On Thursday, Sequoia Capital, a venture capital firm, tweeted that it has written off its $200 million investment in FTX. The VC platform had sent a letter to its partners informing them of its actions.
Meanwhile, the VC firm told its partners that it conducted a diligence assessment before investing in FTX in 2021. In 2021, FTX generated a revenue of over $1 billion with an operating income of $250 million.
On Thursday, Sequoia Capital tweeted that it sent a letter to its partners regarding its FTX investment. In the letter, Sequoia Capital wrote off its $213 million investment in FTX.US and FTX. According to the firm, the investment is now a total loss.
In addition, the document highlighted that the recent FTX crisis has led to a solvency risk. However, Sequoia Capital assured its partners that its Global Growth Fund III has limited exposure to FTX.
The cost basis for FTX’s portion in the fund was over $150 million. Furthermore, Sequoia believes writing off its FTX investment will not affect the fund.
Besides, the investment accounts for around three percent of the Global Growth Fund III. “The $150M shortfall in the fund is compensated by $7.5B in achieved and unrealized profits.
Hence, the fund is still in a good position,” the letter stated. Additionally, the venture capital company announced investing $63.5 million in FTX and FTX.US.
Nevertheless, these equities accounted for less than one percent of the whole portfolio. Sequoia’s investment in FTX occurred as part of FTX’s $900M Series B funding round in July 2021. Then, FTX was among the most successful crypto exchange in the industry.
Sequoia Promise To Keep Investors Updated
Concerning its choice of investment, Sequoia eased the concerns of its partners by assuring them that the company conducts exhaustive research on all potential investments. Hence, FTX was not an exception:
“Before our investment in FTX, we conducted in-depth research and analysis. Hence, in the year we invested, FTX had revenues of over $1 billion and operating profits of about $250 million.”
Sequoia added that risk-taking is inherent to the nature of the industry. As a result, some investments would go as planned, while others could go downhill.
Also, Sequoia stated that it would keep its partners updated on its upcoming actions. The firm will update them once FTX makes more information public.
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