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A brief history of bankruptcy among tech pioneers

Anthony Levandowski has joined an exclusive group of tech executives who've sought bankruptcy protection.

Anthony Levandowski

Former Uber engineer Anthony Levandowski is the latest tech exec to land in deep personal debt.

Photo: Justin Sullivan/Getty Images

Technology has created many, many personal fortunes. It has also landed a small group of entrepreneurs and technologists deep in personal debt.

Anthony Levandowski, Uber's former head of self-driving technology, filed for bankruptcy protection on Wednesday after a court ordered him to pay $179 million to Google. Levandowski, who was previously an engineer at Google's Waymo, had been accused of breaching his contract, stealing more than 14,000 documents, and unfairly poaching colleagues when he started Otto, which was ultimately acquired by Uber. Levandowski also faces criminal charges.

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An Uber filing with the U.S. Securities and Exchange Commission this week states that Levandowski's contract indemnifies him, but says "whether Uber is ultimately responsible for such indemnification is subject to a dispute between the company and Levandowski." That's likely why Levandowski filed for Chapter 11 bankruptcy, which will allow him to negotiate his debts. Levandowski's bankruptcy petition reports between $50 million and $100 million in assets, but between $100 million and $500 million in liabilities.

In filing for bankruptcy, Levandowski joins an exclusive group of tech executives who have given their accountants sleepless nights. Though most startup failures don't end in personal bankruptcy — liability typically tends to remain with a company, rather than an individual — there are some notable examples of entrepreneurs seeing it all go wrong. Here are some of the biggest.

Jia Yueting, founder of LeEco and Faraday Future

Chinese entrepreneur Jia Yueting found success with LeEco, the Chinese tech group that makes everything from phones to streaming services. But when LeEco failed to pay its debts in 2017, a Shanghai court froze Jia's accounts. Shortly thereafter, Jia left for the U.S. to work on Faraday Future, his electric car company.

Faraday never got further than a concept car and struggled financially. Jia spent $900 million of his own money on the company and raised $2 billion from Evergrande. But after the money ran out, Jia stepped down as CEO. He was on the hook for $3.6 billion in debt and filed for bankruptcy.

His troubles didn't end there. In October 2019, the U.S. Department of Justice accused him of "engaging in dishonest behavior" during Faraday's bankruptcy proceedings, and last month the company's former general counsel sued him. Last week, though, Jia reportedly filed an agreement with his creditors, which may finally bring the bankruptcy procedure to an end.

Carl Lundström, The Pirate Bay backer

Swedish businessman Carl Lundström was born rich, the heir to the Wasabröd crisp bread fortune. After the company was sold to Sandoz, Lundström founded Rix Telecom, which provided services and equipment to The Pirate Bay, a Swedish peer-to-peer content-sharing site. In 2009, Lundström was convicted of copyright violations for funding the site and was sentenced to four months in prison, which he ended up serving under house arrest. Lundström and his three partners were collectively fined 46 million kronor, or around $7 million. Lundström paid just 233,000 kronor of those damages, and he likely will never pay the remainder; in 2012 he filed for personal bankruptcy.

Paul Moller, founder of Moller International

Engineer Paul Moller spent decades working on flying cars, most notably the Moller Skycar M400. A former professor at UC Davis, Moller claimed to have spent over $100 million producing the car and was once sued for fraud by the SEC (he settled for $50,000). Ultimately, his dreams never amounted to much, and in 2009 Moller declared bankruptcy. In 2017, the M400 was put up for auction on eBay, though it appears no one bought it. To add injury to insult, in 2019 two Skycar prototypes were destroyed in a fire.

Amir Golestan, founder of Micfo

Infrastructure-as-as-service company Micfo was thrust into the spotlight last year when the federal government brought wire-fraud charges against the company and its founder, Amir Golestan. The Justice Department's case, which is ongoing, alleges that Golestan created shell companies to trick the American Registry for Internet Numbers into assigning him 800,000 IP addresses. Golestan then sold those addresses, which are increasingly scarce, for up to $14 million, according to prosecutors.

When the charges were announced, Micfo's revenue dried up, and with personal debts also mounting, Golestan filed for bankruptcy in October 2019. In his filing Golestan stated he owed between $10 million and $50 million to more than 50 debtors including JP Morgan, South State Bank and the IRS.

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John Rogers, Founder of Pay By Touch

In many ways, John Rogers was a visionary, predicting a future where we'd all pay for things using biometric data such as fingerprints. Founded in 2002, his company Pay By Touch raised $340 million from investors. But after reportedly spending $8 million a month, the company — and Rogers — ended up bankrupt.
Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media China.com.

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.

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