Olivedämmerung

How to Fail in Business

Q. What did Olive AI have in common with the War in Afghanistan?

A. The exits really sucked.

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The Bubble

When Bubba Fox left Olive AI in February 2020, the company had “over 250 employees” and “partnerships with more than 50 of America’s most respected health systems.” Bubba said the company had an ARR of about $30 million, up from $5 million two years ago.

At this point, Sean Lane decided that Olive no longer needed a COO. That seems unwise. When prompted to describe Lane’s management style, people say things like “he’s a visionary” or “he understands the big picture.” They are less flattering about his abilities for hands-on management.

Managing Olive operations would soon be more complex than ever. In the next 18 months, Olive acquired Verata Health, Empiric Health, and Healthcare IP. Meanwhile, the company spun out Circulo Health, a Medicaid insurer, and incubated five new businesses under the Olive Ventures umbrella. 

Olive’s overall headcount grew from around 250 to 1,000 by August 2021.

Growth by acquisition is challenging for the best managers. Integrating technical stacks diverts software engineering talent. Due diligence rarely surfaces technical debt in acquired software; invariably, new issues emerge when integration work begins. Merging business models and culture is equally demanding.

How did Olive handle post-merger integration? Not well, according to former employees. In the trenches, the existing business, acquired businesses, and new ventures operated in silos. Most people continued doing the same work as if nothing had changed. Lane constantly rearranged the furniture. One employee says she served under five managers in fifteen months. 

Former employees say that Olive lacked an organizing vision. Company meetings featured pompous platitudes from executives and cringe “pep” songs about Ohio. Since most employees lived elsewhere at this point, the songs seemed dumb.

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The venture capital wave peaked in the third quarter of 2021. Olive rode the wave and landed $400 million in a Series H led by Vista Equity Partners. Tiger Global and Base10 Partners participated. So did Employee Stock Option Fund, an investment firm that helps employees exercise stock options. 

When Olive announced the new funding, it claimed a valuation of $4 billion. Let’s put that valuation into perspective. C3.ai IPOd on December 9, 2020, and it was a bellwether stock for AI investors. On July 13, 2021, the day of Olive’s Series H, C3.ai closed at $55.12 on the New York Stock Exchange; at that price, the company’s market capitalization was about $6 billion. That was about 30 times its revenue of $200 million.

Wall Street values topline growth more than it values profitability. C3 claimed annual revenue growth of 25% at the time, which explains its high valuation. Olive had previously claimed triple-digit revenue growth. The $4 billion valuation “baked in” investor expectations that Olive’s revenue growth would continue to grow.

Millions of investors trade the stocks of public companies like C3 every day. They rely on rich and detailed information released by each company under rules set by the SEC. Public company managements face steep fines and litigation if they release false and misleading information.

In contrast, two investors – Vista Equity Partners and Base10 Partners – decided Olive was worth $4.1 billion. Neither firm had previously invested in Olive. Firms that previously invested in Olive declined to participate in the round at that valuation. 

Sean Lane found fresh suckers.  

The Crisis

Fooling investors during a bubble is easy. Venture capitalists run in packs, suffer from FOMO, and are easily rolled by the current hot thing. Get one “quality” VC on board; others follow like sheep to the slaughter.

Fooling customers is harder to do.

Olive ran into a growth wall in early 2022. Insiders say Olive's revenue peaked in the first quarter. That is consistent with the company’s hiring freeze “to conserve capital” in May 2022. (Olive initially denied a hiring freeze, but insiders shared a company-wide email announcing the freeze on May 23.)

Olive’s leaders knew the company was in trouble. Axios reported the recent departure of an EVP, an SVP, three VPs, a director, a senior director, and seventeen other employees at various levels. Senior executives are canaries in a coal mine; when the company is in trouble, they “vote with their feet.”

What happened to Olive’s revenue growth?

Some analysts blame an overall slowdown in the healthcare industry. However,  IT spending by the healthcare industry increased in 2022. Hospital leadership understood the need for investment in technologies that improved revenue or lowered costs.

Hospital leaders were buying tech. They just weren’t buying Olive.

Why not?

Axios’ Erin Brodwin reported that Olive had inflated its capabilities, generated only a fraction of promised savings, and mishandled sensitive patient data:

"There are hospitals that won't touch [Olive] because they know people who've been burned," one former employee told Axios.

Negative word-of-mouth doesn’t surface immediately. Stories take time to pass through influence networks before journalists pick them up. They surface when you consistently fail to meet your promises. 

Imagine the pressure on Olive’s sellers. Company leadership committed to aggressive goals for sales growth; it’s not hard to believe sellers exaggerated Olive’s value. That behavior is widespread in tech. It “works” in the short run: customers need time to discover the seller fed them bullshit.

One customer, a major health system, signed a contract worth millions of dollars. Two years later, Olive was still struggling to get work into production. Employees directly engaged with delivery say that leadership consistently underestimated the complexity of customer systems and overestimated Olive’s capabilities.

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A startup that misses revenue growth targets is not a happy place. Bad things can happen. Sometimes, the Board fires the leadership team and hires new people. It doesn’t happen very often, but it happens. More often, the company cannot raise more money from investors.

By June 2022, venture capitalists closed their purses to all but the highest-quality startups. Olive need not apply. After closing the Series H in June 2021, Olive went on a hiring spree; they even bragged about it. The forecast looked ugly now that the company had to survive on its cash flow. 

So, Olive did what every startup does in this situation: they fired a third of the workforce.

Sean Lane spun the cuts as a “strategic shift” so that the company could "achieve profitability sooner than we originally planned." That was spin. It wasn’t a strategic shift. It was a panic move by a leader who suddenly discovered that his ass was on fire.

For Sean, it was the latest pivot.

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Dismantling the Company

Selling off Olive in parts was relatively easy because the acquired parts were never well integrated in the first place.

Top executives Jeremy Friese, Jeremiah Rothschild, and Michael Burnett exited the company in September 2022. Friese was President of the Payer business; Rothschild was SVP of Payer Product Strategy. Olive did not explain the departures. I suspect they left because Olive had already decided to sell off the Payer business.

Olive’s leadership may have decided to sell off everything.

In early October 2022, Axios reported Olive’s plans to sell its tools for population health management and the 340B program to Rotera, a venture incubated by Olive under the Olive Ventures umbrella. Journalists published conflicting reports about how the deal affected Olive's revenue. According to Axios, the deal affected 15% to 30% of revenue; the Columbus, Ohio Business Journal said the figure was just 3%.  

In the same story, Axios also reported that Olive was rapidly losing customers.

After another layoff in February 2023, CEO Sean Lane revealed plans to sell most of the Payer business. That sale would reduce Olive’s offering to the original revenue cycle management capability, plus the “clearinghouse” claims and remittance service. Olive announced the sale on April 10. The announcement did not include pricing and terms of sale; Olive later disclosed that healthcare IT provider Availity paid $34.3 million for the business. 

The layoff and sale reduced Olive’s headcount to about 300 people.

In June 2023, Olive sold LifeGraphIntelligence, a business intelligence product, to BurstIQ, a small Denver-based company specializing in Health Data Management. Olive did not announce pricing and terms.

In October 2023, Olive wrote the denouement to this sorry story. On October 31, 2023, the company announced the sale of its remaining businesses. Healthcare company Waystar – no relation to Waystar Royco – purchased the revenue cycle management business; Humata Health bought some assets of the prior authorization business not previously acquired by Availity; and Sean Lane acquired Olive’s shares in Olive Ventures. 

Waystar paid $10 million for Olive’s original business. In an S-1 filing before its recent IPO, Waystar disclosed that the revenue of the acquired Olive business was immaterial. In other words, there were hardly any paying customers left. Waystar hired about 60 of the remaining Olive employees.

Jeremy Friese, former President of Olive’s Payer business, was the founder and CEO of Verata Health, which Olive acquired in December 2020. He launched Humata Health in April 2023, when Olive sold its Payer business to Availity. That was purely coincidental, of course. Friese had no idea Olive would sell off its remaining assets six months later. 

Axios quoted an internal memo from Sean Lane announcing the asset sale. Lane said that some employees would receive employment offers from the acquiring companies.

Olive fired everyone else on October 31, 2023. Happy Halloween. 

In a letter to shareholders, Olive claimed that the asset sales liquidated the company, with nothing left for shareholders. A supermajority of the shareholders approved the deal; so did Silicon Valley Bank, the largest secured creditor. To avoid court scrutiny of the asset sale, Olive did not file for bankruptcy. The creditors did not file for an involuntary bankruptcy, likely because they believed it was not worth the trouble.

The venture capitalists who put money into Olive AI lost it all. They based their investments on the Greater Fool Theory – they speculated on a dodgy and overvalued company, believing they would eventually sell it to a “greater fool.”

The jokes on them. It turns out that there are no greater fools than Drive Capital, General Catalyst, Vista Equity Partners, SVB Capital Partners, and Ascension Ventures.

Employees who owned stock lost it all. Those who exercised options may have owed Alternative Minimum Tax (AMT) on phantom profits based on an inflated 409a Fair Market Value, or FMV. 

Most of Olive’s employees suffered from career disruption. A handful made it over to the surviving “shards” of the business. Others moved on to other companies or changed careers. A significant number remain “open to work” a year later.

When startups fail, the founders and investors sometimes try to help the displaced employees. Olive has an active alumni network. I asked several members whether Sean Lane did anything to help the people who built the company. None could think of anything he did to help. 

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Olive Pieces

What happened to the parts of Olive?

Waystar Holding

Waystar Holding went public on June 7, 2024, seven months after acquiring Olive's assets. Waystar previously acquired ten healthcare companies. In July 2019, EQT, a Swedish investment company, acquired Waystar in a leveraged buyout for $2.7 billion. Waystar trades on NASDAQ at a market cap of $4.6 billion, which tells you that some people know how to make money.

Humata Health

Under Dr. Friese, Humata now employs 33 people. The company landed a Series A worth $25 million last June, led by The Blue Venture Fund and LRVHealth. While there are some reports that Friese bought back the Verata business he sold, that is incorrect. Former Verata employees are now equally split between Availity and Humata.

Circulo Health

After Sean Lane spun out Circulo to serve the Medicaid market, the company raised $50 million from Drive Capital, General Catalyst, Oak HC/FT, and SVB Capital – the same bro network that sunk money into Olive. 

Two months later, Columbus Business First reported that Circulo seemed uniquely qualified for a Medicaid pilot program based on language in a legislative earmark. Neither Governor Mike DeWine nor Ohio Medicaid requested funding for the project. In May 2022, Circulo was the only bidder.

When you sell to the state government, having friends in the legislature helps.

Sadly, Circulo did not land the contract. Layoffs ensued, and they abandoned the Medicaid business.

When Olive closed its doors in October 2023, Sean Lane purchased Olive’s stake in Circulo. According to a story in Columbus Business Journal, the company merged with Red Door Residential, owned by Lane’s father. The company website is down.

Stick a fork in Circulo – it’s done—another winning investment for Chris Olsen and Drive Capital.

Rotera

Rotera was one of the first startups incubated under Olive Ventures. The company purchased Olive’s tools for population health management and the 340B program. Rotera, which claims to offer “work at warp speed,” currently employs eight people, down from a peak of 17 in June 2023.  

Violet

Violet, a bank to help people with medical bills, was another early spawn of Olive Ventures. Josh Holley, Olive Ventures “Builder-in-Residence,” served as Violet’s CEO; previously, he served as COO for Hunt A Killer (HAK), “the fastest-growing thriller subscription service in the world.” Holley left Violet in April 2022, and Violet is no longer in this world.

Healia Health

Healia Health, another Olive Ventures startup, offers “modern health insurance for dual-income families.” Launched in October 2021, the company recently completed the Y Accelerator incubation program. The company raised $500 thousand in pre-seed money in March of this year and filed a Form D with the SEC for an additional $3.5 million. The company currently has nine employees per LinkedIn.

Seam Technologies

Seam Technologies will transform your nursing workflows if you hire them – or so they claim. According to LinkedIn, the company currently employs seven people.

Magenta Care Continuum

Rick Adam, who joined Olive from Empiric Health, launched Magenta Care Continuum in April 2022. The company offered a risk adjustment analytics suite for medicare advantage and ACA plans. Magenta shut down in January 2024.

Ghostdog

Bubba Fox founded Ghostdog, the “Modern Mission Browser,” in September 2024, while Sean Lane was committed to saving Olive. Totally committed. One-hundred percent. Neither Bubba nor Sean had any idea that Olive was about to collapse. Complete coincidence. Lane joined Fox in December 2023, six weeks after firing the remaining Olivians.

Undeterred by his massive failure as CEO of Olive, Sean Lane now seeks to transform national defense – just as he previously transformed parking. 

In January 2024, Sean and Bubba raised $3.9 million from their own pockets and Craig Cummings. Cummings has funded many of Sean’s adventures: BTS, Parking Panda, Olive, and Ghostdog. He passed on Circulo Health, which was a smart move. On LinkedIn, Cummings lists himself as an investor in 173 companies; of these, he cites only six exits. Sad.

Ghostdog has grown seven hundred percent under Sean’s leadership in true unicorn fashion and now employs eight people.

A reader writes:

>>At Ghostdog Systems, Inc. - we're pioneering the next frontier of cybersecurity with our cutting-edge Applied AI. Our AI agents work in concert to offer an unprecedented cyber defense, intelligently adapting to and neutralizing threats in real-time. Veteran Founded (SDVOSB). <<

When you visit the website, you'll see "Chat with Gunner - The Ghostdog AI Chatbot!" a Zapier (no code) integration with some LLM and vector database.

Funny enough, it even answers questions like "What is the capital of France." So much for an AI-powered cybersecurity company :)

Meanwhile, a stub on the Potomac Officers Club about Carlton Fox reads:

Carlton “Bubba” Fox is NCI's senior vice president and chief product officer. Bubba guides the innovation and development of customizable AI solutions that empower our customers to accelerate decision-making and execution.

I guess customizable AI solutions mean connecting the Open AI API to Zapier.

Sean and Bubba may succeed in this venture. They can hang out with their buddies and reminisce about the good times in Bagram. Defense buyers are even more credulous than healthcare buyers.