Sequoia Capital regrets backing FTX but defends vetting process

Sequoia has written down the full value of its US$214 million investments in FTX. PHOTO: REUTERS

SAN FRANCISCO - Top partners at powerful venture capital (VC) firm Sequoia Capital apologised to their investors in a conference call on Tuesday for backing FTX, a pair of bankrupt cryptocurrency exchanges that had allegedly been mismanaged by Mr Sam Bankman-Fried, according to people familiar with the meeting.

Mr Roelof Botha, the firm’s global leader, opened the call, and he and his colleagues were repentant for backing the company, with investments totaling US$214 million (S$295 million) in and across two funds. Mr Alfred Lin, the partner who led the FTX deal, provided an update on the situation. Mr Shaun Maguire, another partner who focuses on crypto, gave an overview of the sector, which was roiled by the scandal.

FTX was a rare disaster for the storied venture firm, which has consistently remained a top VC since its founding in 1972. Sequoia told its investors two weeks ago it had written down the full value of its FTX investments.

A spokesman for Sequoia declined to comment on the conference call. The Wall Street Journal first reported details of the meeting on Tuesday.

Although partners on the call were conciliatory, they also defended the due diligence they conducted on the deal. They said staff reviewed financial statements and asked on multiple occasions about the relationship between FTX and Alameda Research, a trading firm that Mr Bankman-Fried also founded and which reportedly borrowed and lost FTX customers’ money.

As recently as May, Sequoia was assured that FTX funds were not used to finance Alameda’s activities and that FTX and Alameda were separate entities, one of the people with knowledge of the call said. The partners said they believe they were misled.

Sequoia told its investors that when it initially backed FTX in July 2021, it had reviewed unaudited statements, the person said. In response to a question about audited versus unaudited statements, one of the partners suggested the firm might push its start-ups to use Big Four accounting firms in the future. BLOOMBERG

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