“Does Sam actually have $3B liquid?”

It was April 25th, 2022. For a number of months before this moment, Elon Musk had publically asserted that he was looking to take Twitter private and was putting together the capital stack to make it happen.

In a text exchange that was made public five months later, Elon Musk and Michael Grimes, Musk’s banker, were discussing the prospect of a high-flying Founder and CEO that could come in on the deal. The text message exchange is as follows:

Grimes: Do you have five minutes to connect on possible meeting tomorrow I believe you will want to take? 

Musk: Will call in about a half an hour. 

Grimes: Sam Bankman-Fried is why I’m calling [Includes URL]

Musk: I'm backlogged with a mountain of critical work matters. Is this urgent?

Grimes: Wants 1-5b. Serious partner w/you. 

Could do 5bn if everything vision lock. … can talk when you have more time not urgent but if tomorrow works it could get us 5bn equity in an hour. 

Musk then comments about the technology play and indicates interest in meeting “so long as I don’t have to have a laborious blockchain debate.” 

Grimes: …I do think we would be at least 3bn if you like him and want him, maybe more…” 

Musk: “Does Sam actually have $3B liquid?”

Grimes: “I think Sam has it yes. He actually said up to 10 at one point but in writing he said up to five. He's into you. 

…We can push Sam to next week, but I do believe you will like him. Ultra Genius and doer builder like your formula. People build FTX from scratch after MIT physics.” (Source: Post on X) 

Seven months later in November 2022, FTX, the cryptocurrency exchange founded by Sam Bankman Fried, collapsed like the house of cards it always was.

It turns out, the cash between FTX the company was a dark shell game. The financial statements revealed a much different picture of what was actually in the bank accounts.

That’s why this is a fascinating text exchange.

As you read the language, it's clear that Grimes believes Musk should feel priviledged to take a meeting with Sam Bankman-Fried. In Grimes’ communication, there is no doubt or any hesitation that there is anything wrong with the situation.

Elon Musk, on the other hand, doesn’t play into the flattery. Musk’s attention moves away from Grimes’ focus on the person, but on the deal. He is in due diligence mode - can this deal actually be executed?

“Does Sam actually have $3B liquid?”

The phrase “due diligence” is a loaded phrase, so I want to give you a metaphor as to what the goal of due diligence should be. 

When I was a founder, for me, it conveyed a vague, a somewhat ominous, technical term. But it was also a phrase that denoted unpredictability. In general, founders don’t really know what they are going to get in the investor due diligence process. 

If a founder goes through due diligence with a VC fund, they will in short order find out that due diligence means different things to different firms. Sometimes founders feel like they may be raked over the coals with due diligence with some firms, whereas with other firms, due diligence doesn’t seem to be as rigorous. 

Equally as an investor, when I initially founded Tundra Angels, I was totally new to due diligence on the investor side. In a different way, it was equally onimous for me! 

So, here is a metaphor to explain due diligence: 

Investor due diligence acts like the investor is pulling at what they see are the seams of the startup. 

The investor’s job is to see how easily those seams come apart.

It’s as if a startup represents a T-shirt or something, and the investor feels the fabric in their hands and identifies what they see as the seams of the shirt. Then, they puts one hand on each side of the seam try to pull it apart. Then, they go to another seam, and try to pull it apart and force breakage. They continue to do this, over and over. As they keep tugging at different seams, they are going to find where things break down easily, or if the seams stay intact. 

Back to investing. When Tundra Angels passes on startups, it is rarely because one seam has come apart. It is because several seams have come apart.

In our experience, a very positive signal to potentially invest is when you pull at all the seams that you can conceivably think of pulling on, and nothing breaks apart.

In sharing that metaphor, you're probably thinking, "Well, each investor looks at different seams and pulls at them differently." Yes, that is correct. 

A company that was to become one of our Tundra Angels portfolio companies was once raising the round that we invested in. Even though this CEO had tremendous experience in the space, it was their first venture fundraise. This person’s comment to me in the process was, “I’ve quickly found out that each firm wants their own variation of the same or similar things.” 

My answer: “Yes, you have now discovered that we are each our own special snowflake.” 

The way I said it was in jest, but it’s true.

For each investor, I’d say there is some portion of a baseline layer of due diligence and some portion of a bespoke layer. 

The baseline layer are things that the vast majority of investors, regardless of who you speak with, deem important. 

The bespoke layer is often what separates each investor from each other. It is the way that they look at the venture capital world and where they see arbitrage. One of the primary methods that they effectuate this strategy in practice is what the investor deems important through the initial screening and the due diligence process. 

Tundra Angels was once doing due diligence on a startup. This startup had secured a VC firm to lead their round. I asked to be connected to the lead investor, and the CEO introduced me. 

As I reviewed the materials, it was unlike a process that I had seen before. 

Yet, what I want to call out here is not that one approach is better than the other, but how two investors looking at the same company have different theses on the same company in the venture capital world. Let’s call the investor, Jason. 

Jason: Our decision criteria are almost exclusively about metrics related to revenue.

When we stacked up the following high level analysis against the rest of our recent investments, it came out at ~$7.5-8M valuation.”

Then the investor went into a number of their metrics: 

"One part SaaS and one part hardware component

The former is 85% margin, the latter is 55%.  The mix is currently 1:4, for a combined margin of ~70%.  Of course, they hope to move towards more and more SaaS over time.

At $950K+ ARR currently signed as of X date.

The investor then attached their diligence notes. 

Me: Thank you for sending this. Super helpful for validating the $8MM valuation number. I'm curious about the "why" behind the initial interest. Specifically, what attracted you about the market sizing and esp given some of the variables of X and Y in the market?  Fundamentally, why do you think they will win their market category? 

Jason: “Ahhh. As it happens we don't care about these factors at all. Our basic theory is that it's difficult to predict which sectors and market categories within technology will be better than others in the next 6-10 years--the exit window for the big winners that will drive fund returns.

We consider any tech company at a favorable revenue-valuation ratio. So it was revenue/valuation itself that distinguished them.

I know this is unusual, and I realize that may not be helpful to you, but it is our philosophy.”

There are times when I’m for different startup investments I’m like, “I don’t get why this firm made an investment in this startup.” This is one major part why. Investors don’t necessary share the same philosophy, logic, or point of view on what signals an investment. Tundra Angels has its own layers of IP within its due diligence process that I believe make our process strong. With all that said, I respect the fact that the investor has conviction around a strategy.

When I was studying for the GMAT to get into MBA school, one of the things that the test tutors told me was to find which question answer options you can disqualify quickly. It will give you a higher statistical likelihood of choosing correctly. 

It is the same thing with investors. 

Investor due diligence is like the process of elimination. Investors basically have to determine, which ones are not options? 

The high velocity of deal flow forces them into this paradigm - it's not really about picking which one is best. It's finding the ones that should NOT be in the consideration set first and see which options you’re left with. 

That’s where the metaphor on pulling on the seams comes in handy. 

If the shirt, or the startup’s story, after pulling on some seams comes apart here, and over there, and over there. That’s a likely signal that it should not be in the consideration set. 

In our Tundra Angels' experience, a very positive signal to potentially invest is when you pull at all the seams that you can conceivably think of pulling on, and nothing breaks apart.

Tundra Angels was once doing due diligence on one of our future portfolio companies, Flamingo Marine. The company was referred to us by one of our Tundra Angels investors who operates several companies in the marine space. 

The Founder, Brian Davis, pitched to Tundra Angels in May 2025. The company received strong interest to pursue the company further into due diligence. 

However, we ended up having one extra step to our typical process. We typically have one deep dive chat with the team before breaking into individual due diligence. In this case due to the manufacturing-centric nature of the company, we had a second chat just focused on the deep dive of their manufacturing plan and process. 

Several Tundra Angels investors attended both deep dive chats.  

At the end of the manufacturing deep dive chat, I asked them, “Do we have any additional questions for the team at this point?”

One of the Tundra Angels investors noted something very astute, which articulates this conviction around the seams staying intact.

Investor 1: “I have a basic feeling, a gut feeling, that anytime that we have poked with a question, one of the founders has 20 slides in a PowerPoint deck where they’ve already thought through that. 

Investor 2: Right?! Don’t you think so? Like, it’s crazy... 

Investor 1: We’ve poked enough places [My language: pulled enough at the seams] and seen that level of depth… that I have a good feeling from that. I have a good vibe from that.”  

We had pulled at all the seams that we could conceivably think of pulling on, and nothing broke apart. We made our first investment in Flamingo one month later.

Back to Musk and Sam Bankman-Fried.

“Does Sam actually have $3B liquid?”

What I find interesting is that Musk’s question to Grimes is one part a pivotal to the entire argument, but also one part very ignorant. But often, a good seam in due diligence is contrarian - something that doesn’t add up.

Musk identified a seam of FTX and the Sam Bankman-Fried story, and pulled at it.

With this question to Grimes, Musk likely didn’t know how much his question was foreshadowing something way more dark than anyone could have imagined - a financial and business diaster beyond comprehension.

But whether the stakes as $3 billion or as modest as a $25,000 angel investment, the purpose of due diligence should be the same.

Investor due diligence is like the investor is pulling at what they see are the seams of the startup. The investor’s job is to see how easily those seams come apart.

If they start coming apart, that’s a likely signal that it should not be in the consideration set. But when you pull at all the seams that you can conceivably think of pulling on, and they stay intact, that’s a positive signal.

To close, two takeaways:

See the seams of the startup. And, don’t trust someone if they say they have $3B liquid.

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