HELSINKI, Finland — Billionaire venture capitalist Doug Leone said there wasn’t much his firm Sequoia Capital could do to predict the solvency crisis at FTX.
Leone was asked by fellow Sequoia partner Luciana Lixandru onstage at the Slush startup conference in Helsinki: “Sequoia has been in the press a lot for the past couple of weeks — what should we have done differently?”
Without mentioning FTX by name — though strongly hinting at it (“I’m not going to mention any acronyms”) — Leone said Sequoia had done “careful due diligence” on FTX.
Sequoia, which invested $210 million in FTX, wrote down the value of its stake in the crypto exchange to zero last week after rival exchange Binance’s withdrawal of an offer to rescue the company left it facing bankruptcy.
FTX founder Sam Bankman-Fried stepped down as the firm’s CEO last Friday as the company filed for Chapter 11 bankruptcy protection. FTX, once valued at $32 billion, collapsed in a matter of days amid a liquidity crunch and allegations that it was misusing customer funds. The Securities and Exchange Commission and the Department of Justice are reportedly investigating what happened.
“What you see at the end of the quarter is a due diligence statement [which] doesn’t reflect what someone may have done in the middle before,” Leone told an audience of entrepreneurs and investors in Helsinki.
“We’ve looked at it,” he said, adding: “There’s nothing much we could have done any differently.”
Sequoia was one of numerous blue-chip funds that backed FTX before its demise. Other backers included SoftBank, Tiger Global and the Ontario Teachers’ Pension Plan.
In an article on Sequoia’s website, Bankman-Fried was praised as a “genius” who would go on to create the “dominant all-in-one financial super-app of the future.” In that same piece, which has since been deleted, it is revealed the FTX chief was playing the video game League of Legends while on a Zoom meeting with Sequoia’s partners.
Bankman-Fried was replaced as CEO by John Ray III, who formerly oversaw Enron’s bankruptcy. On Thursday, Ray said in a filing with the U.S. Delaware district bankruptcy court that, in his 40 years of legal and restructuring experience, he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information.”
Short-term pain
Leone hinted that FTX’s implosion may affect Sequoia’s investing principles in the near term. Sequoia is “in a dream business” with entrepreneurs, Leone said. “I can tell you that, for the next three to six months, we’re going to dream a little less,” he added.
However, the venture capital investor added: “Like having a child, you forget the pain of having that child three months later, a year later. We want to be in a dream business.”
“We do not want to lose … our true belief to align ourselves with you and to dream with you — I think we lose that and we’re out of business,” Leone said.
Leone joined Sequoia in 1996 and, up until earlier this year, led the firm’s global operations. He was replaced as Sequoia’s “senior steward” in July by Roelof Botha, another top executive at the firm.