When Practice Fusion, a medical records start-up, sold to AllScripts for $100 million this month, it was a massive disappointment for employees and investors. Only two years earlier, their stock in the company was reportedly worth 15 times the purchase price.
Start-ups crash and burn all the time. It's an inherent risk and one that's understood across Silicon Valley.
But Practice Fusion stakeholders told CNBC they were misled by an executive team that was projecting a bright future as momentum was stalling. In the end, mid-level employees were left with nothing, and many who departed the San Francisco-based company and exercised their options lost tens of thousands of dollars.
Founded in 2005, Practice Fusion competes in the crowded electronic medical records market and discovered a niche by offering free software that was popular among small and solo physician practices. Practice Fusion and other electronic health records companies benefited from legislation passed in 2009 that incentivized doctors to digitize their paper records.
Instead of charging for its software, Practice Fusion generates the bulk of its revenues through advertising to doctors. It previously experimented with other revenue models like virtual video visits.