Tag Archives: FTX

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

Is SBF Headed to Prison?

Crypto exchange FTX is spiraling toward bankruptcy. Its founder, Sam Bankman-Fried, could be facing prison.


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The SEC is investigating whether FTX misused customer funds. From Bloomberg:

The Securities and Exchange Commission and the Commodity Futures Trading Commission are investigating whether the firm properly handled customer funds, as well as its relationship with other parts of Bankman-Fried’s crypto empire, including his trading house Alameda Research, Bloomberg News reported Wednesday. Officials from the Justice Department also are working with SEC attorneys, one of the people said. 


This investigation has gone on for months, long before FTX teetered on the edge of insolvency.

At issue is SBF’s numerous interests. He founded the FTX exchange, its American counterpart FTX US, and crypto hedge fund Alameda Research.

FTX may have improperly moved client money between them. SBF could’ve been trying to plug a hole in another part of his empire.

To see how flagrantly illegal this is, let’s use an old economy example. Imagine if Bank of America also had a hedge fund.

When the hedge fund is struggling, Bank of America raids your checking account to make up the difference. See the problem?

If this is true, SBF could be facing years in prison.

With his empire in flames and the feds circling, SBF may go on the lam like Do Kwon, founder of Terra. It would be a stunning turnabout for a man whose net worth was $15 billion on Monday.

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

There will be no blog tomorrow in honor of Veteran’s Day. Have a great weekend and see you on Monday! 👋

More on tech:

FTX Blows A Massive Hole in Tiger’s Portfolio

Hedge Fund Giant Losing $40 Million a Day

VC’s Sour on China — Funding Down 44%

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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