How did the venture capitalists that invested in Theranos fall for Elizabeth Holmes’ scam?

I’m not sure very many VCs fell for anything. Many investors — yes. But not that many VCs.

DFJ led a $500k seed investment. A $500k seed round for a medium-sized fund is just a small bet on a founder.

No other traditional VCs invested in the rounds, other than ATA Ventures, who is still a bit non-traditional and has GPs who have taken intentional, aggressive bets on material science and other areas that often never even get to market and lose 100%. They were likely willing to lose all the money as well, which looks initially to have been single-digit millions (total round: $9.1m). That’s a lot more than $500k, but still, a bet. Although it’s a tough loss, even losing $9m won’t destroy most VC firms. If you are trying to turn say a $150m fund into $450m, you can afford a $9m loss. You don’t like it, but you can afford it, as long as you have other big winners.

The vast, vast majority of the $1.7b capital does not appear to have come from traditional VCs at all and certainly not from rounds led by traditional VCs, at least as near as I can tell from Theranos | Crunchbase

I think DFJ may have made a solid bet — for $500k. They don’t all work out at that size, and that’s OK. You bet on a bunch of driven founders at that stage. Hopefully, they don’t end up like Theranos. But it’s OK if most fail.

View original question on quora

Published on March 18, 2018

Pin It on Pinterest

Share This