This Time Last Year, Venture Capital (VC) Firms Couldn’t Get Enough FTX Anymore Sam Bankman-Fried (SBF) – But everything has changed since the collapse of the crypto empire in November.
As the full horror story of FTX and Alameda Research’s corporate governance vacuum unfolds, many are asking how VCs can fail so spectacularly in their duty of care to their investors.
In SBF’s parallel universe, he is working to make the FTX depositories whole again, but New York Times Deal Book Earlier this week, former clients may have been demanding to know how something that looked like fraud was allowed to play out in plain sight – or at least with the facilitation of VCs’ investments.
What precautions did the firms take before investing crores in SBF companies? Not much from the looks of it.
For example, why did very few of them stop to ask why a business with a valuation of $35 billion had no accounting department?
Why was none of them aware that the offshore business was run from a Party House mansion in the Bahamas, where the conflict of interest at the heart of the group found material expression in the form of close personal relationships between people. Best team.
From here on, things are going to change in the crypto industry.
in our recent interview with Bakkt CEO Gavin Michael We got some insights into what a well-run and regulated crypto company should look like:
We treat our clients’ funds as their funds. There’s no borrowing or leverage or any of that.
We do not do things like taking care of business investments through trust funds. There are legal walls between our various activities – it is that level of transparency that will be central to the industry in how we move forward.
We have set up our company with the guiding principles of compliance measures, controls and rigorous risk management. We want to make sure that we see that end-to-end regulatory clarity coming forward.
We’ve got 36 institutional investors in FTX
500 Startups | Greylock Partners | One Block Capital | Steadview Capital |
allen howard | ICONIQ Growth | Ontario Teachers Pension Plan | Temasek International |
black Rock | Insight Partners | Ideal | thomas bravo |
bond capital | Institutional Venture Partners | Paul Tudor Jones | Tiger Global Management |
circle | kinetic | race capital | tribal capital |
coinbase ventures | kevin han | Ribbit Capital | VanEck |
consensus lab | lemonscap | Sagar Rajdhani | |
FBG Capital | Lightspeed Venture Partners | Sequoia Capital | |
Galva Rajdhani | multicoin capital | china capital | |
Greenoaks Capital | NEA | softbank |
SOURCE Messari and Bloomberg. See full data tables at the bottom of this story.
How was the commingling of FTX client funds allowed to develop with Alameda Research trading positions, apparently even in a half-hearted attempt to question the company’s procedures and controls?
Was it all a sinister case of ‘founder worship’ that got completely out of control and therefore blinded the VCs to some obvious lines of inquiry – like how is this business growing so fast?
Of course, the regulators have a lot to answer for as well. If there was a way to set up a regulated crypto derivatives business in the US, ftx Doesn’t happen in the Bahamas.
Hardly anyone in VC land seems to be asking any of these questions or worrying about how things might unfold if the perennially volatile crypto market enters one of its many extended drawdowns. ?
Not all VCs were fooled by FTX and SBF
Not all VCs were fooled by FTX, however. Dragonfly Capital General Partner Tom Schmidt talking to TechCrunchsuggests that FTX may casually mark the end of an era of due diligence, and that should certainly be welcomed:
Schmidt believes that the past few years represented an “anomaly” in due diligence and the traditional entrepreneurial process. He recalls meetings with crossover funds backing a company, in some cases deploying 20 times more capital than they could afford, where the investor clearly didn’t have a fundamental understanding of what the company was doing.
,
“The thing about FTX and Almeida is that when you heard it, it was unbelievable,” he said. “We were never fans. It should have been blue chip and blue chip investors backing them but the numbers never made sense. If you look at how much they’re earning and how much they’re spending on stadium sponsorships and donations , then nothing really makes sense.
Below are the VC firms in the FTX Wall of Shame
Click on the three dots ‘more’ button on the right when hovering over the infographic below to see the full screen view:
We’ve looked at the who’s who of the world of VC investors here at FTX, as you can see in the table below. If their due diligence was so shoddy with FTX, how is it with their other investments?
was/was at the top of the heap of VC fans Sequoia Capital, In fact such was the depth of its appreciation that it published a Recent blog posts as of September Singing the praises of SBF this year.
No praise was too great. The Sequoia writer began his tribute by comparing the origins of SBF’s Alameda Research to the creation story folklore associated with Apple and Google.
How SBF Made Its First $Billion
Reference has also been made to SBF’s business acumen, possibly dating back to his time at the Wall Street-owned trading firm Jane Street Capital.
SBF is believed to have made its first billion in 2017 by arbitrating stubborn delta premiums on the price of bitcoin in Asian and Western markets.
But that was then. Currently Sequoia and a roll-call of the great and good of the VC world are tending to their wounds.
Most firms don’t publicly disclose write-offs, but those that have — or where their letters to their LPs [limited partners] and have been leaked to other investors – perhaps providing a good indication of the extent of the capital destruction.
on 10 November Sequoia wrote down the full value of its $214 million investment In FTX institutions.
next day softbank Unveiled a $100 million write-off.
Singapore’s Temasek has revealed its biggest write-off ever – a loss of $275 million.
Multicoin Capital and the Ontario Teachers’ Pension Plan have put down $100 million and $95 million respectively, and China Capital a relatively modest $5 million by comparison.
Here’s A Crypto Prospect That Got VC Funding And Could Be 10X
If you are looking to repair your crypto portfolio then you might want to take a look at some of the up and coming coins that are currently in pre-sale but ending soon.
dash 2 businesswhich has received $200,000 in VC seed funding, a trading intelligence platform will launch the beta of its presale dashboard even before the presale ends.
It’s already raised about $7.7 million from eager investors, likely encouraged by its focus on due diligence and bringing Pro Tools to retail.
In light of the collapse of FTX the market is crying out for analytics and signals to help traders navigate the sometimes treacherous waters.
This platform, with its auto-trading API, social sentiment metrics, social trading, tech indicators, backtesting and more, could be the Bloomberg terminal retail traders have been waiting for, but without the eye-watering price tag But do your due diligence before you even consider investing.
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