The collapse of FTX will leave a lasting mark on the venture capital world
The sudden rise and fall of FTX seemingly caught everyone by surprise. However, as fast as it happened, the effects of FTX’s collapse are not just sudden, but likely will be continuous and long-lasting.
For perspective, Theranos had raised about $1.3 billion in funding and had a $10 billion valuation at its peak before the walls came tumbling down and a story started to unfold that everyone still talks about now and gave us a movie.
By comparison, FTX and FTX US had raised a combined $2.2 billion at a $32 billion valuation and $8 billion valuation, respectively, before everything fell apart.
With valuations that large, it’s unsurprising that some of the largest names in VC and investing took part.
About FTX Venture Funding
Cryptocurrency exchange Binance was one of the company’s first lead investors, taking part in a round in late 2019
Rounds became much more significant quickly for the failed crypto exchange. In July 2021, Sequoia Capital took the lead in a $1 billion round, FTX’s largest round.
That round had dozens of investors, including big names like NEA, Lightspeed Venture Partners, Insight Partners, Temasek, SoftBank Vision Fund, Thoma Bravo, SoftBank Vision Fund 2, Coinbase Ventures, Ribbit Capital, Blackstone, Multicoin Capital, Paradigm and Altimeter.
Just three months later, FTX swept up another $420 million-plus, again led by Sequoia and also the Ontario Teachers’ Pension Plan.
Then came its $400 million Series C at a $32 billion valuation earlier this year — with many of the same participants again: Temasek, Paradigm, Ontario Teachers’ Pension Plan Board, NEA, IVP, SoftBank Vision Fund 2, Lightspeed Venture Partners, Steadview Capital, Tiger Global and Insight Partners, among others.
Disappointment of investors
Many of those investors already are willing to face reality. It’s been reported Sequoia and Paradigm have written down their stakes to zero. The Ontario Teachers’ Pension Plan Board said the $95 million it invested in FTX should have “limited impact on the plan, given this investment represents less than 0.05% of our total net assets.”
Others seem ready for a more prolonged fight, as it has been reported some VC firms are considering suing Sam Bankman-Fried for alleged fraud — although that seems like a Hail Mary to try to save face.
What does seem certain is that FTX’s collapse will not be forgotten by New Year’s. Such a fall from grace that involves so many marquee names in venture will likely have a ripple effect when those same firms look at their next Web3 or crypto investment. How eager will they be for that investment? How eager will their LPs be to see another deal in crypto? It may even affect their due diligence process outside of crypto deals.
Even crypto-specific firms like Paradigm and Multicoin Capital could suffer from a type of “post-FTX syndrome” when looking at their next crypto deal.
The effects of FTX’s fall will be long lasting — and you can bet there will be a movie made.