First, two caveats:
- I have invested in two outright frauds in my life (to my knowledge) and lost in total a few million dollars on them. At the seed investment stage, losing around 1% to things that turn out to be frauds probably says you’re being innovative.
- I pick on Marc Andreessen for his “no additional work required” line, which he sent to Elon Musk to confirm his nine-figure investment in Musk’s Twitter deal, because it is just too good. However:
- I think it is incrementally more reasonable when the acquisition target is already a public entity, and
- It is shocking, as others have pointed out, that Andreessen Horowitz wasn’t on the FTX cap table considering the way it invests.
That said, here is why Silicon Valley has a problem investing in late-stage deals that turn out to be fraudulent.