It’s been a “lousy month” for the reputation of professional investors, says Brooke Masters in the FT. The collapse of cryptocurrency exchange FTX revealed that everyone from “racy hedge funds” to boring old pension managers had been throwing money at a firm with “weaker financial controls than Enron”. Then Elizabeth Holmes was sentenced to 11 years behind bars for Theranos, her fraudulent blood-testing firm that suckered supposedly sophisticated investors including Oracle founder Larry Ellison and media tycoon Rupert Murdoch. Meanwhile many top crypto companies are teetering, despite being “backed by the best” of Silicon Valley’s venture capitalists.
“Doesn’t anyone do due diligence any more?” Dealmakers used to send junior bankers to personally check that a mining firm, say, really had a working gold mine, and hire armies of accountants and lawyers to pore over company records. By contrast, top VC firm Sequoia Capital handed FTX’s tousle-haired CEO Sam Bankman-Fried $214m of investors’ cash even though he “played video games during his pitch to them”. The boring but essential work of making sure massive investments aren’t total frauds seems to have “fallen completely by the wayside”. Veteran dealmakers say VCs have stopped trying to “select and nurture the smartest entrepreneurs”. Now they’re just “spraying cash around” for fear of missing out on the next Amazon or Google, making investment decisions based on who else has chipped in rather than doing the homework themselves. Hopefully after the humiliation of the past few weeks, these reckless moneymen will learn their lesson.
🎁🛩 FTX went to huge lengths to keep staff happy, say Nikou Asgari and Joshua Oliver, also in the FT. When the company moved its headquarters to the Bahamas last year, employees realised that Amazon didn’t deliver to the island. “They quickly found an alternative, striking a private deal with an air carrier to fly their orders from a Miami depot.”