Doug Leone of VC firm Sequoia Capital on the fallout from the FTX collapse

Doug Leone, Managing Partner at Sequoia Capital LLC, speaking at the Bridge Forum conference on Wednesday, April 17, 2019 in San Francisco, California, USA. The event brings together financial and technology leaders from Asia and Silicon Valley to network and share insights.

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HELSINKI, Finland — Billionaire venture capitalist Doug Leone said his firm Sequoia Capital could not do much to predict the solvency crisis at FTX.

Leone was asked by Sequoia partner Luciana Lixandru on stage at the Slush startup conference in Helsinki: “Sequoia has been in the press a lot over the past few weeks – what should we have done differently?”

Without naming FTX by name — although it alludes heavily (“I won’t mention acronyms”) — Leone said Sequoia has “reviewed FTX with careful due diligence.”

Sequoia, which invested $210 million in FTX, wrote the value of its stake in the crypto exchange to zero last week after rival exchange Binance’s withdrawal from a bid to bail out the company caused it to face the bankrupt.

FTX founder Sam Bankman-Fried resigned as the company’s CEO last Friday as the company filed for Chapter 11 bankruptcy protection. FTX, which was once valued at $32 billion, collapsed in days amid a liquidity crisis and allegations of misusing client funds. The Securities and Exchange Commission and the Department of Justice are reportedly investigating what happened.

“What you see at the end of the quarter is a due diligence statement [which] does not reflect what anyone in the middle has done before,” Leone told an audience of entrepreneurs and investors in Helsinki.

“We looked at that,” he said, adding, “There wasn’t much we could have done differently.”

Sequoia was one of numerous blue-chip funds that backed FTX prior to its demise. Other supporters included SoftBank, Tiger Global and the Ontario Teachers’ Pension Plan.

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An article on Sequoia’s website hailed Bankman-Fried as a “genius” who would go on to create the “dominant all-in-one financial super-app of the future.” In the same article, which has since been deleted, it is revealed that the FTX boss was playing the League of Legends video game while in a Zoom meeting with Sequoia’s partners.

Bankman-Fried was replaced as CEO by John Ray III, who formerly oversaw Enron’s bankruptcy. On Thursday, Ray said in a filing with the Delaware District Bankruptcy Court that in his 40 years of legal and restructuring experience he had never seen “such a complete failure of corporate controls and such a complete lack of trustworthy financial information.”

Temporary pain

Leone hinted that the implosion of FTX could affect Sequoia’s investment principles in the short term. Sequoia is “in a dream business” with entrepreneurs, Leone said. “I can tell you that we’re going to dream a little less over the next three to six months,” he added.

However, the venture capitalist added: “Like having a child, you forget the pain of having that child, three months later, a year later. We want to be in a dream business.”

“We don’t want to lose … our true belief in aligning with you and dreaming with you — I think we’re losing that and we’re out of business,” Leone said.

Leone joined Sequoia in 1996 and led the company’s global operations until earlier this year. He was replaced in July as Sequoia’s “senior steward” by Roelof Botha, another top executive at the company.

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