📈 Low-diligence capital breeds a fraud wave in the venture-backed cohort

“The quality of the diligence by necessity has to go to zero.”

“But we then tell ourselves stories, and those stories get us access to money, which allows us to pursue more science, which is meant to forward the market. And then eventually the market gets forwarded so much, and you spend a billion and a half dollars, and it turns out the whole thing doesn't work. Just like stock markets, it starts out as a voting machine in the beginning, and it's a weighing machine over time.”

“They didn't do any diligence on him. Apparently, he had two companies that were kind of major red flags. ... We were seeing deals last year close in a week. ... it's what was it, you know, historically, a four to six week process. And then it went down to a four to six day process. And then people were meeting with you one day and saying they're closed the next.”

“He's got a very interesting history, actually, as well. I think if they had done any diligence.”

“In a world where everyone was raising a billion dollar second fund or a three billion dollar fourth fund, and you suddenly had an influx of a hundred billion dollars of venture money in a year, it's a lot like what we saw in crypto markets, which is an extraordinary explosion in highly speculative bubble assets. And a lot of these businesses maybe shouldn't have existed in the first place.”

“if you have a bunch of capital allocators, Jason, to your point, who are unsophisticated about investing, probably very sophisticated operationally, but fundamentally don't know what they're doing, and they're coming and transforming an organization that should be a disciplined, discerning allocator of capital and turning them into a velocity deal machine.”

“We've had this ridiculous culture of no governance, uncapped notes, just pushing. I see it on the boards I'm on. You guys probably see it too. Some people just pushing top line growth, never discussing unique economics, never discussing the bottom line. ... And they created these crazy Fugezi markups. They raised bigger funds based on it. And they just were never the adults in the room, the stewards of capital. It's infuriating.”

“This stuff is always at the peak of when there's a correction, right? ... But it's like that level of grift happens right before, you know, basically we have to re-rate valuations.”

“You guys all see these top 50 companies, and we all know, having met a lot of these companies, as you go down that list, these 20 companies are total scam companies, they're fraud, they're not going to work, they're grifters ... Oh, by the way, I did short it. It worked out really well.”

“So we have seen this trend in our industry of the private equity money coming in in greater volumes, in greater, you know, earlier and earlier and faster and faster, right? ... But to Chamath's point, it's just they're applying a financial model where they're not in the diligence business. They're just, and I think they just see like fraud is a cost of doing business, right? Something they can model out with a portfolio. ... So no one's doing the diligence. So that is a risk, I think, because it might actually change things.”

“In our diligence now, we have seen a spike in what I'll call massaging or painting the picture in a way that I'm not comfortable with. We have maybe tripled the amount of time we're putting into diligence now because I really care about my reputation. ... In recent history, 20, 30% were winding up backing out during the diligence process because their revenue was not software based.”

“This is only going to get meaningfully worse. ... the amount of money that's trying to get into Silicon Valley is going exponentially up. And as that happens, you guys now see it every day where there are firms whose entire business now is just to literally write a check every day. They're closing deals every single day. They're doing zero diligence.”