Paradigm Joins Sequoia Capital in writing off FTX Stake
The sudden FTX collapse has left asset management and venture capital firms regretting investment in Sam Bankman-Fried projects following the shocking revelations of Alameda Research, FTX, and Sam Bankman-Fried (SBF). Paradigm investment firm rued failure to exercise due diligence before committing $278 million investment in SBF-backed FTX.
FTX Stake Write-off Explained
Expressing the regret in the November 15 Twitter post, Paradigm co-founder Matt Huang lamented that FTX and its founder SBF contravened the crypto values. In particular, Huang alleges SBF’s actions caused enormous damage to the crypto ecosystem.
The San Francisco-based venture capital focusing on Web-3 investment in April 2022 estimated that $13.2 billion in assets were under management. The revelation came after Paradigm dethroned a16Z, led by Adressen Horowitz, as the leading venture fund in crypto after initiating a $2.5 billion fund in November 2021. The company included FTX.US and FTX investment approximated at $278 million within its diversified portfolio.
Effect of FTX Stake on Paradigm Dismissed
While dismissing the equity investment in the bankrupted FTX as insignificant to Paradigm assets, Huang confirmed the write-off. He dismissed allegations that Paradigm traded and invested in FTX-affiliated tokens, such as Serum token (SRM), Oxygen Protocol (OXY), ad Maps.Me (MAPS).
While addressing the adverse effects of the sudden FTX downfall, ZX Squared Capital co-founder – CK Zheng – blamed venture capital firms for a lack of due diligence on the company and executive. The hedge fund co-founder indicated that young companies’ reliance on sophisticated technology made venture capitalists susceptible to investment loss as they suffered enormous damage from insufficient knowledge of finance and technology.
Sequoia Capital Considers FTX Stake a Complete loss
The scale of the FTX collapse has dragged along, former Matt Huang’s employer – Sequoia Capital, on November 10, informed its partners of writing off the $213.5 million FTX and FTX US stake as completely lost. While acknowledging the solvency risk inherited from the FTX crisis, Sequoia Capital considered the exposure as limited since the cost basis of the stake was $150 million.
Sequoia executives remained upbeat about the fund shape and that the $7.5 billion in unrealized and realized gains offset the $150 million loss. Besides, the $63.5 million investment in FTX Group and affiliate companies hardly accounted for 1% of Sequoia entire portfolio.
In a letter to its partners, Sequoia justified its 2021 investment decision as informed by FTX’s $250 million operating income from $1 billion revenue. Further, Sequoia reminded its partners that the venture capital business involves taking risks where some investments may occasionally surprise with downside or upside.
The scale of FTX Collapse to Feature Multiple Markdown
The diversified portfolio run by FTX and affiliate firms will drag along other venture capital and hedge funds. Besides Sequoia Capital and Paradigm, SoftBank Group Corp has signaled writing down the $100 million. Similarly, Ontario Teachers’ Pension Plan is considering declaring a $95 million investment complete loss. Consequently, FTX collapse may trigger widespread write off in the industry, causing a total loss for active investment vehicles and venture capitalists.
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