(Bloomberg) — Sequoia Capital wrote down the full value of its holdings in FTX, a signal that the venture capital firm sees no clear path to recouping its investment in the struggling cryptocurrency exchange.
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The VC firm put about $214 million into FTX’s international and U.S. businesses last year, Sequoia told investors on Wednesday. The impairment includes holdings of both FTX.com and FTX.us, a company spokesman said.
“We are in the business of taking risk,” Sequoia wrote in a note to investors. “Some investments will surprise on the upside and some will surprise on the downside.”
Sequoia is among several prominent backers set to lose many of Sam Bankman-Fried’s FTX holdings. Others are BlackRock Inc., Tiger Global Management and SoftBank Group Corp. This is a major reversal of fortune for the startup investment powerhouse, which in September called Bankman-Fried a “legend” and held up his “saving complex” as worthy of emulation. This week, Sequoia attached a line to that public article that clashed with its celebratory tone.
“Since the publication of this article, a liquidity crisis has created a solvency risk for FTX and its future is uncertain,” the latest addition said. “FTX is exploring all opportunities to ensure its customers are able to recover their money as quickly as possible.”
A smaller venture fund, Multicoin Capital, told investors on Wednesday that about 10% of its assets under management were affected. “Unfortunately, we were unable to withdraw all of the Fund’s assets to FTX,” Multicoin wrote in a letter reviewed by Bloomberg.
A sudden loss of trust in FTX.com among customers exposed deep problems with the cryptocurrency exchange. People rushed to withdraw money and sell tokens associated with the company, causing a liquidity crisis. A rival, Binance, agreed to buy FTX.com and then pulled out due to concerns about FTX’s financial health.
Bankman-Fried had a call with investors on Wednesday and said FTX.com needed an influx of cash or it would have to file for bankruptcy, Bloomberg reported. The US entity, FTX.us, was at a distance from the crisis, but Sequoia’s decline shows a lack of confidence in this asset as well.
Sequoia tried to reassure investors, saying FTX represents less than 3% of committed capital in the fund with the largest FTX exposure. That fund, Sequoia said, has realized and unrealized gains of about $7.5 billion.
Here is the full note:
–With help from Hannah Miller.
(Updates with Sequoia’s previous comments from the fourth paragraph)
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