Ever since the FTX story broke, I have had two recurring thought. This company reminds me of Enron, the energy company that wanted to make markets in everything — especially in gullibility. I wrote about their remarkable similarities in my piece for The Spectator, which is a news outlet where I have recently become a contributor.
In my piece, I wrote:
“Tiger Global, Sequoia Capital, Softbank, Lightspeed, Temasek, Blackrock and others invested over a billion in the company which at one time was valued at $32 billion. FTX and Alameda Research’s intermingled ownership should have raised eyebrows, but history shows greed trumps diligence.”
According to media reports, Sequoia wrote off its entire $213.5 million investment in the company. The question is not just Sequoia, but how did all these giants of risk capitalism not notice the most basic of all risks?
They aren’t alone: FTX’s investor list is a who’s who of Silicon Valley and technology investing.
And no, I don’t include SoftBank in that list. The Vision Fund might as well rename itself a “vision less” fund, for they have shown a great propensity for losing a lot of other people’s money. The other investors, however, did surprise me. Paradigm is likely going to lose its $278 million investment. And they were the crypto experts. So many of the crypto insiders I have spoken to have nothing kind to say about SBF and aren’t surprised that a strong puff of wind took down the house of cards.
But I suppose when you have deal fever and a severe case of FOMO, you choose to believe anything that helps you convince yourself to do the deal. I know how that feels — I have had that feeling myself many times, but I had smart voices around me (and seeked them out) to talk me off of the ledge.
The reality is what we want to believe. The magical story of SBF is something that everyone wants to believe. Sequoia, I suppose, wanting to not miss out on the next Mark Zuckerberg, wanted to make the investment. There is an article on the Sequoia website about FTX that explains why FTX was able to raise money from those white shoe firms. It was through arrogance and disregard for the establishment. Not very different from the time when Facebook was out raising money. It is remarkably well written for a puff piece and gives a rare insight into FTX and its edifice built with ahems and groans.
This company has raised over a billion dollars, yet none of the investors had a whiff of what was going on!
“Their check sizes, while large in a vacuum, were small in terms of ownership percentage,” Dan Primack, a veteran VC industry scribe, wrote in his email newsletter. “Ultimately, had to accept Bankman-Fried’s terms or walk. They chose FOMO.” As one investor told Primack, “Even if we’d been on the board, why are you so sure we would have been given accurate information?”Dan Primack, Axios
I guess that’s what made SBF the smartest guy in the room! In hindsight, SBF’s legacy will be that of a guy who made sure everyone thinks crypto is a fraud and an industry that wanted to snub the rules getting regulated out of innovation.
November 10, 2022. San Francisco