Tag Archives: Blockchain

Seeing Through SBF: How One VC Found the Truth

The best venture firms in the world stand to lose billions in the FTX collapse. But one man saw through Sam Bankman-Fried.


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His name is Alexander Pack. Pack planned to invest millions in FTX, until the red flags started to mount.

Pack, managing partner of Dragonfly Capital at the time and currently of Hack.vc, was bewitched by SBF at first. From a new report in Fortune:

“He seemed like one of the smartest people I’ve ever met…He looks different from everybody else; he thinks different from them. So yeah, I was very taken with him. We all were. That’s why we spent so much time and were so interested in it.”

For all SBF’s charisma, warning signs began to appear. The profits of his trading firm, Alameda Research, were dropping bit by bit.

It turned out SBF wasn’t focused on the business he was pitching Pack. Instead, he was working on a new crypto exchange called FTX.

[Pack] was interested in SBF’s new exchange, but Bankman-Fried balked and supposedly told Pack he couldn’t invest in the separate business. Bankman-Fried, he says, haggled, telling Pack he would have to pay more if he wanted exposure. “And that was a big red flag, obviously for our investment,” Pack said.

Pack was right to take this as a huge red flag. A founder who’s distracted from day one isn’t a good bet.

SBF also became increasingly secretive:

“He wouldn’t tell us who [the investors] were because he didn’t want us to talk to them,” Pack said.

Bankman-Fried thought if the seed investors knew he was considering taking venture funding, the seed investors might redeem their money, Pack said.

Pack asked him how he would deal with the situation. “And Sam said, ‘Oh, I probably just won’t tell them at all. You know, we’ll keep it secret. We’ll figure out some way to keep it secret.’”

Pack realized that the FTX founder could easily keep valuable information from him as well. “That was definitely one of the flags,” he said.

Pack is 100% right that if SBF will deceive his existing investors, he’ll deceive Pack too.

What’s more, existing investors should be your biggest cheerleaders! You should be begging prospective investors to talk to them and find out how great you are.

And why would those early investors want to sell if the company was doing well?

In all, we have a picture of a distracted, unscrupulous founder. With hundreds of deals available at any given time, why choose this one?

Pack was considering investing just a couple of million dollars. But he appears to have done more diligence than the giant firms that put in hundreds of millions!

Those big firms have huge teams to diligence a company backward and forward. But they were outmaneuvered by little old Pack.

The lessons for founders and investors are clear.

Founders must be focused and keep their financials tight. And investors should be wary of distracted, secretive, and unscrupulous entrepreneurs.

What do you think of the FTX collapse? Leave a comment below and let me know!

More on tech:

Is SBF Headed to Prison?

Tiger Global Losing $185 Million a Day

Where Did Sequoia Go Wrong on FTX?

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Photo: FTX CEO Sam Bankman-Fried

Where Did Sequoia Go Wrong on FTX?

Sequoia Capital is the greatest venture capital firm of all time. So how did it lose $214 million on FTX?


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Sequoia made two large investments in the crypto exchange, which went bankrupt earlier this month. Sequoia has since marked down those investments to zero.

The firm’s top leaders apologized to investors on a call yesterday. From Bloomberg:

Top partners at the powerful venture capital firm Sequoia Capital apologized to their investors in a conference call Tuesday for backing FTX, a pair of bankrupt cryptocurrency exchanges that had allegedly been mismanaged by Sam Bankman-Fried, according to people familiar with the meeting.

Despite the mea culpa, Sequoia defended its process:

Although partners on the call were conciliatory, they also defended the due diligence they conducted on the deal. They said staff reviewed financial statements and asked on multiple occasions about the relationship between FTX and Alameda Research, a trading firm that Bankman-Fried also founded and which reportedly borrowed and lost FTX customers’ money.

Sequoia is wrong to defend this investment.

FTX had no board. This despite being valued at over $30 billion and entrusted with hundreds of millions of investor’s money.

Seed stage companies I invest in routinely form a board when the round closes! This is in line with the best practice recommended by attorneys.

Benchmark General Partner Bill Gurley said it best:

Benchmark avoided the crypto FOMO. The partners stuck to their knitting and kept backing real startups.

Sequoia was not so lucky.

Indeed, its diligence in other crypto deals appears questionable. From The Wall Street Journal:

When FTX declared bankruptcy earlier this month, Sequoia also edited another post for a crypto investment called LayerZero. An earlier version said the Sequoia partnership approved the investment just 48 hours after an investment memo was completed. The newer version removed references to the fast decision-making.

In yesterday’s call, Sequoia said it was considering making startups use Big Four accounting firms in the future. Especially for a huge company like FTX, that’s a no-brainer.

Like most angels and VC’s, I idolize Sequoia. They’re the best of the best.

I hope to see them get back to their roots. And if other VC’s want to chase crypto dreams, let them.

In the words of Sequoia founder Don Valentine:

“What is important is to have the ability and willingness to be different.”

Don Valentine


What do you think of Sequoia’s FTX losses? Leave a comment at the bottom and let me know!

This is the last blog for this week. See you on Monday!

Happy Thanksgiving everyone!

More on tech:

Hedge Funds Lose Billions as FTX Implodes

Talking FTX, Twitter and Startups at Starta VC

Getting to $10 Million ARR Without a Series A

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Photo: FTX CEO Sam Bankman-Fried

Hedge Funds Lose Billions as FTX Implodes

Hedge funds trusted crypto exchange FTX with billions of dollars. Now, they stand to lose it all.


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Some funds have lost most of their assets and may cease to exist. From a report out overnight in the Financial Times:

Hedge funds have billions of dollars stuck on failed cryptocurrency exchange FTX and could face years of waiting to recover anything at all from a marketplace they once believed to be one of the industry’s most reliable bets.

“I lost my investors’ money after they put faith in me to manage risk and I am truly sorry for that,” tweeted Travis Kling, founder of Ikigai Asset Management, which has a “large majority” of its hedge fund’s assets stuck on FTX. “I have publicly endorsed FTX many times,” he added. “I was wrong.”

Other funds, such as Galois Capital, had half or more of their assets on FTX. It could take years to recover those assets, if they’re recoverable at all.

Crypto exchanges typically hold customers’ money longer than stock brokers. This leaves customers more exposed to problems at the exchange.

To add insult to injury, hackers may be looting what little money FTX has left. A series of abnormal transactions have vacuumed hundreds of millions out of the bankrupt exchange.

Rather than place their trust in FTX, hedge funds should’ve used a service like Coinbase Custody.

Coinbase Custody puts customer assets in segregated cold storage. Its parent company is US-based.

As a public company, Coinbase has to make disclosures FTX would never dream of. And it even has SOC 2 security certification.

An exchange like Coinbase is a real, grown-up company. FTX was an amphetamine-fueled commune in a questionable jurisdiction.

But hey, why not trust them with billions in your investors’ money?

I expect to see a lot of the funds that did business with FTX shut down. It’s hard to trade when all your money’s gone.

Investors big and small should be careful about who they do business with. Stick to companies in reputable jurisdictions with the right controls in place.

It turns out the brave new world of crypto is a lot like the old world: full of scammers. Buyer beware.

After the implosion of FTX, who do you think is next? Leave a comment at the bottom and let me know!

More on tech:

How SBF’s Hedge Fund Imploded

Is SBF Headed to Prison?

FTX Blows A Massive Hole in Tiger’s Portfolio

Note: I have no affiliation with Coinbase.

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Photo: FTX CEO Sam Bankman-Fried

How SBF’s Hedge Fund Imploded

Let’s say I create $1 million worth of Frankcoin. Will you loan me $1 million with my Frankcoin as collateral? 


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Not if you’re in your right mind, you won’t. But that’s exactly what lenders did for Sam Bankman-Fried’s crypto hedge fund, Alameda Research. 

From a report out this morning in The New York Times:

 …Alameda, which held a large stake in the token, began using its FTT holdings as collateral for more loans to facilitate its trading activities. 

Like Frankcoin, FTT had no real value. It was created out of thin air by SBF.

This didn’t stop Alameda from making bold claims in a presentation to lenders:

…it could offer lenders “high returns with no risk” and “no downside.”

At this point, lenders should’ve known this was BS. There are no returns without risk. 

Anyone guaranteeing you a return is a fraud. Con artists, Bernie Madoff among them, love to promise you a sure thing. 

Perhaps these lenders were blinded by the big returns Alameda promised. 

For years, this house of cards stood. But as crypto came under pressure this year, Alameda’s fraud became harder to conceal:

With crypto prices falling, more lenders wanted their money back. The falling prices also reduced the value of FTT, which Alameda had used as collateral for some loans. As the firm struggled to pay lenders back, FTX resorted to using funds that customers had deposited with the exchange for ease of trading to pay Alameda’s lenders back.

What can we learn from this, as investors? 

Never believe anyone who says they can guarantee you a return. There are no guarantees. 

Don’t call something someone invented an asset. It’s funny money. 

And never let the promise of riches blind you to reality. 

What do you think of FTX and Alameda’s collapse? Leave a comment at the bottom and let me know! 

Have a great weekend everyone! 

More on tech:

Talking FTX, Twitter and Startups at Starta VC

Is SBF Headed to Prison?

FTX Blows A Massive Hole in Tiger’s Portfolio

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Photo: FTX CEO Sam Bankman-Fried

FTX Blows A Massive Hole in Tiger’s Portfolio

It’s going from bad to worse at Tiger Global Management. As crypto exchange FTX implodes, Tiger could lose hundreds of millions of dollars.


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From a new report in Forbes:

Tiger Global Management appears to have just taken another hit.

The hedge fund headed by billionaire Chase Coleman has been among the most prominent investors in Sam Bankman-Fried’s FTX crypto exchange.

On Tuesday, Binance CEO Changpeng Zhao tweeted that his firm was buying FTX’s non-U.S. businesses to rescue it from what he said was a “significant liquidity crunch.”

The hedge fund giant made multiple, huge investments in FTX:

Tiger was part of a group of investors in FTX’s January Series C round that valued the company at $32 billion. It previously also participated in a Series B round that valued FTX at $25 billion. During that raise, FTX took a page out of Elon Musk’s playbook by raising exactly $420.69 million.


Both the Series B and C raised about $400 million. A giant like Tiger would likely have written checks of at least $100 million in each of those rounds.

I’ve seen Tiger in numerous deals, and their typical check size was $100 million or more.

Now, Tiger will likely take a total loss on its FTX stake. Binance is expected to buy the exchange for essentially nothing, simply assuming its liabilities.

This means Tiger could be looking at hundreds of millions of dollars, up in smoke.

This comes at what’s already a terrible time for Tiger Global. Its fund is down 55% for the year, with losses accelerating last month.

Meanwhile, it has only marked down its private portfolio by 8%. That is far too little given the huge losses in the NASDAQ, which means more markdowns to come.

Could this be the straw that breaks the camel’s back? Only time will tell.

But even without the implosion of FTX, I expect Tiger to liquidate.

Its fund must more than double to get back to its high point and start charging performance fees again. Those fees make up most of a hedge fund manager’s pay.

Tiger has taken huge losses in both public and private markets. Why does anyone still trust them with their money?

Were I an investor in Tiger, I’d be dumping every cent of it yesterday.

What do you think the future holds for Tiger? Leave a comment at the bottom and let me know!

More on markets:

Hedge Fund Giant Losing $40 Million a Day

Tiger Global Down 52% — Losses Over $18 Billion

Hedge Fund Manager’s Arrest Shows How Market Manipulation Works

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Photo: FTX CEO Sam Bankman-Fried

Andreessen Crypto Fund Down 40%

It’s crypto winter, and Andreessen Horowitz is shivering. Its main crypto fund is down 40% this year.

From a new report in The Wall Street Journal:


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As cryptocurrency prices soared last year, no investor bet more on the sector than Andreessen Horowitz.

The timing wasn’t good.

Andreessen’s flagship crypto fund shed around 40% of its value in the first half of this year, according to people familiar with the matter. That decline is much larger than the 10% to 20% drops recorded by other venture funds, which have largely avoided the risky practice of purchasing volatile cryptocurrencies, according to fund investors.

Many of the firm’s largest investments have been crushed. Coinbase stock is down nearly 80% since its IPO. Solana has dropped 82%.

NFT marketplace OpenSea may be the best investment Andreessen’s new crypto funds have made so far. Its valuation soared over 100-fold in ten months to $13 billion.

But now, OpenSea trading volumes are down 99% from their peak. The platform is a ghost town, and one of Andreessen’s best investments may be a total loss.

Andreessen likely scaled its crypto funds too quickly. It went from a $515 million fund in 2020 to a $4.5 billion fund this year, the largest ever.

The benchmark for a decent return is a 3x fund. Can Andreessen make $13.5 billion in crypto?

If the firm gets a 10% position in a startup, that requires a $135 billion outcome. There isn’t a crypto company in the world worth anything close to that.

Andreessen isn’t just buying shares in crypto startups. It’s also buying their tokens, a rare and extremely risky move.

These tokens confer no ownership in a company. Their prices are very volatile.

Andreessen’s one saving grace is that it distributed Coinbase shares shortly after IPO, locking in billions in gains. That should preserve good returns in the early crypto funds.

But the picture for the new funds is bleak. Andreessen has made fewer investments since the crypto crash, and no one knows when prices will bottom.

I’ve been deploying capital faster in this weak market. Andreessen may be missing great opportunities by pulling back.

Perhaps its limited partners (LP’s), the investors in the funds, are telling the firm to stand pat.

I think Andreessen is over-committed to crypto. A $4.5 billion fund is too big for this nascent industry.

Deploying sums that large will require real products with real uses beyond speculation. Any day now…

What do you think Andreessen should do? Leave a comment at the bottom and let me know!

More on tech:

How I Help Startups

Big Problems at Divvy Homes

How I Source Deals

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Photo: “Chris Dixon” by jdlasica is licensed under CC BY 2.0.

Crypto VC’s to Crash: “YOLO”

Despite cratering crypto markets and a slowdown in venture funding, crypto VC’s are upping the ante. From a report out yesterday in Reuters:

Even as the crypto sector shivers in the bleak winter, venture capitalists are pouring money into digital currency and blockchain startups at a pace that’s set to outstrip last year’s record.

In the first half of the year, VCs bet $17.5 billion on such firms, according to data from PitchBook. That puts investment on course to top the record $26.9 billion raised last year, a warmer and happier time for bitcoin and co.


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Overall US venture funding fell in the first half of the year. But US crypto investments are on pace to increase almost 50% over 2021.

Why are crypto VC’s behaving so differently? Because they don’t have much choice.

Numerous venture firms recently raised huge crypto funds. Predictably, Andreessen Horowitz is at the front of the conga line, raking in $4.5 billion in May.

Electric Capital pulled in $1 billion, and Bain Capital launched a $560 million fund.

All that money has to go somewhere. But deploying giant crypto funds today could be a big mistake.

Giant funds have to focus on late stage deals. After all, there’s no way a16z is going to hand out 1,000 seed-stage checks of $4.5 million.

It’s simply more meetings, diligence, and oversight than any firm could handle.

So they’ll put a lot of that in late stage megarounds. Since the startups are close to going public, their valuations depend on public markets.

But markets in public tech stocks and crypto tokens are extremely unpredictable right now.

These firms may pay prices that public markets soon find laughable.

If that weren’t bad enough, the SEC could soon be breathing down the necks of VC firms.

Yesterday, the SEC announced that it’s investigating Coinbase for offering unregistered securities. Crypto VC’s have likely sold similar securities.

The crypto venture market looks seriously overheated. I see companies with no product or customers getting valuations of $100 million or more regularly.

You don’t often see that in non-crypto deals. And there’s no reason why the rules should be any different for crypto.

I think crypto could have some awesome applications. Cheap international money transfer may be the best use case.

But thus far, speculation has been rife and useful projects few.

Meanwhile, I’m going to keep investing in great early stage companies with awesome products and happy customers. And if a crypto company can deliver that, a salute!

More on tech:

Inside the Seed Funding Slowdown

Why Technical Founders Win

The Top 5 Things I’ve Learned from Angel Investing

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The End of Celsius — the Beginning of Crypto Regulation

Cryptocurrency lender Celsius Network has stopped all withdrawals, imperiling the savings of 100,000 users. From The Wall Street Journal:

A few months ago, Mike Washburn’s cryptocurrency investment looked like a winner.

Now he’s just hoping to get his money back.

Mr. Washburn, a 35-year-old plumber in Otsego, Minn., had $100,000 in an account at Celsius Network LLC, one of the largest lenders in the cryptocurrency world. Recently widowed, Mr. Washburn said he and his two children moved in with his parents, and he planned to buy a house with his savings. The Celsius account offered him yield higher than would a traditional bank account, and the company was well-known in the crypto community.


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Celsius promised rates of over 18%, versus around 1% in a traditional bank account. Users flocked to the platform, perhaps unaware of the risk compared to a traditional bank.

The assets Celsius holds to pay those high rates plummeted in value as crypto markets crashed this year. And some of its investments are only semiliquid, making it difficult to meet redemption requests from depositors.

Yesterday, certain investors tried to engineer a short squeeze in Celsius tokens.

It caused some run-up in the price, but the tokens remain down over 75% in the last year. I would expect this attempt to fail in the long term, given the overall instability of the Celsius platform.

Source: Coinmarketcap.com

Some savers may have looked at the 18% Celsius was offering, noted that it was 18 times as much as the bank, and piled in. But comparing a crypto lending product to a US bank account is “apples and bowling balls.”


A bank account provides FDIC insurance for up to $250,000. What’s more, any interest is paid in US dollars, a much more stable currency than most crypto tokens.

I think Celsius is finished as a platform.

Any deposit-taking institution operates on trust. Even if it weathers the current storm and manages to stay solvent, who will trust Celsius with their money in the future?

The even greater impact of the Celsius implosion will be on crypto regulation. The industry has often tried to avoid regulation, espousing a libertarian ethos.

That ends when plumbers in Minnesota are losing their life savings. Once their constituents are losing everything and barraging their representatives with phone calls, politicians become motivated to investigate and pass new laws.

What’s more, pols and regulators see opportunities to make names for themselves by sticking it to unsympathetic crypto fat cats.

It may take several years, but expect stiff regulations on cryptocurrency to come out following this crash.

I expect crypto lending and stablecoins to be the first targets for regulation. They are the most similar to the heavily regulated banking industry in that they take deposits and aim for stability.

What do you think is next for Celsius and the crypto market at large? Leave a comment at the bottom and let me know.

More on tech:

Hedge Fund Tiger Global Losing $136 Million a Day, Down 52%

Managing a Crisis the Sequoia Way

Why Tech Stocks Are Oversold

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Call for Awesome Unity Engineers

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I wanted to put the word out: if you are a great Unity engineer, I have an incredible opportunity for you.

A metaverse startup just raised a big Series A and needs you! I’m an investor in the company and can introduce you to the founders.

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I’ll see you later today for a full post!

$1 Billion Still Missing from Bitfinex Hack

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Last week, the U.S. government made its largest asset seizure ever: $3.6 billion worth of bitcoin.

The money came from the 2016 hack of the Bitfinex exchange. The culprits: Ilya Lichtenstein and Heather Morgan, a young couple from New York City.

Perhaps the most interesting detail in this story is that approximately 24,000 bitcoins are still missing from this hack. They would be worth over $1.1 billion at current prices.

So where are they? Perhaps percolating around the same places where Lichtenstein and Morgan laundered theirs.

The criminal complaint alleges that the couple laundered some of their stolen coins using non-fungible tokens (NFT’s). This could explain why people will pay hundreds of thousands or even millions of dollars for an image of an ape.

If two criminals work together, trading the NFT between various accounts they control at ever-increasing prices, all they need is one bagholder to come in and make the illusion real. They take his money, give him the little jpeg, and laugh all the way to the bank.

Another fascinating aspect of this story is how they were caught:

The authorities said they traced the flow of funds through the unhosted wallets and across exchanges, according to the complaint, finding transactions that landed in accounts on exchanges that the two alleged launderers had in their real names. In one instance, according to the complaint, two of these accounts shared a login from the same location in New York.

This is a common mistake: mixing anonymous and real identities. Ross Ulbricht, creator of the Silk Road, did this by logging into his private VPN and his personal Gmail account from the same cafe in San Francisco.

If authorities find a pattern that when an anonymous account is used, your account also tends to be used from the same IP address, you’re going down.

In all, I think this case is good for the crypto industry. The less it seems like a free-for-all, the more legitimate it becomes.

The more legitimate it becomes, the broader adoption will be.

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More on tech:

Tech Plunge Hits Early Stage Startups

How Solana Could Wipe Out Visa and MasterCard

Hedge Funds Pull Back from Tech Amid Big Losses

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