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Sequoia Capital Marks Down to Zero FTX Investment

UTC by Tolu Ajiboye · 3 min read
Sequoia Capital Marks Down to Zero FTX Investment
Photo: Unsplash

Amid the ongoing FTX financial crisis, Sequoia Capital has marked its $210 million investment with the exchange down to zero.

Sequoia Capital plans to mark down to zero the value of its investment in the embattled crypto exchange FTX. According to the California-based venture capital firm, the decision regarding its $210 million stake with FTX is necessary ahead of possible bankruptcy for the exchange. In a note to investors, the company explained:

“In recent days, a liquidity crunch has created solvency risk for FTX. The full nature and extent of this risk is not known at this time. Based on our current understanding, we are marking our investment down to $0.”

Until last week, the Sequoia Capital stake in FTX ranked among the most substantial unrealized investment gains in the VC firm’s history. Sequoia also mentioned this in the note to investors amid other pertinent information. According to the company:

“Sequoia Capital’s exposure to FTX is limited. We own and FTX US in one private fund, Global Growth Fund III. FTX is not a top ten position in the fund, and our $150M cost basis accounts for less than 3% of the committed capital of the fund. The $150M loss is offset by around $7.5B in realized and unrealized gains in the same fund, so the fund remains in good shape.”

Sequoia Capital Expresses Commitment to Monitoring FTX Investment Situation

Sequoia also stated that it would keep monitoring the rapidly developing situation. Furthermore, the company added that in its business of risk-taking, some investments bear fruits while some do not. However, Sequoia will continue to perform due diligence and pursue optimum responsibility on every investment decision.

Sequoia’s announcement comes amid Binance’s decision to back out of a proposed acquisition deal for FTX. This reversal by the Changpeng Zhao-led crypto exchange now leaves FTX on the brink of a possible collapse. Further intensifying the unpleasant situation for the Bahamian-based exchange is government oversight. Reports state that the Securities and Exchange Commission (SEC) and the Department of Justice are investigating the FTX problem.

FTX Trajectory in Just Over a Year

When Sequoia invested in FTX via a Series B funding round in July 2021, the crypto exchange drew an $18 billion valuation. Furthermore, two months later, investors valued FTX at $25 billion. In January 2022, the company raised $400 million in Series C. Altogether, the funding round at the beginning of the year brought FTX’s valuation to $32 billion with $2 billion in total funding.

However, several months later, the company is in a tailspin. Due to a series of purported management missteps, FTX’s native FTT token is down roughly 30% and was trading at $2.21 Thursday. This decline also comes amid the broader downturn of the crypto marketplace, with Bitcoin trading at $16,700, its lowest so far in 2022.

FTX also recently experienced a mass wave of withdrawals from customers concerned about the company’s welfare. The withdrawal rate further mired the company in financial despair and prompted CEO Sam Bankman-Fried to seek rescue funds from investors. According to Bankman-Fried, he needs emergency funding to cover an $8 billion shortfall brought about by the withdrawal requests.

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