My guess is that if Theranos had been a success, we would be reading about it as en example of how Silicon Valley is capable of transforming many industries. If it's part pof the club when it goes up, it should be part of the club when it goes down.
It's obviously not Tim Draper's fault that this went so badly, but at the same time he should (and apparently doesn't) well understand that others will use his investment as a proxy for due diligence. Having that kind of clout is a responsibility unto itself. He should either hold all investments to the same due diligence standard, or make his involvement confidential in cases where he is investing for reasons other than those for which he normally invests.
Investing in startups is risky because you can't know all the details. There are plenty of cases where an investor doesn't know for themselves if a technology works, but believes in the founders anyway. In some cases, even the founders don't know yet, but their pitch is more confident than they really are. This is fine because, at least some of the time, the technology does indeed end up working.
If Theranos had gone well, we would be celebrating how Silicon Valley looks for disruptors and is willing to invest in risky, unproven technologies by smart kids who know better than to waste their life getting a Ph.D., no? It's inconsistent to be willing to both praise and criticize VCs for taking risks on technologies they don't understand. If Tim Draper shouldn't have done that for Theranos, other VCs shouldn't be doing it for anyone else. And if it's good for VCs to do it in general, it was good for Tim Draper to take this risk.
Although I can't possibly know the answer to this, I would be willing to bet that the success rates of the former are abysmal in comparison to those of the latter.
Remember that venture capitalists need good opportunities as much as good opportunities need capital. If Theranos had worked out, would everyone have said that Holmes should have given other investors a chance and not just given her next door neighbor an early in?
If you want to have guys like Tim giving smart young people a chance, you can't have it both ways. Either:
A) He can invest in whatever good opportunities come along without making them jump through a lot of hoops, and whoever comes after with big money should do their own diligence OR B) He should take responsibility for the actions of other people seeing his investment as a proxy for due diligence, and thus have the same standards for seed funding as he would have for a later round.
I think there is fault in the SV system, but shouldn't it be laid at the feet of those who put in the $XXX million without DD, not the guy who put in $500k? YC takes similar chances on people, and that's a good thing. The problem is when the prestige attached to being chosen gets out of hand, and other people think Draper or YC have done their job for them.
Full disclosure: I was a founder who worked with Tim for 6 years. I know nothing about the Theranos situation, and I'd never heard of them before the recent press storm. That said, having known Tim, I could totally see him investing based only upon her being smart and making a good case to him. He does really seem to want to invest in smart young people. I say this based on my own interactions with him, having once been a young person who thought I was pretty smart.
"Five Visionary Tech Entrepreneurs Who Are Changing the World"
http://www.nytimes.com/interactive/2015/10/12/t-magazine/eli...
"Since dropping out of Stanford’s School of Engineering during her sophomore year in 2004, she has spent nearly every waking moment working on bio-engineering breakthroughs in diagnostic testing and persuading lawmakers"