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 modes like virtual video visits.

Backed by high-profile venture firms like Peter Thiel’s Founders Fund and Kleiner Perkins Caufield & Byers, Practice Fusion had reeled in over $150 million in private funding with the promise of bringing electronic health records to the cloud, and was reportedly valued at $700 million in 2013.

The business was apparently in such a groove that in January 2016, the New York Times reported that Practice Fusion had hired J.P. Morgan to explore an IPO valuing the company at up to $1.5 billion. Revenue was estimated to reach $181 million by 2018, the story said, citing financial documents.

Far from denying the report, Practice Fusion told the Times that an IPO “could potentially be an outcome.”

Internally, a very different story was unfolding. After several years of missed targets and a management shake-up that resulted in the ouster of founder and CEO Ryan Howard, the board was quietly looking for a way out.

Confidential documents obtained by CNBC reveal that the board had started seeking a potential buyer in November 2015, several months before the Times report, and had hired Evercore to help it solicit interest. As many as 40 potential buyers were contacted, with bids ranging from $50 million to $225 million — a fraction of its desired IPO valuation.

Financial statements show that the company was well shy of the financial metrics reported by the Times and that the business was starting to decline. Following a revenue jump of 70 percent in 2015 (the final year of Howard’s tenure), growth slowed to 13 percent in 2016, closing the year at about $54 million. Through the first nine months of 2017, sales declined 10 percent from the same period in the previous year — from $37 million to $34 million.

The company didn’t respond to requests for comment.

Practice Fusion was also downsizing. The company eliminated one-quarter of its workforce — 74 people — in February 2016. But Beth Seidenerg, a director and Kleiner Perkins partner, told TechCrunch that there was no cause for alarm. CEO Tom Langan described the move as necessary to get the company to a profit, at the same time that low-priced acquisition offers were starting to accumulate.

At its peak under Howard, the company employed more than 400 people. It’s now down to about 200 employees, sources said.

The highest offer Practice Fusion received came in May 2017 from its eventual buyer, AllScripts, which was proposing $225 million to $250 million, according to the confidential documents. That deal fell apart after the news broke that a company in the same space, eClinicalWorks, had misled customers about the certification of its health IT software, resulting in a $155 million settlement and a $1 billion class-action lawsuit.

The eventual sale to AllScripts at less than half the amount proposed last year means that ordinary employees and common stockholders get nothing, while managers are banking millions from the pre-arranged carve-out.

If the deal is approved by shareholders, Langan will personally pocket $7 million, according to a proposal viewed by CNBC.

Stephen Byrnes, the general counsel, would earn $2.2 million, Chief Strategy and Corporate Development Officer Riyad Omar will make $2.3 million and Chief Technology Officer Jonathan Malek will get paid $2.25 million. Stacey Rubin, vice president of people and the only woman in the group, will net almost $750,000.

Both the acquisition and the management payout still have to get approved by Practice Fusion shareholders, with the biggest investors having the most influence in the result. Some workers are banding together to try and vote down both the management carve-out and the acquisition, according to sources familiar with the matter, who asked not to be named because their discussions are private.

Meanwhile, some common shareholders are not only out of luck but also a lot of money. CNBC talked to three former employees who lost between $40,000 and over $100,000 each because they exercised their options in previous years and had to pay tax based on their heightened value at the time.

Chris Hogg, a former data scientist at Practice Fusion who joined in 2013 through the acquisition of his start-up 100Plus, said that most employees don’t understand the dilutive effect of multiple rounds of fundraising.

“There are very few Facebook-like exits where multiple early employees make millions of dollars,” Hogg said.

Charley Moore spent years as a start-up lawyer before creating Rocket Lawyer, which provides automated legal advice to entrepreneurs and their employees. He said Practice Fusion is a cautionary tale.

“Venture capital, like baseball, is a game of failure,” said Moore, who represented companies including Yahoo. “Most things simply don’t work and, even if they do, it can take much longer to realize value than employees might think.”