70% of dealmakers say that investment managers share culpability for FTX 

March 1, 2023, 12:25 PM UTC
Matias J. Ocner—Getty Images

When money disappears, and criminal fraud charges are filed, there’s a single question that always manages to surface shortly thereafter: Who’s to blame?

There are the founders and CEOs, obviously. Sam Bankman-Fried, who is currently under house arrest at his parent’s home on the Stanford University campus, could be sentenced to up to 115 years in prison. Other founders have faced repercussions for their actions: Elizabeth Holmes of Theranos, who was sentenced to more than 11 years in prison at the end of 2022; Ozy Media’s Carlos Watson, who was arrested at the end of last week for allegedly defrauding investors and identity theft; or former MoviePass chairman Ted Farnsworth, who has been charged with artificially inflating the startup’s parent company stock price, to name a few. 

But the finger-pointing doesn’t stop when the court proceedings begin. Who enabled Sam Bankman-Fried to build such a far-reaching and influential cryptocurrency empire? Should venture capital investors like Sequoia Capital, Paradigm, Thoma Bravo, Tiger Global, SoftBank, and the Ontario Teachers’ Pension Plan have spotted major problems in FTX’s financials? Should they have balked at the red flags including FTX’s Excel files that Fortune has reported eschewed traditional management structures, board oversight, teams of accountants and lawyers, and other standard practices of businesses that grow to this size? 

A customer lawsuit filed earlier this month against Sequoia, Paradigm, and Thoma Bravo, alleges these funds gave an “air of legitimacy” to FTX and—via their hundreds of millions in funding and public statements that touted Bankman-Fried as a visionary startup founder—propelled the crypto exchange to the success and notoriety it once held.

But this is tricky legal territory. The jury in Holmes’ trial, for example, ultimately convicted her of defrauding investors—not customers. And the Securities and Exchange Commission charges against Bankman-Fried include allegations of defrauding his investors, while criminal charges have included money laundering and campaign finance violations. 

The FTX debacle was embarrassing enough for Sequoia’s partners including Alfred Lin, who led Sequoia’s investment, to apologize to the firm’s limited partners on a call. And Sequoia took down the glowing profile of Sam Bankman-Fried it has featured on its website. The Ontario Teachers’ Pension Plan has published its FTX losses. (Spokespersons for Sequoia, Tiger Global, Thoma Bravo, and SoftBank declined to comment. Other investors didn’t respond to requests for comment before publication.)

But all of this begs an important question, particularly as venture capital-backed companies have become so large and billion-dollar venture firms now play such an outsized role in the private market ecosystem: When a startup blows up in a big way, when a lot of people lose their money or get hurt, is that just a costly mistake for investors—or do they share some kind of larger responsibility for the harm it causes to everyday people?

We asked you all to weigh in. In Semaphore’s 15th annual confidence survey—which surveys private equity, venture capital, hedge fund, and other professionals on the state of the private markets—Term Sheet submitted a question to the roster: Is the VC/managed investment community at all responsible for the FTX implosion?

Seventy percent of the 701 dealmakers queried in this year’s survey said yes—investors do share some kind of responsibility. 

Here is a sampling of some investors who weighed in on the matter, anonymously:

Total absence of responsible diligence, no requirement for basic corporate governance and then no follow-up. Shameful.

They are only responsible for their investments into a bad company. They didn’t manage or operate that company or commit fraud. They were defrauded.

Complicit as hell

When a balloon pops from over-inflation, it’s the fault of the one blowing it up.

Yes, but so what? All crypto investments are just casino bets, and have near zero relevance to the “real” economy.

Cult of the founder, founder-worship, fetishizing non-conformity

VC’s need to be more firm and reject founders who have these character traits. The era of the celebrity founder is over and discipline is back.

Fraud is fraud, I don’t think VCs can be held responsible for everything. If it was kept a secret from all but 4-5 exec’s at FTX, it’s difficult to expect external investors to know the extent of their duplicity.

I believe it is too harsh to blame the community as a whole. A subset of the community got too excited and let themselves be fooled. The fact that they lowered their standards and cut corners is on them, not the community.

Obviously we fund these people, but there’s a lot of amateur investors playing in the space. Diligence becomes harder and harder when you need to move quickly to get into rounds. The founder bears most of the responsibility for defrauding innocent people, but it’s inherent in our jobs to bet on ridiculous ideas. It’s not the first time and won’t be the last, but if we take longer to do our diligence we lose out on the investment opportunity—it’s a problem that will not be solved overnight and something venture folks don’t lose sleep over. We do lose sleep over the port cos that are obviously affected by the fallout so it’s not without its repercussions.

Are they responsible? Partly, but not solely. They should have done diligence. However, they cannot front the blame for someone’s egregious actions. And herd mentality is real in the VC community. Fast term sheets became way too “in style” and too little diligence was done across that industry as a whole. I blame them for that part for sure. But it’s also not their responsibility to be dialed in to the day to day of FTX. But they certainly should have been more involved than they were.

General Atlantic at the World Bank…Last week President Joe Biden nominated General Atlantic vice chairman Ajay Banga, who is the former Mastercard CEO, to run the World Bank. If confirmed, he would be the first Indian-born person to hold the role as well as likely be the first financial crisis-era financial CEO to hold such a high-level post. Read my colleague Maria Aspan’s recent feature here to learn how this nomination suggests a major change in how people are thinking about Wall Street—and private equity.

Decacorns still exist…At the top of today’s deals section, cybersecurity company Wiz has raised $300 million, at a $10 billion valuation. And consumer drone company Skydio is now worth $2.2 billion—living proof that mega-deals are still getting done and that (some) companies can still become unicorns and decacorns in today’s high-interest-rate day and age. 

And now for this month’s cartoon from Ian Foley…

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.


- Wiz, a New York-based cloud security platform, raised $300 million in Series D funding. Lightspeed Venture Partners, Greenoaks Capital Partners, and Index Ventures co-led the round.

- Skydio, a San Mateo, Calif.-based drone manufacturer, raised $230 million in Series E funding. Linse Capital led the round and was joined by Andreessen Horowitz, Next47, IVP, DoCoMo, NVIDIA, the Walton Family Foundation, UP.Partners, Hercules Capital, and Axon

- Industrial Sun, an Austin-based solar project developer and energy company, raised $90 million in funding from EIG and Modern Energy

- Bitwise Industries, a Fresno, Calif.-based technology training provider, raised $80 million in funding. Kapor Center and Motley Fool co-led the round and were joined by the Growth Equity business within Goldman Sachs Asset Management and Citibank.

- Temporal, a Seattle-based durable execution systems company, raised $75 million in Series B-Prime funding. Greenoaks, Amplify Partners, Index Ventures, Sequoia Capital, Madrona, and Addition Ventures invested in the round. 

- Quantifind, a Palo Alto, Calif.-based financial crimes risk management solutions provider, raised $23 million in funding. DNS Capital led the round and was joined by Citi Ventures, US Venture Partners, Valor Equity Partners, and S&P Global

- Bonusly, a Boulder, Colo.-based recognition and rewards platform, raised $18.9 million in Series B funding. Ankona Capital led the round and was joined by FirstMark Capital, Access Venture Partners, and Next Frontier Capital.

- REALLY, an Austin-based phone service provider, raised $18 million in seed funding led by Polychain

- Archway, a Seattle-based internal infrastructure and data platform for banks, raised $15 million in funding co-led by Madrona and WaFd Bank

- SepPure, a Singapore-based industrial chemical membrane technology company, raised $12 million in Series A funding. SOSV led the round and was joined by Anji Microelectronics, RealTech Fund, Seeds Capital, EPS Ventures, and others.

- PteroDynamics, a Colorado Springs-based aircraft design and manufacturing company, raised $7.5 million in seed funding co-led by Kairos Ventures, Lavrock Ventures, and CS Venture Opportunities Fund.

- ​​Mangrove, a Denver and Paris-based order book-based decentralized exchange, raised $7.4 million in Series A funding co-led by Cumberland and Greenfield Capital.

Velotric, a Carson, Calif.-based e-bike maker, raised $7.4 million in Series A funding co-led by Redpoint China Ventures Capital and Fosun RZ Capital.

- Thymmune Therapeutics, a Cambridge, Mass.-based thymic cell therapies biotechnology development company, raised $7 million in seed funding. Pillar VC led the round and was joined by NYBC Ventures and others. 

- Verismo Therapeutics, a Philadelphia-based clinical-stage CAR T-cell company, raised $7 million in pre-Series A funding. BRV Capital Management led the round and was joined by Ignite Innovation

- Crstl, a San Francisco-based no-code electronic data interchange SaaS application and platform for brands, manufacturers, and wholesalers, raised $4.4 million in seed funding. Mastry Ventures led the round and was joined by Village Global, Alumni Ventures, SuperAngel VC, On Deck, Mensch Capital Partners, Harizury, and other angels.

- trackd, a Reston, Va.-based cybersecurity company, raised $3.35 million in seed funding. Flybridge led the round and was joined by Lerer Hippeau, SaaS Ventures, and Expa.

- Archetype, a New York-based revenue infrastructure solution for APIs, raised $3.1 million in seed funding. MaC Venture Capital led the round and was joined by Hustle Fund, Magic Fund, NOMO Ventures, Soma Capital, and others. 

- DEVYCE, a London-based digital phone number provider to businesses, raised $2.7 million in seed funding co-led by Y Combinator, FoundersX Ventures, and Garage Capital

- Deus Robotics, a remote-based warehouse robotics engineering and software development company, raised $1.5 million in seed funding from SMRK VC


- ​​Thoma Bravo acquired Coupa Software, a San Mateo, Calif.-based business spend management company. The deal is valued at approximately $8 billion. 

- Ares Management agreed to acquire a minority stake in BlueCove, a London-based scientific fixed-income asset manager, with the option to acquire control of the business over a multiyear term. Financial terms were not disclosed.

- Cadrex Manufacturing Solutions, a CORE Industrial Partners portfolio company, acquired D&R Machine Company, a Southampton, Pa.-based CNC precision machining solutions provider for the aerospace and defense market. Financial terms were not disclosed. 

- Hoffmaster Group, backed by Gamut Capital Management and Wellspring Capital Management, acquired Paterson Pacific Parchment Company, a Sparks, Nev.-based food service paper and parchment products producer. Financial terms were not disclosed. 


- ArisGlobal acquired Amplexor Life Sciences, a Novo Mesto, Slovenia-based regulatory, quality, and safety software solutions provider. Financial terms were not disclosed. 

- BeautyHealth acquired SkinStylus, a Scottsdale, Ariz.-bas microneedling device. Financial terms were not disclosed.

- ​​Lever Technology acquired Retriever, a Salt Lake City-based laptop and monitor returns facilitator. Financial terms were not disclosed.


- Atlas Energy Solutions, an Austin-based frac sand mining and transportation company for the oil and gas industry, plans to raise up to $414 million through the sale of 18 million shares priced between $20-23.


- Investcorp, a New York-based alternative investment firm, raised over $1.2 billion for a fund focused on control buy-out investments in middle market services businesses in North America. 

- Blockchain Founders Fund, a Singapore-based venture capital fund, raised $75 million focused on pre-seed and seed stage Web3 and blockchain startups.


- Coefficient Capital, a New York-based venture capital firm, promoted Arpon Ray to partner.

Correction, March 1, 2023: The online version of this newsletter has been corrected to reflect that Lightspeed Venture Partners, Greenoaks Capital Partners, and Index Ventures co-led the Wiz funding round.

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