Chicago unicorn Outcome Health saw its star quickly fall in November when prominent investors, including Goldman Sachs and CapitalG, sued the company for allegedly providing them with false information. Today, those investors announced they’ve come to an agreement with Outcome Health, first reported by Crain’s Chicago Business.
The investors have called off the lawsuit and, as part of the deal, cofounders Rishi Shah and Shradha Agarwal will remove themselves from day-to-day management of the company.
According to a statement attributed to the investor group that was provided to VentureBeat by an Outcome Health spokesperson: “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 health care community — patients, physicians, and life sciences companies — by enhancing delivery of effective and informed health information, services, and treatment options.”
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Outcome Health — which installs tablets and other electronic devices in doctors’ offices for medical companies to run advertisements on — ran into trouble just five months after raising its highly publicized $500 million round in May.
That round valued the company at more than $5 billion, making it the most valuable startup in the state of Illinois. But even more noteworthy was who invested in the round — Goldman Sachs and CapitalG, coastal investors that don’t frequently back Midwest startups.
Outcome Health was quickly heralded as the poster child for the Chicago startup community, with Mayor Rahm Emanuel calling the startup “a testament to Chicago and the culture of this city,” during a September hiring announcement. But an October investigation by Wall Street Journal reporter Rolfe Winkler alleged that some Outcome Health staffers “provided inflated data to measure how well ads performed, created documents that inaccurately verified that ads ran on certain doctors’ screens, and manipulated third-party analyses showing the effectiveness of the ads, according to some of these people and documents.”
Shah and Agarwal denied knowing of any wrongdoing, but a group of investors led by Goldman Sachs and CapitalG filed a lawsuit against the company in November alleging that the pair “either knew of, or recklessly disregarded” the falsified data. The investors further alleged that after the Wall Street Journal published its investigation, Shah and Agarwal took steps to move $225 million that had been earmarked for them as part of the investment.
In addition to the announcement that the lawsuit had been dropped, Outcome Health announced that Shah and Agarwal will step down from their roles as CEO and president, respectively, and instead serve as chair and vice chair of the company’s board. Twitter’s former VP of engineering, Nandini Ramani, who joined the company in August, will lead Outcome Health’s day-to-day operations while the company searches for a new CEO.
As part of the deal struck between the investors and the company, Outcome Health’s board will also add three new independent directors and two investor representatives, who will help lead the search for the new CEO. Previously, the board had just consisted of Shah, Agarwal, and a representative from Goldman Sachs.
The company also announced that “as a result of the settlement, the equity investors, lenders, and company’s founders are recommitting $159 million to Outcome Health, which will be used to reduce the company’s debt by $77 million,” though it’s unclear how much of the $159 million is coming from each party.
Crain’s notes that while the end of the lawsuit is good news for Outcome Health, the company still has to win back skeptical customers. The American Medical Association, American Epilepsy Society, and CancerCare all ended agreements with the company in the wake of the Wall Street Journal investigation.
Another question mark that remains is whether the news will help reignite Outcome Health’s once-ambitious hiring plans. In September, the company pledged to add 2,000 jobs in Chicago by 2022 and said it planned to move into a new office tower. But by December, the new office move had been called off, and approximately 200 of Outcome Health’s 535 employees had accepted a voluntary buyout offer.
Referring to the resolution of Outcome Health’s legal dispute, Shah said in a statement to Crain’s: “This is an important milestone event that will instill confidence in the company among our valued employees, customers, partners, and key stakeholders.”