Nearly 90% of startups fail. As one of the riskiest alternative investment avenues, retail investors typically steer clear of startups given the risk parameters, while ultra-wealthy people and venture capital firms often choose to invest exclusively in startups.
Though nine out of 10 startups fail, making a bet on one can quickly make you a millionaire.
With $35 billion in total assets under management, Silicon Valley-based Andreessen Horowitz is the world's biggest venture capital firm. While it touts its successful investments, including Airbnb Inc., Meta Platforms Inc., formerly Facebook, and Coinbase Global Inc., Andreessen Horowitz has made some poor choices as well.
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Potential Unicorn Turned Bankrupt
Life insurance company Health IQ seemed to be a promising startup in the healthcare space after the firm was valued at $450 million in 2019. Andreessen Horowitz led the company's Series C funding worth $34.6 million in 2017. In addition, Health IQ's resilient performance led Andreessen Horowitz to invest $1.9 million in its convertible notes in February last year.
But the skies turned grey soon after, as Health IQ Co-Founders Munjal Shah and Gaurav Suri initiated layoffs. Five days after the workforce reduction, Shah and Suri received a payout of $42,000 each labeled as "vacation accrual."
In February, Shah also began receiving a $3,200 biweekly salary as a "special adviser to the CEO." This came at a time when he was involved in developing his next startup Hippocratic AI.
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Bankruptcy Declaration
On Aug. 30, Health IQ filed a Chapter 7 bankruptcy petition at the Delaware federal court. In the filing, the company revealed it had outstanding liabilities totaling $256.7 million owed to lenders, investors and vendors. Total assets documented in the filing amounted to $1.3 million.
"I am very sorry that I lost your money," Shah stated in an email to Health IQ's investors. But Shah drew out over $170,000 in salary and other compensation in the same month he wrote the email.
The bankruptcy filings reveal that Health IQ has secured debt of $67.5 million supported by collateral and unsecured claims amounting to $189.2 million. In recent months, Health IQ has been repaying a loan to Silicon Valley Bank. According to the documents, Silicon Valley Bank also obtained $4.5 million from selling intellectual property related to Health IQ's artificial intelligence-driven precision Medicare software.
DASIR LLC is the first priority creditor and is owed $6.5 million, though the value of collateral remains marked as "undetermined." The second priority lender, TriplePoint Venture Growth, is owed $50 million, but the collateral's listed value is $0. The same holds for the third priority creditors, Quote Velocity, claiming it's owed nearly $7 million, and Innovative Employee Solutions, alleging a debt of $3.7 million.
Despite TriplePoint and Quote Velocity obtaining a prejudgment writ of attachment, which allowed the court to seize some of Health IQ's assets, the collateral's value is still stated as $0.
This is likely because there won't be any assets remaining to satisfy the secured creditors once DASIR, the first priority lender, has been reimbursed, according to Rob Lemons, an expert in financial restructuring law.
Plethora Of Lawsuits
Most of Health IQ's creditors have been suing the bankrupt company, as approximately $189.2 million of the life insurance startup's debt was in the form of unsecured liabilities.
One lawsuit alleged that Shah encouraged Health IQ employees to continue seeking leads from vendors even though he was aware that Health IQ would struggle to make payments.
On June 22, Health IQ's lawyers cited the company's "inability" to fulfill discovery requests related to the case because of its "current financial condition and limited resources." In an Aug. 30 filing related to the bankruptcy, Health IQ identified 17 breach-of-contract lawsuits as pending. In addition, Health IQ is facing lawsuits alleging fraudulent practices.
Continued Support From Andreessen
The founders of the most successful startups often have several ideas that fail.
It seems like Andreessen has written off its investment in the startup but has continued to maintain its ties with Shah. For the second time, Andreessen Horowitz co-led a $50 million seed funding round for Shah's Hippocratic AI.
Julie Yoo, a general partner at Andreessen Horowitz, bet money on Hippocratic AI, stating that they were "literally hanging out in our offices when he [Shah] was first ideating his next adventure."
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