The Business Times

Sequoia marks FTX investment down to zero

Claudia Chong
Published Thu, Nov 10, 2022 · 11:04 AM

VENTURE capital firm Sequoia Capital has told its investors it is marking its investment in embattled FTX down to $0, after a liquidity crunch created a solvency risk for the crypto exchange.

In a letter to limited partners (LPs), Sequoia said the full nature and extent of the risk is not known. The writedown marks a massive turnabout for the FTX investment, which was among Sequoia’s high profile bets, and sparks further fear of a total wipeout for FTX’s other venture investors that include Paradigm and Temasek.

The crypto exchange is said to have raised nearly US$2 billion in funding, most recently at a US$32 billion valuation. Temasek, an investor in FTX across several rounds, said on Wednesday (Nov 9) it was engaging with FTX on a potential bailout by Binance that would see the world’s largest crypto exchange fully acquire its rival.

The potential deal has since been called off. “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” Binance said in a tweet on Thursday morning.

Sequoia told LPs it ran “rigorous due diligence” on FTX at the time of its investment and its exposure to the company is limited.

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It said it owns FTX.com and FTX US in one private fund, but FTX is not a top 10 position in the fund and the US$150 million loss accounts for less than 3 per cent of committed capital.

Another fund had invested US$63.5 million in FTX.com and FTX US, representing less than 1 per cent of the fund’s portfolio as at Sep 30, at fair value.

FTX generated about US$1 billion in revenue and more than US$250 million in operating income in 2021, the year of Sequoia’s investment, the VC firm noted.

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