Ex-CEO of Outcome Health, once valued at $5.5 billion, found guilty of fraud

Rishi Shah in 2015. Photo: Zbigniew Bzdak/Chicago Tribune/Tribune News Service via Getty Images.

Theranos founder Elizabeth Holmes made headlines earlier this week after a judge ruled she should start serving her prison sentence soon, but Holmes wasn’t the only ex-CEO of Theranos. a health tech unicorn to leave the court unhappy.

Driving the news: Rishi Shah, who founded Outcome Health and led it to a $5.5 billion valuation, was on Tuesday guilty mail fraud, electronic fraud, bank fraud and money laundering.

  • Former Outcome Health President Shradha Agarwal and former CFO and COO Brad Purdy were also convicted by the federal jury.
  • Each defendant could face decades in prison, with sentencing coming later.

Pass: Outcome Health launched in 2007, eventually becoming Chicago’s most valuable tech startup since Groupon. His business was installing ad-supported patient information and consent touchscreens in doctors’ offices and waiting rooms, raising funds from companies including Goldman Sachs, Alphabet’s CapitalG, Valor Equity Partners and Pritzker Group VC.

  • Things started falling apart at the end of 2017 when the The WSJ reported that Outcome had “cheated pharmaceutical companies by charging them for ad placements on more video screens than the startup had installed”.
  • A month later, a group of Outcome investors sued for fraud. Shah has denied any wrongdoing, but has agreed to step down and return most of a huge secondary he negotiated as part of the company’s last funding round.
  • In November 2019 came the criminal charges. In addition to lying about the number of devices installed, the feds provided evidence that patient engagement metrics were also inflated, all in an effort to fool advertisers and secure new investment.
  • The complaint also revealed that a new C-suite hire at Outcome raised internal alarm bells just weeks after joining. It only lasted three weeks.

  • It should also be noted that Shah was a very active angel investor who at one point co-founded a company with fellow Outcome convict Shradha Agarwal.

Table of ceilings: Private equity firm Littlejohn & Co. bought Outcome Health in 2019, then sold it two years later to a holding company made up of L Catterton, Searchlight Capital Partners and Silver Point Capital.

The bottom line: Rishi Shah was never a national commercial celebrity like Elizabeth Holmes, and his fraud did not endanger the health of patients. But Outcome raised almost exactly the same amount of equity and debt funding as Theranos, and did so from more sophisticated investors.

  • This puts Shah in the small (but growing) pantheon of scammers whose chosen brands were big-name venture capital funds.

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