‘We’re going to dream a little less’: Sequoia’s Doug Leone on fallout from FTX’s collapse

Doug Leone, managing associate at Sequoia Capital LLC, speaks through the Bridge Discussion board convention in San Francisco, California, U.S., on Wednesday, April 17, 2019. The occasion brings collectively leaders in finance and know-how from Asia and Silicon Valley to attach and share insights.
David Paul Morris | Bloomberg | Getty Photos

HELSINKI, Finland — Billionaire enterprise capitalist Doug Leone mentioned there wasn’t a lot his agency Sequoia Capital may do to foretell the solvency disaster at FTX.

Leone was requested by fellow Sequoia associate Luciana Lixandru onstage on the Slush startup convention in Helsinki: “Sequoia has been within the press so much for the previous couple of weeks — what ought to now we have accomplished otherwise?”

With out mentioning FTX by title — although strongly hinting at it (“I am not going to say any acronyms”) — Leone mentioned Sequoia had accomplished “cautious due diligence” on FTX.

Sequoia, which invested $210 million in FTX, wrote down the worth of its stake within the crypto alternate to zero final week after rival alternate Binance’s withdrawal of a suggestion to rescue the corporate left it going through chapter.

FTX founder Sam Bankman-Fried stepped down because the agency’s CEO final Friday as the corporate filed for Chapter 11 chapter safety. FTX, once valued at $32 billion, collapsed in a matter of days amid a liquidity crunch and allegations that it was misusing buyer funds. The Securities and Trade Fee and the Division of Justice are reportedly investigating what occurred.

“What you see on the finish of the quarter is a due diligence assertion [which] does not mirror what somebody could have accomplished within the center earlier than,” Leone instructed an viewers of entrepreneurs and traders in Helsinki.

“We have checked out it,” he mentioned, including: “There’s nothing a lot we may have accomplished any otherwise.”

Sequoia was one in all quite a few blue-chip funds that backed FTX earlier than its demise. Different backers included SoftBank, Tiger International and the Ontario Academics’ Pension Plan.

In an article on Sequoia’s web site, Bankman-Fried was praised as a “genius” who would go on to create the “dominant all-in-one monetary super-app of the long run.” In that very same piece, which has since been deleted, it’s revealed the FTX chief was taking part in the online game League of Legends whereas on a Zoom assembly with Sequoia’s companions.

Bankman-Fried was changed as CEO by John Ray III, who previously oversaw Enron’s chapter. On Thursday, Ray mentioned in a submitting with the U.S. Delaware district chapter court docket that, in his 40 years of authorized and restructuring expertise, he had by no means seen “such a whole failure of company controls and such a whole absence of reliable monetary info.”

Quick-term ache

Leone hinted that FTX’s implosion could have an effect on Sequoia’s investing ideas within the close to time period. Sequoia is “in a dream enterprise” with entrepreneurs, Leone mentioned. “I can inform you that, for the subsequent three to 6 months, we will dream rather less,” he added.

Nonetheless, the enterprise capital investor added: “Like having a toddler, you neglect the ache of getting that youngster three months later, a 12 months later. We wish to be in a dream enterprise.”

“We don’t wish to lose … our true perception to align ourselves with you and to dream with you — I feel we lose that and we’re out of enterprise,” Leone mentioned.

Leone joined Sequoia in 1996 and, up till earlier this 12 months, led the agency’s world operations. He was changed as Sequoia’s “senior steward” in July by Roelof Botha, one other high government on the agency.

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