Sequoia Capital has just reduced the value of its stake in cryptocurrency exchange FTX – a stake that, as of last week, was arguably one of the most sizable unrealized gains in the venture company’s 50-year history.
This story develops: Here’s the letter it just sent to its limited partners.
Dear Limited Partner,
We will be in touch to share an update on our investment in FTX. In recent days, a liquidity crisis has led to a solvency risk for FTX. The full nature and extent of this risk is unknown at this time. Based on our current understanding, we mark our investment down to $0.
Sequoia Capital’s exposure to FTX is limited. We own FTX.com and FTX US in one private fund, Global Growth Fund III. FTX is not in the top ten of the fund and our $150 million cost base accounts for less than 3% of the fund’s committed capital. The $150 million loss is offset by ~$7.5 billion of realized and unrealized gains in the same fund, so the fund remains in good shape.
Separately, SCGE Fund, LP invested $63.5 million in FTX.com and FTX US, representing less than 1% of the SCGE Fund’s portfolio as of 9/30/2022 (at fair value).
We are taking risks. Some investments will surprise positively, others will surprise downwards. We do not take this responsibility lightly and do extensive research and thorough due diligence in every investment we make. At the time of our investment in FTX, we have gone through a rigorous due diligence process. In 2021, the year of our investment, FTX generated approximately $1 billion in revenue and more than $250 million in operating income, as disclosed in August 2022.
The current situation is developing rapidly. We will communicate in a timely manner when more information is available. If you have any questions, please contact Andrew Reynolds, Marie Klemchuk and Kathleen Forte at: [email protected] For SCGE inquiries, please contact Kimberly Summe at [email protected]
Global Growth Fund III (GGFIlI) data is as of September 30, 2022 and is based on US GAAP. The $7.5 billion consists of $5.8 billion of unrealized gains and $1.7 billion of realized gains. including the general partner distribution on May 27, 2021 in accordance with the 2021 change. Past performance is not an indication of future performance
Global Growth Fund III (GGFIII) refers to Sequoia Capital Global Growth Fund III – Endurance Partners, LP and does not include Sequoia Capital Global Growth Fund III – US/India Annex Fund, LP, Sequoia Capital Global
Growth Fund III – China Annex Fund, LP, and their parallel funds
More on this story soon. . .