Some employees at Outcome Health, which provides advertising for pharmaceutical companies in screens within doctors' offices, allegedly misled advertisers by charging them for ad placements on more video screens than the company had installed, according to a report by The Wall Street Journal.
The startup installs screens in doctors' offices free of charge and then runs advertisements like those for pharmaceutical companies, charging for the ad placement. According to the report, the company seems to have inflated the number of screens that ads ran on to advertisers, allowing it to generate additional revenue. If so, this would be a huge misstep in terms of internal governance for the company, especially as advertisers (like pharmaceutical companies) look for new channels to promote their products.
The Chicago-based startup said it raised $500 million at a $5 billion pre-money valuation from Goldman Sachs and Alphabet's investment arm CapitalG in May this year. The company started in 2006 but had not taken additional capital prior to this financing round. The screens in doctors' offices also run content beyond advertising. Benchmark Capital partner Bill Gurley poured heavy praise on the company and its CEO, Rishi Shah, around the time of the financing round.
— Bill Gurley (@bgurley) May 31, 2017
Outcome Health certainly isn't the only startup in the past few years we've heard have major problems internally. Zenefits skirted regulatory boundaries, eventually leading to the ouster of former CEO and founder Parker Conrad and investors cutting the valuation of the company in half. There was also the massive Theranos fiasco that another Wall Street Journal report exposed, which led to heaps of lawsuits hitting the company. The Journal story on Outcome Health says it "found nothing to demonstrate top executives’ involvement in the alleged misleading of advertisers."
We've reached out to Outcome Health through multiple channels for additional comment and will update the story when we hear back.