buzziest healthcare startups.
In May, the company, which places monitors in doctor’s offices that display advertisements and health information, had raised more than $US500 million and the lofty goal of being in 70% of all healthcare providers by 2020.
Then came a closer look. An investigation by The Wall Street Journal in October found the company had been misleading its advertisers, and the investors that were part of the massive funding round sued the company.
On Friday, Outcome said its two founders, Rishi Shah and Shradha Agarwal, would move from their roles as CEO and president to become chairman and vice chair of the board, respectively.
Here’s how a 31-year-old and 32-year-old founding team went from raising $US500 million at a $US5.5 billion valuation to stepping down after a investor-led lawsuit against their 10-year-old company.
A funding round 10 years in the making
What is now Outcome Health was founded back in 2006 under the name Context Media while Agarwal and Shah were undergraduates at Northwestern University. Shah dropped out of school to run the company, while Agarwal went on to graduate in 2008.
Shah’s sister has type 1 diabetes, and his father’s a doctor. That background got him thinking about all the information chronic patients might not get from their doctor during the few minutes they might be with him or her for an appointment.
“The idea at this point was simple: We want to be in every exam room in the world,” Shah told Business Insider in May. “We want to bring all the available information and intelligence in the world to help doctors and patients make the best decision every time.”
Rather than give up equity, the founders took out loans that totaled as much as $US325 million, Forbes reports.
Then in May 2017, the company raised more than $US500 million at a $US5.5 billion valuation from investors including CapitalG, Pritzker Group, Goldman Sachs, and Leerink Transformation Partners. There were more than 50 investors in the round, Outcome said at the time.
At its $US5.5 billion valuation, Shah’s net worth was estimated by Forbes as $US3.6 billion.
The company had big plans to grow. As of May, Outcome said it was in 40,000 healthcare practices and works with 20% of healthcare providers in the US. The goal was to be in 70% of providers’ offices by 2020. Shah told Business Insider in September that the company planned to move into a new headquarters and expected to add 2,000 jobs to the Chicago area by 2022.
Reality setting in
But all that growth may have come too quickly.
At its core, the company helps pharmaceutical companies advertise to patients waiting in doctor’s offices. At least one pharmaceutical company reportedly received a refund for a $US4 million campaign after not getting the returns the company was looking for.
And in October, The Wall Street Journal reported that the company misled its advertisers about how well the ads were doing. According to The Journal, between 2014 and 2016, Outcome charged for more screen installations than it actually performed. Employees reportedly also doctored screenshots that were meant to show that certain ads had run in a particular doctor’s office.
The report led to the investors, including CapitalG, Pritzker Group, Goldman Sachs, suing the company, accusing Outcome of committing fraud to secure the funding it got from the investors.
“Plaintiffs now hold securities that may be worthless,” the investors alleged in the lawsuit.
When a private eye went to serve Shah, the Outcome founder wouldn’t take the documents. Instead, the car he was in drove away with the papers the private eye had left on the roof.
After the incident, a spokesman for Shah said that the drive-off was a misunderstanding – he hadn’t realised that the person at the car door was trying to serve him.
The controversy led three medical groups – American Epilepsy Society, CancerCare, and the American Health Association – to cut ties with the company. The organisations had been running their information on Outcome’s screens for free. Outcome’s plans to move into a new headquarters were canceled in December.
Reshuffling and a settlement
The suit, filed initially in November, was settled just a few months later on January 26.
As part of the settlement, $US159 million has been recommitted to the company, with the plan to use that in part to pay down the company’s debt by $US77 million. Shah and Agarwal will no longer serve as CEO and president of the company, but the two will still be involved in the company as chairman and vice chair ot the board. The board’s now on the hunt for a new CEO, the company said in a release Friday.
“The resolution is based on our conviction in the company’s mission and path to growth that will be beneficial for all stakeholders in the healthcare community patients, physicians, and life sciences companies – by enhancing delivery of effective and informed health information, services, and treatment options,” Outcome said in the release.