FTX Bankruptcy, Collapse Fueled By Careless Venture Capital

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There have been many victims of the FTX debacle, including retail investors who lost their shirts and high-tier crypto companies who are suffering reputational damage from the aftermath.

However, venture capital companies are not among them.

Aside from former FTX CEO Sam Bankman-Fried and his gang of charlatans, no one deserves more blame for the current disaster than Silicon Valley investors.

In the 11 days since FTX rival Binance launched a run on the cryptocurrency exchange, culminating in its nefarious collapse, it has become undeniably clear that prominent tech-savvy VC outfits have skipped basic due diligence and risk mitigation steps while conducting Bankman -Fried having wasted $2 billion. In doing so, they eased FTX’s house of cards, allowing the company to build its customer base, pay for expensive marketing campaigns, and hand out billions with impunity.

A full accounting of the failures of the venture capital community will take time, but all signs point to inexcusably irresponsible behavior by large investors.

First and foremost, the available evidence strongly suggests that FTX’s financials were an indecipherable train wreck that should have raised every alarm this side of the Bahamas.

As wealthLuisa Beltran of , reported, Bankman-Fried relied on messy, unprofessional and incomplete Excel files showing earnings and profits when requesting venture capital investments, and avoided traditional record keeping such as audited financial statements.

“They are sales documents and do not provide a clear explanation of how FTX has valued its various tokens or liabilities when calculating numbers such as ‘net earnings,'” Beltran wrote.

Beltran’s coverage reflects comments published by the last week New York Times by Ramnik Arora, Head of Product at FTX. According to that TimesArora boasted to a reporter in April about the company’s cavalier approach to convincing potential investors of its financial stability, recalling one instance when FTX executives smashed together a foil deck in a matter of hours.

While dozens of potential investors were unfazed by FTX’s sloppiness, some were rightly surprised. Semafor reported on Wednesday, citing a source familiar with the matter, that VC titan Andreessen Horowitz has refrained from investing in FTX in part because its partners did not trust Bankman-Fried. Dennis Kelleher, co-founder and CEO of financial reform nonprofit Better Markets, said FTX executives couldn’t answer tough questions about the company’s operations during a meeting with his organization.

“The many crypto investors, enablers and legitimizers have not been ‘lured’ by FTX and SBF as they now claim,” Kelleher, a staunch crypto skeptic, wrote in a statement Sunday. “They were just willing to accept anything a billionaire with a ‘vision’ said without fulfilling the most basic of duties

Diligence or asking the most obvious questions when they thought it would make them rich.”

FTX’s new leadership confirmed reports of FTX’s financial negligence and berated Bankman-Fried and his team in bankruptcy court on Thursday.

“Never in my career have I seen such a complete failure of corporate controls and a complete lack of trustworthy financial information as here,” wrote FTX’s new CEO, John J. Ray III, an attorney who oversaw Enron’s bankruptcy.

Venture capitalists compounded their mistakes by allowing FTX to operate with virtually no outside oversight.

Instead of demanding seats on the FTX board as part of their investment, VC firms have essentially ceded control of the company to Bankman-Fried. Bloomberg reported that FTX’s board consisted of three members: Bankman-Fried, former FTX executive Jonathan Cheeseman and an Antigua-based online gaming attorney.

In his bankruptcy court filing Thursday, Ray wrote that “many of the FTX Group companies, particularly those organized in Antigua and the Bahamas, did not have adequate corporate governance.” (FTX is headquartered in the Bahamas, with affiliates around the world.)

Had venture capitalists taken a seat on FTX’s board, it would be very plausible that they would have identified the core issue behind the company’s demise: the decision to lend billions of dollars in client assets to an affiliated trading arm, Alameda Research, which used the money to… make risky and illiquid investments.

“I hope what emerges from this Enron-like moment in crypto is that any loose norms that have existed about not giving that level of oversight and governance as part of the investment go away immediately,” David Pakman, managing partner of blockchain-focused investment firm CoinFund, TechCrunch said.

Some VC firms have claimed they conducted extensive due diligence and attributed FTX’s collapse to the risk-reward nature of venture capital (see: Sequoia Capital, Temasek). Yet such statements defy mounting evidence that venture capital has failed from start to finish, making it more of a enabler than a victim of FTX.

want to send thoughts or suggestions data sheet? Write me a message here.

Jacob Zimmerman

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View still cloudy. Amazon web services is Extension of a hiring freeze into the first quarter of 2023, prompting managers to fire underperforming employees from overstaffed teams, a source with knowledge of the situation said wealth. The cost-cutting moves follow AWS’ slowest quarter of revenue growth on record, largely due to companies slowing spending amid global economic uncertainty. AWS officers are not expected to order layoffs.

Get his affairs in order. Cryptocurrency Lenders BlockFi plans to file for bankruptcy the latest collateral damage within days FTX‘s sinking, Bloomberg reported on Wednesday. BlockFi, which reported holding nearly $4 billion in customer assets this summer, halted withdrawals and new lending this week amid the fallout from FTX. BlockFi received a $400 million revolving credit line from FTX in July and loaned an unspecified amount of money to the crypto exchange’s trading arm.

weather the storm NVIDIA Posted mixed results for the third quarter Wednesday, which beat analysts’ sales forecasts but fell short of earnings forecasts, CNBC reported. The chipmaker brought in total revenue of $5.9 billion, down 17% year over year after gaming-related sales plummeted. Nvidia’s data center business rose 31%, helping offset declines in other divisions fueled by a slowdown in global chip demand.

THINGS TO THINK ABOUT

Dejected in Dublin. Silicon Valley isn’t the only tech hub feeling the effects of layoffs in the industry. That financial times reported on Thursday that Ireland’s capital Dublin, a region centered on high-tech jobs, could see a significant drop after cuts to its workforce MetaTwitter, stripes, and other companies. Much like its Californian counterpart, Dublin has experienced a jobs and housing boom, fueled in recent years by the influx of high-tech companies, many of whom made Ireland their European headquarters. But some local officials and analysts say the start of widespread layoffs illustrates the need for Dublin’s economy to diversify.

Of the article:

The short-term blow will see hundreds of jobs lost in Ireland. However, some here believe that less reliance on industry might not be a bad thing for a country sometimes dubbed Europe’s ‘Silicon Valley’.

“Ireland has really bet on the future of technology. . . almost at the expense of everything else,” said Mark O’Connell, CEO and founder of OCO Global, a trading and investing consultancy. “It’s not pleasant for people who lose their jobs. . . but for other sectors that have been eclipsed by it, I think maybe it can be a good rebalancing.”

IN CASE YOU MISSED IT

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3 Reasons Huge Layoffs in Tech Don’t Mean a Recession Is Around the World, Goldman Saysby Prathana Prakash

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BEFORE YOU GO

The Ultimate Superhost. Looking for a place to sleep in the Castro? Try the private, sun-drenched bedroom in the San Francisco home Airbnb founder Brian Chesky. In some money-where-the-mouth-marketing the head of the vacation rental company has gotten started advertising a guest suite in his house, wealth‘s Sophie Mellor reported on Thursday. Chesky’s announcement came as Airbnb unveiled new tools designed to make it easier for homeowners to rent out their pads through the app, which now has around 4 million hosts worldwide. In an effort to serve as a welcoming host, Chesky offered to bake guests homemade cookies, take them for walks in nearby parks, or take them to the gym. However, he issued a clear rule for guests: they must be dog-friendly.

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