It's always painful to see a promise not living up to the faith of those who believed....
I'm not exactly sure, but what you said about recapitalization sounded like 'despite the value of the combined capital raised by the two merging ventures prior to 2009 was USD 31mio, the merged entity (On-Q-Ity) prior to investment was valued at USD5mio', To me this initial valuation (& disregard of capital) is where the deal started going wrong?? - wasn't this one of the risks flagged in 2009?
While not tranching the investment does look like the most probable reason for the VCs losing out on the return, I'm wondering what promise of return led to the VCs risking a USD 21mio investment upfront into a company wherein a cumulative capital of USD 31mio only resulted in a USD 5mio valuation? - probably there was something prophetic about the then CEO using a term "diagnostic blackhole" back in 2010..... (different context ofcourse..)
PS:
It'd be interesting to understand why the exit-route expectations involved "oncology focused Pharma M&A"?, consdiring Dual Capture OnQChip techonology wasn't really being worked on as a customizable companion diagnostic platform? OR was it?
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