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
Tremendous 