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Twitter whistleblower throws a (new) wrench into Elon Musk deal

August 24, 2022, 12:25 PM UTC

It’s been a bit too long since we checked in on the Elon Musk-Twitter deal. Now feels like a great time.

Yesterday, CNN and the Washington Post published a bombshell whistleblower disclosure that Peiter “Mudge” Zatko, Twitter’s former head of security, had sent to Congress and federal agencies last month. The complaint alleged significant security problems that threatened both users’ personal information and also national security. The whistleblower also alleged that top executives at Twitter had been attempting to cover up the company’s vulnerabilities and alleged that at least one employee might be working for a foreign intelligence service.

Here’s what Twitter says about the matter: “Mr. Zatko was fired from his senior executive role at Twitter in January 2022 for ineffective leadership and poor performance,” a Twitter spokesperson told CNN. “What we’ve seen so far is a false narrative about Twitter and our privacy and data security practices that is riddled with inconsistencies and inaccuracies and lacks important context. Mr. Zatko’s allegations and opportunistic timing appear designed to capture attention and inflict harm on Twitter, its customers and its shareholders. Security and privacy have long been company-wide priorities at Twitter and will continue to be.” (Twitter CEO Parag Agrawal also reportedly issued an internal memo to employees yesterday that said the allegations were ‘frustrating and confusing to read’ and said Twitter planned to challenge them. You can read Zatko’s response here)

Amid the trove of allegations is a claim from Zatko that Twitter’s executives don’t know the number of bots on the platform, and don’t have the motivation or resources to find out. Elon Musk has repeatedly credited fake accounts as a main reason he pulled out of the $44 billion-acquisition of the social media company, though he never produced much evidence as proof. Now, Zatko’s whistleblower disclosure, which is approximately 200 pages, has suddenly added a new twist.

In the disclosure, Zatko claims that Twitter’s metric for tallying bots hides the true figure and alleges that executives are incentivized by bonuses of up to $10 million to obscure the numbers.

Not to mention—the rest of the whistleblower disclosure could likely become useful fodder for Musk in his ongoing attempt to defend backing out of the deal. Since the disclosure became public, Musk’s attorney has reportedly issued a subpoena to Zatko, according to CNN. (It’s worth pointing out that Zatko’s lawyer says Zatko has not communicated with Musk and that he began the whistleblower process before “there was any indication of Musk’s involvement with Twitter,” according to CNN.)

All of this is likely bad news for Twitter, which has sued Musk to force him to complete the deal and has asserted that the billionaire got cold feet during the market downturn. 

Checking in… As you may recall, I published a collection of comments from Term Sheet readers on how you were thinking about the downturn. Three months later, I’m curious if anything has changed. Has there been a permanent shift in the private markets? Are we better off? How bad could things get? What’s the upside? Whether you’re a startup founder, a venture capitalist, a private equity investor, a banker, a limited partner, or simply someone who likes to read this newsletter, I’d like to hear from you. Send your thoughts to my email below, and thanks for sharing the wisdom.

See you tomorrow, 

Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.

Update, Aug. 30, 2022: The digital version of this newsletter has been updated with a link to a statement from Peiter Zatko’s attorneys in reference to Twitter’s response.

VENTURE DEALS

- Anyscale, a San Francisco-based computing platform, raised $99 million in Series C extension funding. Addition and Intel Capital led the round and were joined by Foundation Capital.

- Digital Diagnostics, Coralville, Iowa-based artificial intelligence diagnostic health care technology company, raised $75 million in Series B funding. KKR led the round and was joined by investors including Cedar Pine, Kinderhook, 8VC, Optum Ventures, OSF Ventures, Gundersen Lutheran, Edward-Elmhurst Health Venture Capital, and the University of Iowa

- Carbon Direct, a New York-based carbon management firm, raised $60 million in funding co-led by Decarbonization Partners and Quantum Energy Partners.

- Inworld AI, a Mountain View, Calif.-based virtual character development platform, raised an additional $50 million in Series A funding. Section 32 and Intel Capital led the round and were joined by investors including Founders Fund, Accelerator Investments, First Spark Ventures, Kleiner Perkins, BITKRAFT Ventures, CRV, M12, Micron Ventures, LG Technology Ventures, SK Telecom Venture Capital, NTT Docomo Ventures, and The Venture Reality Fund.

- SmartMoving, a Dallas-based software solution for the moving services industry, raised $41.5 million in funding from Mainsail Partners.

- ArabyAds, a Dubai-based advertising company, raised $30 million in pre-Series B funding from AfricInvest

- Qloo, a New York-based A.I. platform for culture and taste preferences, raised $15 million in Series B funding from Eldridge and AXA Venture Partners

- Hazeltree, a New York-based treasury and liquidity management technology firm, raised $14 million in funding. FINTOP Capital led the round and was joined by Hamilton Lane

- Zitara, a San Francisco-based battery management software company, raised $12 million in Series A funding. Energy Impact Partners led the round and was joined by investors including NextView Ventures, Collaborative Fund, and Trucks VC.

- TRIP, a London-based CBD brand, raised £10 million ($11.84 million) in Series A funding. Former Depop CEO Maria Raga and Apeiron Investment Group’s Christian Angermayer invested in the round. 

- Freedom Biosciences, a San Francisco-based clinical-stage ketamine and psychedelic therapeutics biotech platform, raised $10.5 million in seed funding. MBX Capital led the round and was joined by investors including PsyMed Ventures, Village Global, The Yale Startup, and others.

- Sequel, formerly Introvoke, a San Francisco-based online event hosting company, raised $8 million in Series A funding. Javelin Venture Partners led the round and was joined by investors including Struck Capital, Social Leverage, Alumni Ventures, Growth Warrior Capital, Great Oaks, and V1VC.

- Reposite, a New York-based supplier management platform, raised $7.5 million in funding. Liberty City Ventures and Greycroft led the round and were joined by investors including MATH Ventures, BDMI, and other angels. 

- CurbWaste, a New York-based waste management software, raised $6 million in funding. B Capital Ascent Fund led the round and was joined by Mucker Capital

- The Good Face Project, a San Diego-based transparency and R&D platform for the beauty industry, raised $5.65 million in seed funding. VMG Catalyst led the round and was joined by investors including Spark Growth Ventures, REDO Ventures, and Capsum

- Deposits, a Dallas-based fintech platform, raised $5 million in seed funding. ATX Venture Partners led the round and was joined by investors including Lightspeed Ventures, Cabal Fund, and others.

- Pace, a New York-based revenue platform, raised $5 million in seed funding. Work-Bench led the round and was joined by investors including AlleyCorp and other angels. 

- Vestaboard, a San Francisco-based messaging display company, raised $5 million in a seed funding extension round led by its customers.

- Quivr, a Los Angeles-based decentralized social platform, raised $3.55 million in seed funding. Infinity Ventures Crypto led the round and was joined by investors including Tencent co-founder Jason Zeng, C2 Ventures, Sfermion, and FBG Capital

- RevSure, a Wilmington, Del.-based sales pipeline readiness platform, raised $3.5 million in seed funding led by Innovation Endeavors.

- Mantel, a Boston-based carbon capture developer, raised $2 million in seed funding, co-led by The Engine and New Climate Ventures.

- Upkid, a Lehi, Utah-based marketplace for child care centers and teachers, raised $1.7 million in pre-seed funding. Newfund Capital, Corazon Capital, and Beehive Venture Partners invested in the round. 

PRIVATE EQUITY

- Centerbridge and Bridgeport agreed to acquire Computer Services, a Paducah, Ky.-based fintech and regtech solutions provider, for $1.6 billion. 

- Enercare, backed by Brookfield, acquired HydroSolution, a Quebec-based water heaters manufacturer and supplier. Financial terms were not disclosed. 

- EnergyCAP, a Resurgens Technology Partners portfolio company, acquired Wattics, a Dublin-based energy management analytics and monitoring software provider. Financial terms were not disclosed.

- Praecipio Consulting, a Periscope Equity portfolio company, acquired Coyote Creek, a Morgan Hill, Calif.-based IT and engineering services provider. Financial terms were not disclosed. 

- Seawall Capital acquired a majority stake in Sports Endeavors, a Hillsborough, N.C.-based sports company. Financial terms were not disclosed. 

EXITS

- Gibraltar Industries acquired Quality Aluminum Products, a Hastings, Mich.-based aluminum and steel products manufacturer, from Blackford Capital. Financial terms were not disclosed. 

- Incline Equity Partners acquired RKD Group, a Richardson, Texas-based fundraising and marketing company, from BV Investment Partners. Financial terms were not disclosed. 

IPOS 

- Betagro, a Bangkok-based meat producer, is planning to raise about $554 million in an initial public offering in Thailand, according to Bloomberg. 

PEOPLE

- Blueprint Equity, a San Diego-based growth equity firm, hired Connor Nevelle, Duncan McEntyre, and John Bonhard to the investment team. Formerly, Nevelle was with CoverMyMeds, McEntyre was with DealMaker and Five Elms Capital, and Bonhard was with Beringea

- Costanoa Ventures, a Palo Alto and San Francisco-based venture capital firm, promoted Tony Liu to partner. 

- CoVenture, a New York-based asset management firm, hired Dan Bailey as managing director. Formerly, he was with Two Sigma Investments.

- Levine Leichtman Capital Partners, a Beverly Hills-based private equity firm, hired Debra Sherman as director, investor relations and promoted Monty Ismail and Luc Sandmann to director, investment management. Formerly, Sherman was with Ares Management

- TPG, a Fort Worth, Texas and San Francisco-based alternative asset management firm, hired Peter Munzig as a partner and head of business services for TPG Capital, the firm’s private equity platform. Formerly, he was with General Atlantic

- Water Street Healthcare Partners, a Chicago-based health care investment firm, hired Deepak Batheja as chief information officer. Formerly, he was with ConcertoCare.

Correction, August 24, 2022: A previous version of this article misspelled Christian Angermayer's name.

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