‘We’ll Dream a Little’: Sequoia’s Doug Lyon on fallout from FTX’s collapse

Doug Lyon, Managing Partner at Sequoia Capital LLC, speaks during the Bridge Forum conference in San Francisco, California, US, on Wednesday, April 17, 2019. The event brings together leaders in finance and technology from Asia and Silicon Valley to network and share ideas.

David Paul Morris | bloomberg | Getty Images

Helsinki, Finland — Billionaire venture capitalist Doug Lyon said there wasn’t much his firm Sequoia Capital could do to predict FTX’s solvency crisis.

Leon was asked by fellow Sequoia member Luciana Alexandru onstage at the Slush startup conference in Helsinki: “Sequoia has been in the press a lot over the past couple of weeks – what could we have done differently?”

Without mentioning FTX by name — though it’s alluded to heavily (“I won’t name any acronyms”) — Sequoia’s global managing partner Lyon said Sequoia had done “careful due diligence” on FTX.

Sequoia, which invested $210 million in FTX, slashed the value of its stake in the cryptocurrency exchange to zero last week after rival exchange Binance pulled a bailout bid for the company, sending it into bankruptcy.

FTX founder Sam Bankman-Fried stepped down as CEO of the company last Friday as the company filed for Chapter 11 bankruptcy protection. FTX, which was once worth $32 billion, collapsed within days amid a liquidity crisis and allegations that it was misusing customer 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 the due diligence statement [which] Leon told an audience of entrepreneurs and investors in Helsinki.

“We’ve looked at it. There’s not much we can do differently,” he said.

Sequoia was one of the many blue-chip funds that backed FTX before its demise. Other backers include SoftBank, Tiger Global and the Ontario Teachers’ Pension Scheme.

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

Bankman-Fried was replaced as CEO by John Ray III, who had previously oversaw the Enron bankruptcy. On Thursday, Ray said in a filing with the US District of Delaware 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 absence of trustworthy financial information.”

short term pain

Leon hinted that FTX’s implosion could affect Sequoia’s investment principles in the near term. Leon said Sequoia is “into the dream business” with the entrepreneurs. He added, “I can tell you that in the next three to six months, we’re going to be dreaming a little bit.”

However, the venture capital investor added, “Like having a baby, you forget the pain of having that baby three months later, after a year. We want to be in a dream business.”

“We don’t want to lose…our true belief in aligning ourselves with you and dreaming with you—I think we lose that and we just stop working,” Lyon said.

Leon joined Sequoia in 1996, and led the company’s global operations until earlier this year. He was replaced by Roelof Botha, another senior company executive, as Sequoia’s “chief supervisor” in April.

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