Sequoia Capital

Sequoia Capital, Paradigm among VCs facing ‘tricky’ FTX investor lawsuit

It’s a “tricky case,” as it is unknown what obligation these firms had to “completely separate investors,” suggests a crypto lawyer.

Users of bankrupt crypto exchange FTX have reportedly taken aim at financiers who promoted the platform, suggesting their efforts added an “air of legitimacy” to the now-defunct exchange in a case labeled as “tricky” by a crypto lawyer.

A Feb. 15 Bloomberg report revealed a class-action suit filed Feb. 14 by FTX investors against venture capital firm Sequoia Capital and private equity firms Thoma Bravo and Paradigm.

The investors accused the firms of touting “their own investments” of hundreds of millions of dollars in FTX.

It was alleged the firms were involved in a promotional marketing campaign in 2021, which the investors alleged added an “air of legitimacy” to the disgraced crypto exchange.

The three firms were all investors in FTX’s $900 million Series B round in July 2021, the largest raise in crypto history, in which various partners of the firms spoke highly of former FTX CEO Sam Bankman-Fried.

In a statement following the funding announcement in July 2021, Paradigm’s co-founder Matt Huang called Bankman-Fried a “special” founder who is “stunningly ambitious.”

Speaking to Cointelegraph, crypto lawyer Liam Hennessy, partner at Australian law firm Gadens, stated that it is a “tricky case,” and he questions “what obligation Sequoia and others” have to “completely separate investors.”

He added that despite the fact Sequoia’s due diligence wasn’t great, it doesn’t make it “liable to others.”

Hennessy believed it could be a case of “buyer beware,” as there is no suggestion that Sequoia wasn’t “playing within the regulatory rules.”

Cointelegraph contacted Sequoia Capital, Thoma Bravo and Paradigm for comment but did not receive an immediate response.

A separate Feb. 15 Bloomberg report revealed that in the same court filing, Sam Bankman-Fried and his father, along with former FTX and Alameda Research executives Caroline Ellison, Nishad Singh and Gary Wang, were all issued with a subpoena — an order for a person to attend court — to provide further evidence.

It was stated that Joseph Bankman, Ellison, Wang and Singh are due to attend court on Feb. 16, while Sam Bankman-Fried is expected to attend on Feb. 17.

Sequoia Capital marks down entire $214M FTX stake to zero

The venture capital firm assured partners it ran a rigorous due diligence assessment when it invested in FTX, finding the exchange to generate $1 billion in revenue and $250 million in operating income.

Venture capital firm Sequoia Capital tweeted out a letter sent to its partners on Nov. 10 revealing the firm had marked its $213.5 million investments in FTX and FTX US down to $0, claiming them as a complete loss.

The letter said that the crisis facing FTX has “created a solvency risk” but claimed its exposure to the exchange is “limited” in its Global Growth Fund III, where its cost basis for the FTX portion of the fund totaled $150 million.

Here is the note we sent to our LPs in GGFIII regarding FTX. pic.twitter.com/Cgp1Yxk1pz

— Sequoia Capital (@sequoia) November 10, 2022

Sequoia also reassured its partners that the writing off of FTX wouldn’t have a detrimental impact on the fund, saying it accounted for less than 3% of the capital committed to it, adding:

“The $150M loss is offset by ~$7.5B in realized and unrealized gains in the same fund, so the fund remains in good shape.”

The venture capital firm also reported having invested $63.5 million into FTX and FTX US from its Sequoia Capital Global Equities Fund. However, the holdings represented less than 1% of the entire portfolio.

Sequoia’s investments into the now cash-strapped cryptocurrency exchange came as part of FTX’s $900 million Series B investment round in July 2021 — which was the largest crypto investment ever recorded at the time.

As for the investment decision, Sequoia reassured its partners that it extensively researches each and every investment with thorough diligence, and FTX was no different:

“At the time of our investment in FTX, we ran a rigorous due diligence process. In 2021, the year of our investment, FTX generated approximately $1B in revenue and more than $250M in operating income.”

“We are in the business of taking risk. Some investments will surprise to the upside, and some will surprise to the downside,” the letter explained.

Sequoia added that it would communicate its next movements to its partners when more information becomes available.

Sequoia Capital currently has about $85 billion of assets under management and has previously made early investments in tech giants Apple and Google and, more recently, Airbnb.

Binance, Sequoia still backing Elon Musk’s bid for Twitter

The Twitter deal is back on this month, and Binance confirmed to Cointelegraph that it intends to support the deal as part of its push for Web3 adoption.

Binance and tech investor Sequoia Capital are reportedly still backing Tesla CEO Elon Musk’s $44 billion takeover bid of social media platform Twitter.

Sequoia Capital already committed $800 million to the deal back in April before Musk subsequently got cold feet. According to an unnamed source familiar with the matter, the firm will keep that capital allocation to support the deal now that the deal is reportedly back this month.

Binance has also indicated that it will carry on with its contribution of $500 million, with a representative telling Cointelegraph that “we’re still committed and nothing new to share at this moment” as they referred to Changpeng ”CZ” Zhao’s comments via Twitter from May:

“We hope to be able to play a role in bringing social media and Web3 together and broadening the use and adoption of crypto and blockchain technology.”

At the start of October, it was reported that Musk had pulled another abrupt U-turn by filing a notice with the Delaware Chancery Court on Oct. 3 indicating that he is ready to proceed with the “closing of the transaction contemplated by the April 25, 2022 Merger Agreement.”

If the deal goes through, the purchase will be for the initially agreed upon $54.20 per share for a total of $44 billion.

Sequoia Capital has a history of backing Musk’s endeavors, as it was an early-stage investor in what eventually became PayPal, the payments platform he co-founded that was sold for $1.5 billion in 2002. The firm also led a $675 million funding round for Musk’s Boring Company in April.

Binance has had a keen eye on big mainstream deals this year, previously placing a $200 million strategic investment into financial news outlet Forbes, intending to improve consumer understanding of crypto and blockchain.

Aside from the $500 million to support Musk’s Twitter takeover, Bloomberg reported last week that Binance has splurged $325 million on 67 projects this year. CZ has also stated the firm may spend more than $1 billion this year in commercial investments.