Due Diligence List That Could Have Saved Investors from Theranos Wipeout

Some (supposedly) smart people like Tim Draper, the Waltons of Walmart fortune, Rupert Murdoch, Education Secretary Betsy DeVos, believed in the Theranos story and lost over $600 million.

Theranos had reached a $9 billion valuation at its peak. Was the company worth $9 billion? Could have been if the machines really could produce test results based on a few drops of blood. But people argued that required scientific knowledge of how blood diagnostics work, so even smart people wouldn't be able to know that the Theranos they were investing was a complete fraud. Or is that really the case that nothing could have been done by the investors?

There are lots of reasons given for why investors got duped ranging from Elizabeth Holmes being extremely persuasive, to families wanting to save the world, but as it turns out there was a lack of basic due diligence that should have been done. Here's the list of must-do's compiled by Peter Cohan on Inc.com:

1. Talk to customers and partners to verify the company's claims.

2. Don't invest unless you review audited financial statements.

3. Talk to other investors with more experience to find out what due diligence they did before investing.

4. Talk to previous employers and colleagues of the CEO before investing.

5. Talk to the CEO's former professors and/or prior investors.

6. Verify the claims on the resumes of top executives.

I've heard the excuse from investors that due diligence is not being done because they don't know how to do it. Or they don't think they are important enough to ask for reference checks. Or they can't read financials. No investment is too small if the company takes your money. Don't let companies fool you into thinking they are doing you a favor. If you can't do the due diligence yourself, get someone else who can.

6 Investment Lessons From Theranos's Billion-Dollar Destruction [Inc]

The investors duped by the Theranos fraud never asked for one important thing [MarketWatch]