When Elon Musk took Twitter private late last year, he did so with the help of a handful of investors, at least one of which appears to have skimped on due diligence.
Now we’re getting an idea of whether that buyout deal for the social media company was a good investment—at least according to one of Twitter’s shareholders. As my colleague Luisa Beltran reported earlier this week, one of Fidelity’s growth stock-focused mutual funds, the Fidelity Blue Chip Growth Fund, wrote down its stake in Twitter by approximately 56% since October—downgrading the value of its holdings from $19.7 million at the end of October to $8.6 million as of Nov. 30.
All of this comes after Musk swept into Twitter, parted ways with roughly three-quarters of the staff, installed hotel-like rooms in the office, and put espresso machines and sculptures up for auction.
As a reminder, two prominent venture capital firms jumped on board to back Musk’s bid for Twitter: Sequoia Capital and Andreessen Horowitz. That’s in addition to other investors including Brookfield, Binance, Oracle co-founder Larry Ellison, the Qatar Investment Authority, and Saudi Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud. In total, investors agreed to pour $7.1 billion into taking Twitter private, according to a Securities and Exchange Commission disclosure filed ahead of the acquisition. Here’s a look at the largest investors that were disclosed ahead of the transaction, as I wrote about last year:
Firms like a16z or Sequoia wouldn’t have to proactively write down their investments until a formal liquidity event, but the writedowns from Fidelity, which does, are notable. I know, I know: Venture capitalists have a long time horizon and they don’t get worked up over monthly or quarterly price movement. And, yes, few tech companies are notching lofty valuations given the current state of the markets anyway. (An a16z spokesperson didn't respond to a request for comment, and Sequoia declined to comment.)
But Elon Musk is reportedly looking for a new chief executive after respondents to his Twitter poll suggested he move on from the role. A majority of Twitter’s staffers are gone, and the company has split ways with several members of its executive team. VC investors are notoriously focused on the people running the company: the founders. If you look at the broader market, venture capitalist funds have generally performed quite well. The rate of success for their participation in buyout deals, particularly when you are putting together an entirely new management team, is less clear.
All of this points to a much larger looming question that is worth asking. Because, just as hedge funds, mutual fund managers, or sovereign wealth funds have tried their hand in the opaque world of privates in recent years, VCs have dappled in the public ones. They are holding shares—and buying up more—in their private darlings well beyond the IPO date (a strategy some argue is backfiring in the current market), or even launching buyout funds. Sequoia Capital has its own crossover fund.
Are venture capitalists good at taking big swings at public companies that have already scaled to thousands of employees, or at tinkering in the world of private equity-esque buyouts? It’s an interesting question. And Twitter looks to be a fascinating case study to shed light on an answer.
See you tomorrow,
Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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