Major VC Firm Sequoia Capital Marks FTX Investment to $0 — Says ‘Liquidity Crunch Has Created Solvency Risk for FTX’

Venture capital giant Sequoia Capital is marking its investment in the embattled crypto exchange FTX down to $0. “In recent days, a liquidity crunch has created solvency risk for FTX,” the firm stressed, adding that “The full nature and extent of this risk is not known at this time.”

Sequoia Capital sent a letter to its partners Wednesday informing them about its investment in cryptocurrency exchange FTX. The venture capital firm wrote:

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.

The VC firm invested over $210 million in FTX.com and FTX US. However, the firm noted that its exposure to FTX is limited.

“We own FTX.com and FTX US in one private fund, Global Growth Fund III … our $150 million cost basis accounts for less than 3% of the committed capital of the fund,” the firm explained. In addition, the Sequoia Capital Global Equities fund invested $63.5 million in FTX.com and FTX US, representing less than 1% of the fund’s portfolio at fair value as of Sept. 30.

Noting, it is “in the business of taking risk,” Sequoia Capital stressed:

At the time of our investment in FTX, we ran a rigorous diligence process.

The venture capital firm noted that when it invested in FTX last year, the crypto company generated approximately $1 billion in revenue and more than $250 million in operating income.

Sequoia Capital participated in a $420 million Series B funding round of FTX, which increased the crypto firm’s valuation to $25 billion. A total of 69 investors participated, including the Ontario Teachers’ Pension Plan Board, Temasek, Sea Capital, Tiger Capital, Rabbit Capital, Lightspeed Venture Partners, and funds and accounts managed by Blackrock.

Facing a liquidity crunch, FTX asked other major crypto exchanges for help. Binance CEO Changpeng Zhao (CZ) originally said his company intended to acquire FTX and provide liquidity. However, Binance said Wednesday that it decided not to proceed with the acquisition. “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of http://FTX.com.”

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