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Lab license: $150,000, then $27 million
The collapsed Series B
The startup was Shield, which was building tests to detect sepsis and had spent a painstaking two years getting that license. It signed a term sheet for a Series B with a large public diagnostics company and spent three weeks on paperwork. Then that company's CEO killed the deal because Shield's tests competed with the company's own core products. The investors had already been told the lead was secured, and Shield had about three weeks of cash left.
The license sale
As part of the wind-down, Shield's founder, Fred Turner, sold the lab license to a company in San Diego for $150,000 to pay some of the creditors. Covid arrived soon after. His new company, Curative, had a Covid test ready but no lab to run it in, and the people he knew with licensed facilities didn't want anything Covid related on site.
The buyout
He ended up in a joint venture with a licensed lab group in LA County. The partner turned out to lack the expertise to scale up and was getting in the way, so he bought the company out for $27 million. The money came from forward revenue from customers, because Curative's first testing contracts were already signed.
Why does a US lab need a license?
Clinical labs that test human samples fall under the Clinical Laboratory Improvement Amendments of 1988, which Congress passed after reports of inaccurate results at high-volume labs. The law is administered by the Centers for Medicare and Medicaid Services together with the FDA and the CDC. A lab must hold a certificate matched to the complexity of the tests it runs, and high-complexity testing carries the strictest staffing and quality requirements. Without a certificate, a lab cannot legally report patient results.
Why sell assets during a startup wind-down?
When a startup winds down, its remaining assets are usually sold to raise cash for what it owes. Creditors are generally paid in a legal order of priority, with secured lenders ahead of unsecured ones and equity holders last. A license that took years to obtain can have value to a buyer who wants to skip that wait. Sale proceeds from such assets typically go first to the creditors with the strongest claims.
How do signed contracts fund an acquisition?
Signed customer contracts give a company predictable future revenue, which lenders and investors treat as a form of collateral. A company can borrow against that expected income or accept prepayment from customers. This approach is common in subscription and services businesses where revenue is contractually committed. Lenders often call this kind of financing recurring-revenue lending.
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