Sequoia Capital marked down the value of all its investments in FTX to zero; who could save FTX?
In a letter to its limited partners, Sequoia Capital, a renowned venture capital firm, said that it had reduced the value of all of its investments in FTX to zero.
Here is the note we sent to our LPs in GGFIII regarding FTX. pic.twitter.com/Cgp1Yxk1pz
— Sequoia Capital (@sequoia) November 10, 2022
Sequoia says its investment in FTX is now worthless
The company’s exposure to FTX across two different funds is detailed in the letter sent today by the Sequoia Capital team and released by the company on Twitter. The famous venture capital company took a $213.5 million loss overall.
“Sequoia Capital’s exposure to FTX is limited,” the letter reads. “We own FTX.com and FTX US in one private fund, Global Growth Fund lll. FTX is not a top ten position in the fund, and our $150 million cost basis accounts for less than 3% of the fund’s committed capital.”
The letter states that Sequoia Capital’s exposure to FTX is minimal. “In one private fund, Global Growth Fund lll, we own FTX.com and FTX US. Our $150 million cost basis represents less than 3% of the fund’s committed capital, and FTX is not one of the top ten holdings in the fund.
The letter continues by stating that Sequoia’s Global Growth Fund lll is in “excellent form” and has returned roughly $7.5 billion in realized and unrealized gains that offset this loss, despite having incurred a $150 million loss on FTX.
“Separately, SCGE Fund, L.P. invested $63.5 million in FTX.com and FTX US, representing less than 1% of the SCGE Funds 9/30/2022 portfolio (at fair value),” it continued, detailing a separate fund’s exposure. At the end of the letter, Sequoia said it is “in the business of taking risk.” “At the time of our investment in FTX, we ran a rigorous diligence process,” it added. “In 2021, the year of our investment, FTX generated approximately $1 billion in revenue and more than $250 million in operating incoming, as was made public in August 2022.”
The letter was sent following the shocking demise of FTX, Sam Bankman-exchange Fried’s operator. Binance momentarily appeared as though it might swoop and acquire FTX following a liquidity issue at FTX and Alameda, a related trading company, but pulled out of the agreement earlier today.
The next question is, who could save FTX?
Arthur Hayes, the CEO, and co-founder of BitMEX, spoke out about the issue in a series of tweets on Twitter. “What happens now that Baron CZ passed on the FTX bailout and SBF is bankrupt. The next question is, who could save FTX?” he asked.
According to him, If CZ, the wealthiest person in crypto, can’t do the deal. No one can do the deal. FTX customer deposits will only see recovery in a bankruptcy court, and that will take many years to sort out. Mt Gox creditors still haven’t received funds, and it’s been almost a decade.
“Not your keys, not your coins. Expect all exchanges to guard their client’s capital closely. No more taking credit from so-called crypto prime brokers. No more polite phone calls to large traders to request a margin top-up. No mercy liquidation”, he added.
Money managers that lost funds on FTX will retreat from trading initially and reduce the number of trading venues on which they operate. Orderbook liquidity will fall. It won’t take much to push the market too much lower levels and force other over-leveraged players into distress. Remember that many liquidity providers will sit on the sidelines licking their wounds for a bit.
If US CPI comes in “hot,” 7% or 8%, expect TradFi markets to puke into the weekend. Crypto will take another stab lower, and it is possible for a capitulation candle over the weekend when fiat rails are closed. Assume that until proven otherwise, all counterparties have or have had exposure to one of SBF’s enterprises. That means if you don’t believe they are being honest about their losses due to word salad statements that don’t say much.
Investors in FTX Venture are in serious trouble. Not only Sequoia but also many names, including BlackRock, Ontario Pension Fund, Paradigm, SoftBank, Circle, Ribbit, Alan Howard, Multicoin, VanEck, and Temasek, are a few of the well-known investors in the cryptocurrency exchange. The Ontario Teachers’ Pension Plan Board, Lightspeed Venture Partners, Tiger Global, Insight Partners, Temasek, Paradigm, NEA, SoftBank, and other significant players in the capital market also invested $400 million at $32 billion in January 2022.
Celebrity investors have also visited FTX. Stephen Curry, a basketball player, became one of the platform’s partners in September 2021. It’s interesting to note that during his Eat.Learn.Play. the organization collaborated with FTX on several charity endeavors, this was his first investment in the cryptocurrency sector.
Tom Brady, the great quarterback for the National Football League (NFL), is another well-known person involved in the story. Brady’s net worth is seriously jeopardized due to numerous personal and professional losses.
In 2020, the football legend and his wife, the model Gisele Bündchen, began a committed engagement with FTX. It was a clue that he intended to join the cryptocurrency sector. Both received Bitcoin and a share of the company’s equity as part of the agreement.
Investment losses from FTX continue after then. The most prominent backer of Sam Bankman-cryptocurrency Fried’s exchange is Tiger Global Management, a hedge fund run by billionaire Chase Coleman. In addition to the Series B investment, which valued FTX at $25 billion, Tiger also invested alongside several other investors in FTX’s January Series C round.
Read more:
- SEC, CFTC Scrutinize Relationship Between FTX.Com And FTX US
- The Purchase Deal Between Binance And FTX Could Give The Former A More Than 80% Share Of The Global Crypto Market