Lawsuit Spotlights Venture-Capital Hazard

One of the biggest investors in Theranos, the embattled blood-testing startup, has filed a lawsuit claiming that executives misled it through “lies, material misstatements, and omissions.” Theranos of course faces a hazy future in the face of criminal investigations. Its one-time valuation of $9 billion has collapsed to next-to-nothing; it closed its clinical labs earlier this month. Yet we are puzzled that a major institutional investor would apparently slough off exacting due diligence in advance of a $96 million allocation. The lawsuit may backfire by spotlighting a venture-capital hazard. In the age of the unicorn, investors can act too hastily. Emotion eclipses reason in pursuit of the next best thing. Judicial authorities are unlikely to side with a firm that made a poorly-formed, if not impetuous, investment decision.

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