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Theranos, India, and NFTs: A Q&A with Tim Draper on making money—and losing it—in venture capital

February 2, 2022, 5:22 PM UTC

Happy Wednesday, Term Sheeters!

I’d like to bring you into a conversation I had a couple weeks ago with Tim Draper of Draper Associates.

Draper is one of the more well-known venture capitalists in the business—following in the footsteps of his father and grandfather, who were some of the first investors to back early-stage ideas in the U.S. As an early investor in companies like Tesla, Twitter, Coinbase, Skype, and Hotmail, and as one of the first venture capitalists to invest in China, Draper has made his own name for himself. 

Notably, he was one of the very first investors to write a check to Elizabeth Holmes, a former neighbor of his, two decades ago when she dropped out of Stanford to start the now defunct medical testing lab Theranos in 2003. As we all know by now, Holmes was accused, and recently convicted, of defrauding investors and is awaiting a prison sentence. Draper is the last investor to publicly stand by Elizbeth Holmes post-indictment, and now, post-verdict. 

These days, Draper is a loud proponent of Bitcoin (you will often find him sporting a purple Bitcoin tie in interviews or public appearances). One of his more recent endeavors is the Draper Startup House, which is a series of co-living hubs for entrepreneurs in 15 different cities around the world.

Draper sat down with me to discuss international markets, Theranos, and cryptocurrencies. Below is what I found to be the most intriguing parts of our conversation. (Some portions of this Q&A have been edited or shortened for clarity and/or brevity.)

Lisbon , Portugal – 3 November 2021; Tim Draper, Founder of Draper Associates, on Q&A Stage during day two of Web Summit 2021 at the Altice Arena in Lisbon, Portugal. (Photo By Cody Glenn/Sportsfile for Web Summit via Getty Images)

TS: What international markets are you most bullish on at the moment?

Draper: India is fantastic and they have had a major run. But the valuations in India of the startups are very high. So yes, it’s booming, but also, you pay the price. I’m very interested in Europe… Both Malta and Switzerland have had real innovation in how to accept Bitcoin. And Estonia has had real innovation on what constitutes an Estonian resident and digitizing government… And in South America, where I’m going to be traveling very soon, El Salvador is the leader in their thinking on how to incorporate Bitcoin and make it a national currency. 

I want to circle back to cryptocurrency a little later, but I was hoping to ask you a few questions about Theranos post-verdict. I know you had already sent me a statement giving your thoughts on the verdict [see here], but I wanted to ask you specifically if any of the evidence presented in the trial—or the final verdict itself—had shifted your opinion of Elizabeth Holmes, or the company itself?

No, and I didn’t really follow all of the trial. I’ve got a job. I have to work. So I wasn’t just glued to my whatever. I think that every entrepreneur has to go through a period where they ship a product, and the customer is not quite satisfied and they have to keep improving that product. And if all of a sudden the government is looking up and down the company, back and forth—not everything is going to be perfect. And I think we’ve got to be much more forgiving of these people who are trying to really improve our lives… I mean, it’s almost anti-American to go after somebody who’s trying to, as she said, change healthcare as we know it. And having something go wrong with it, you’re losing that pioneering spirit.

I guess my follow up question to that would be, if an entrepreneur, if a founder when going through the process of shipping a product and testing a product—is it okay for them to ever mislead or lie to investors or the end customer?

I don’t think it’s ever okay to lie.

Some of the evidence presented in the trial, and her ultimate conviction, did point that she did intentionally mislead investors, such as presenting validation reports to Walgreens and investors implying that [Pfizer] had approved results when they actually hadn’t. So that’s why I asked the question. If evidence showed that she did, would you have a problem with that?

Here’s the way I look at it: She didn’t lie to me. I was an investor. I lost my entire investment. And I still have the utmost respect for what she was trying to accomplish, all the work she put in, all the things she was trying to do for the world. And I think that when someone is attacked, they either attack back, or they get scared. And I think she got scared. And I think she was surrounding herself with lawyers, and at that point, I don’t know. I think investors should always do due diligence. I mean, these are sophisticated investors. You should always [perform due diligence on the] entrepreneur and the startup and have third parties verify. You take your lumps, and if things don’t work, you take your lumps.

Going back to 2003, would you still write her that $1 million check?

Well, wait, I would have lost my money. [laughs] 

I don’t think I’m allowed to go back to 2003. I don’t have a time machine. I make my investments. I do my best. My investors seem relatively happy with me as I make these investments. We tend to get enough unicorns so that we can keep doing what I love to do. 

And yeah, I mean, I will always back someone who looks at an industry and says something is seriously wrong here and I am going to change it. I will look very seriously at that entrepreneur if they’re going to take on something that big. 

Can you tell me, just more generally, what you think about the state of due diligence in the venture capital industry. Do you think it’s sufficient? Do you think it needs work?

I can’t speak for all venture capitalists all over the world. There are hundreds, tens of thousands of them around the world. I do my due diligence, and I live with my decisions.

So let’s talk about cryptocurrencies. Why haven’t you launched a designated crypto fund?

Here’s how I tested the waters. My son Adam created Boost VC. They were the first crypto accelerator in the world… The second class of Bitcoin came through his accelerator, and I said I would invest Bitcoin in those companies for a percentage of the business. And I was thinking, hey, this is all in the blockchain, no problem, it’s gonna be great. There’s no accounting, because it’s already done on the blockchain, no auditing, no bookkeeping, none of that stuff. Turns out, the accounting business is so far behind that my accounting bill tripled because of making these investments in Bitcoin. So I have it in my head that I hope there will be a time when I can raise a fund all in Bitcoin, invest in entrepreneurs all in Bitcoin, have them pay their employees and suppliers all in Bitcoin, and have the whole thing be an accounting walled garden that it requires no accountants, no bookkeeper, no auditor, no whatever. And the company Cryptio is now making that possible. 

But right now, the accounting, the bookkeeping, and the auditing fees are a little too high?

Yeah, and the regulatory environment is still also a little uncertain. 

Are you bullish on other blockchains besides Bitcoin—like Ethereum, Solana, any of the others?

Yeah, I like Tezos. I like Aragon because they’ve got a jury system. It could turn into a liquid democracy. Tezos is a new system that requires less energy and is proof-of-stake, which Ethereum keeps promising to deliver but can’t. They’re great for smart contracts, and to start with, all the gamers are using them for smart contracts, and longer term they’ll be the real contracts, so I would guess that will do very well.

What use case do you think offers the most opportunity for NFTs?

Short-term, I think it’s musicians, artists, and whoever. Because as an artist, right now, you paint a picture and you put it out there and you sell it to somebody. If you turn it into an NFT, what you might do is sell the picture to somebody, but you’re only selling them 60% of it. And then 20% goes to the artist, and if the picture is ever resold, they get another 20% of it. And each time it moves they get 20%. And then another 20% can just be a bunch of NFTs: The artists can send out 30,000 units of that in digital form that are numbered, and so people can get their unique NFT of that piece of art. I think the artists are going to do very well…

Long-term, I think they’re going to be using NFTs for your driver’s license, your diploma, your healthcare records, anything that needs to hold data and needs to be permanent.

EV missteps… Two electric vehicle companies that went public via SPAC mergers are trying to address fallout stemming from internal investigations or allegations from short-sellers. 

Faraday Future Intelligent Electric, based in Los Angeles, is cutting its CEO and founder’s pay and naming an independent board member for a new role of executive chairperson. That follows an internal review that revealed how employees made “certain inaccurate statements” to its investors, according to Reuters. Short seller J Capital had accused Faraday of being a “new EV scam in town.”

Then there is Electric Last Mile Solutions, based in Troy, Mich. Its top executives resigned after an investigation revealed that CEO James Taylor and Chairman Jason Luo had bought equity at a significant discount prior to announcing plans to go public “to market value without obtaining an independent valuation,” per Reuters


Two more days to weigh in on Semaphore’s confidence survey. Share your level of confidence in yourself, the economy, and your business; it’s anonymous and should take you 3-4 minutes. You can take the survey here. Have a look at last year’s results here.

See you tomorrow,

Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com

VENTURE DEALS

- KOHO Financial, a Toronto-based banking and money management fintech provider, raised $165.5 million in Series D funding. Eldridge led the round and was joined by investors including Drive Capital, TTV Capital, HOOPP, Round13, and BDC.

- Bluewave Technology Group, a Parsippany, N.J.-based technology advisory and lifecycle management company, raised $75 million in funding led by Columbia Capital

- Dune Analytics, an Oslo, Norway-based web3 analytics platform, raised $69.4 million in Series B funding. Coatue led the round and was joined by investors including Multicoin Capital and Dragonfly Capital

- Pecan AI raised $66 million in Series C funding. Insight Partners led the round and was joined by investors including GV, S-Capital, GGV, Dell Technologies Capital, Mindset Ventures, and Vintage investment.

- Rudderstack, a San Francisco-based open source customer data platform (CDP) for building customer data stacks, raised $56M in Series B funding led by Insight Partners and was joined by investors including Kleiner Perkins and S28 Capital.

- Crisp, a New York-based open-data programmatic commerce platform for the consumer goods industry, raised $35 million in Series B funding. 3L led the round and was joined by investors including FirstMark Capital, Spring Capital, Steve Papa, Scott Beattie, Kim Perell, James Brennan, Dermot Halpin, 9Yards Capital, Gaingels, and others.

- Hiretual, a Mountain View, Calif.-based global talent platform, raised $26 million in Series B funding led by Conductive Ventures.

- Jasper Health, a New York-based cancer care navigation and experience platform, raised $25 million in Series A funding. General Catalyst led the round and was joined by investors including Human Capital, W Health Ventures, Redesign Health, and 7wireVentures.

- Tint, a San Francisco-based embedded insurance product company, raised $25 million in Series A funding. QED Investors led the round and was joined by investors including Nyca, Deciens, Y Combinator, and Webb Investment Network

- Summus Global, a New York-based virtual specialist platform, raised $22 million in funding led by Danaher Corporation co-founder Mitchell Rales and the Glenstone Foundation

- Doing Things Media, an Atlanta, Ga.-based digital media and marketing company, raised $21.5 million in Series A funding led by Volition Capital.

- Framework, a Burlingame, Calif.-based lightweight laptop and consumer electronics company, raised $18 million in Series A funding led by Spark Capital and was joined by investors including Pathbreaker Ventures, Anorak Ventures, and Formic Ventures.

- Midnite, a London-based licensed esports betting platform, raised $16 million in Series A funding led by The Raine Group

- LEX Markets, a New York-based real estate securities marketplace for investors, raised $15 million in Series A funding. PEAK6 Strategic Capital led the round and was joined by investors including Khosla Ventures, Two Lanterns, MUFG Innovation Partners, and Gaingels.

- Synapticure, a Chicago-based teleneurology company providing personalized care for people living with ALS, raised $6 million in seed funding led by GV and was joined by investors including LifeForce Capital, Martin Ventures, Byers Capital, and Y Combinator.

- VendorPM, a Toronto-based software-enabled marketplace to connect property managers and trusted vendors, raised $6 million in seed funding led by Bessemer Venture Partners.

- TALA, a London-based sustainable activewear brand, raised £4.2M ($5.7 million) in funding. Active Partners and Venrex co-led the round and were joined by investors including Deciem CEO Nicola Kilner, Peanut CEO Michelle Kennedy, and Rapha founder Simon Mottram

- CertifyOS, a New York-based provider credentialing and licensing company for healthcare professionals, raised $4.6 million in seed funding led by Upfront Ventures and was joined by investors including Max Ventures, Arkitekt Ventures, Goldline Ventures, and the Hustle Fund.

- Voldex, a gaming company focused on user-generated-content that owns and operates several Minecraft and Roblox games, raised $3 million in funding led by Dune Ventures and was joined by investors including Makers Fund, POW! Interactive, angel investor Christian Perez, and others.

- Neura Health, a New York-based virtual neurology clinic, raised $2.2 million in seed funding. Pear VC, Next Play Ventures, and Global Founders Capital led the round and were joined by investors including Index Ventures and Norwest Venture Partners.

- Afya Rekod, a Nairobi, Kenya-based medical record storage platform, raised $2 million in seed funding led by Mac Venture Capital and was joined by Next Chymia.

- Captain Experiences, an Austin-based platform for outdoor sports, raised $2 million in seed funding led by Looking Glass Capital and was joined by investors including a16z, Not Boring Capital, Goodwater Capital, Oliver Hudson, and others. 

PRIVATE EQUITY

- Civitas Resources, backed by Kimmeridge, agreed to acquire Bison II Oil & Gas, a DJ Basin operator, for approximately $346 million.

- The Chernin Group invested $40 million in Stoggles, a Duarte, Calif.-based protective eyewear company.

- Anduril Industries, backed by a16z, acquired Dive Technologies, a Boston-based autonomous underwater vehicles (AUVs) startup. Financial terms were not disclosed.

- Arsenal Capital Partners acquired ATP Group, a Switzerland-based water-based adhesive tapes manufacturer. Financial terms were not disclosed.

- KKR acquired a majority stake in PlayOn! Sports, an Atlanta, Ga.-based high school sports media and technology company. Financial terms were not disclosed.

- MSD Partners acquired East West Manufacturing, an Atlanta, Ga.-based industrial technology manufacturing services provider. Financial terms were not disclosed.

- Pendo, backed by Thoma Bravo, acquired Mind the Product, a London-based content, training and conferences company for product managers, designers, and developers. Financial terms were not disclosed.

EXITS

- Saudi Aramco acquired a 7.4% stake in Cognite, a Lysaker, Norway-based industrial data management platform, from Aker BP for $113 million. 

- Famille C agreed to acquire ILIA Beauty, a Laguna Beach, Calif.-based women’s cosmetics brand, from Silas Capital and Sandbridge Capital. Financial terms were not disclosed.

OTHER

- Gupshup acquired Knowlarity Communications, a cloud telephony, contact center automation, voice assistant and speech analytics solutions provider, for approximately $100 million.

- Arrive Logistics acquired Forager Group’s cross-border business and proprietary platform. Financial terms were not disclosed.

- Gtmhub acquired Koan, a Denver, Colo.-based OKR status and tracking platform. Financial terms were not disclosed.

- PointClickCare Technologies agreed to acquire Audacious Inquiry, a Baltimore, Md.-based connected care platform. Financial terms were not disclosed.

IPOS

- Zepz, a London-based online money transfer platform, is weighing an IPO in the U.S., according to Bloomberg. A deal could value the company at around $6 billion.

- Al Nahdi Medical, a Saudi Arabian pharmacy retail chain, is planning a local IPO, per Bloomberg. The company is seeking a valuation of around $4.3 billion as part of the deal. Sedco Holding backs the firm.

- KKR is weighing an IPO or sale for Optiv Security, a Denver, Colo.-based cybersecurity solutions distributor and consultant, per Reuters. A deal could value the company at around $3 billion.

SPAC

- MariaDB, an Espoo, Finland-based open source database software company, agreed to go public via a merger with Angel Pond Holdings Corp., a SPAC backed by Goldman Sachs and Alibaba co-founder Shihuang “Simon” Xie. A deal values the company at approximately $672 million. 

FUNDS + FUNDS OF FUNDS

- InTandem Capital Partners, a New York-based healthcare services-focused private equity firm, raised $225 million for a fund focused on expanding existing portfolio companies and future investments.

PEOPLE

- Benchmark, a San Francisco-based venture capital firm, hired Blake Robbins as principal. Formerly, he was with Ludlow.

- Engine No. 1, a San Francisco-based impact investing firm, hired Peter Seligmann as a senior advisor. 

- Perella Weinberg Partners, a New York-based investment bank, hired Stephen Henry and Timm Schipporeit as partners. Formerly, they were with Lazard and FT Partners, respectively.

- 2150, a London-based venture capital firm, hired Peter Hirsch as head of sustainability and Margarita Skarkou as an investor. Formerly, they were with EBRD and Barclays, respectively.

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