FTX teeters on the verge of collapse after an eleventh-hour deal to save the business fell apart.
While the full extent of the risk posed to FTX was not known, the venture capital firm decided to mark its investment down to $0. The memo was shared on the social networking site and elicited both praise and criticism from other funds.
The damage was mostly contained, according to many investors. The growth fund that backed FTX is still up billions of dollars.
"Breathing a sign of relief forquoia," Sheel Mohnot, a prominent early-stage fintech investor and general partner at Better Tomorrow was quoted as saying.
The FTX write was turned into a humblebrag. Howard Lindzon said "respect".
The investment was spread among two funds. It invested $150 million into FTX through its third growth fund. Other investments brought the fund's gains to $7.5 billion, consisting of $5.8 billion of unrealized gains and $1.7 billion of realized gains.
Less than 1% of the fund's portfolio was invested in FTX and FTX.US through a Crossover Fund.
—Sequoia Capital (@sequoia) November 10, 2022
The growth fund has been insulated by early bets on DoorDash. When DoorDash went public in 2020, it had an equity value of $5.3 billion. Eric Newcomer estimated that the firm made more than a billion dollars in returns before the stock price fell.
Nihal Mehta, a partner at Eniac Venture, said that the fund's gains were driven by a position in Unity. It was the largest shareholder in the company before it went public. 70% of the firm's original position remained in June, according to a regulatory filing.
"Sequoia's position in FTX is only 0.25 of its $85 billion in assets under management," Allred said in a statement.
It was a huge miss. Allred said from a portfolio standpoint that doesn't matter.
A request for comment that was sent outside regular business hours was not immediately responded to by a spokesman for the company.
The firm was lambasted by investors for its apparent lack of diligence.
The profile of Sam Bankman- Fried, the founder and CEO of FTX, was posted on the website of Sequoia in September.
Bankman-Fried, relaxed and well- spoken, first pitched the firm on his vision to create the super-app for buying and spending cripto In a separate window, the partners sent exaltation messages. One person wrote that he was a 10 out of 10.
According to the report, Bankman- Fried was playing a video game during the meeting.
The scale of SBF's vision was what Sequoia was reacting to. It was not a story about how we might use technology in the future. It was a vision of a market for every person on the planet.
The check was written immediately.
—tae kim 🐀 (@firstadopter) November 9, 2022
Some people cringed online.
"This will make for an amazing scene in a TV show in a year," said Delian Asparouhov, a principal at the fund.
The startup is similar to WeWork, which got mocked for using aspirational language to brand its business. Ware said that the profile of Bankman- Fried had those "vibes".
There is an update at the top of the article. Solvency risk for FTX has been created by a liquidity crunch since the article was published.
Sequoia said in its letter to investors that it does thorough research on every investment it makes. Some investments fail while others succeed.
It's not the only venture firm with an egg on its face. The startup raised close to $2 billion in a span of six months over the course of two years, according to a press release.
According to reports in the Wall Street Journal, Bank-Friedman is asking for emergency funding to cover a shortfall of up to $8 billion.
FTX did not reply immediately.
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