US venture capital giant Sequoia wrote to its backers last week to tell them that the $210 million it had poured into FTX was no longer worth anything. Locally, Telstra Ventures is the most notable investor in FTX, having invested money from its recently announced a third $350 million fund.
The stellar picture that Mr Bankman-Fried had enjoyed until a week ago saw him feature in the cover story from Australian Financial Review magazine Young Rich published this month as a prodigy who “built a $25 billion fortune from crypto” and was now “trying to stop the crash.” He was also featured in a Fortune magazine cover asking if he was the next Warren Buffett. Pursuant to such coverage, Telstra Ventures had published a series of interviews between his general partner Yash Patel and the founder of FTX on his YouTube channel after investing.
Telstra Ventures managing partner Matthew Koertge declined to comment on his stake in FTX on Sunday. However, the Financial analysis understands that his losses would pale in comparison to Sequoia’s and are in the single-digit millions.
FTX was founded in 2019 and Australian investment firms were encouraged to invest in the business through brokers from Tribeca Private in mid-2021.
A report from its then chief executive Fredrik Blencke, chief investment officer Damien Williamson and his partner William Clark told potential investors that FTX had the “pillars in place” for fintech success.
“The FTX business model falls into the strategic category of being based at the intersection of large volumes of crypto trading, where it takes a fee of around 2bp for the value provided,” they wrote.
“Online platforms effectively have no capacity cap to generate incremental revenue, where increased revenue can be driven by strong market shares, market growth, product innovation and expansions geographical.”
Martin Rogers, chief investment officer of Sydney-based innovation fund KTM Ventures, has been a longtime advocate of the crypto spacebut said FTX’s collapse was a damaging event.
He had never succumbed to FTX’s investment arguments, but said the sudden collapse of a seemingly trustworthy operator had affected him emotionally, while worrying him about how the public would view the assets. cryptographic.
“What a waste, the FTX bankruptcy is just as damaging as the Medibank hack, it’s devastating and a total betrayal of their customers,” Rogers said.
“This is an example of poor risk control and possibly criminal execution by FTX, and it’s completely heartbreaking. Many people believe that FTX’s collapse is proof that crypto is not has no future, but for me it’s exactly the opposite.
Drawing a comparison to the global financial crisis, Mr Rogers said the collapse of Lehman Brothers had not stopped people from putting money in the banks, and he expected the failure of FTX or similar, by inspiring a “flight towards quality exchanges”.
“People will avoid offshore trading. FTX was in the Bahamas and didn’t even have a board,” he said.
“Local custody will become important, as will audits and processes. The Independent Reserve is voluntarily audited in Australia, but in Singapore it is part of the law as they have a license there. Independent Reserve obtained the first license in Singapore. Binance and FTX both failed on standards and Binance was asked to exit operations in Singapore.
“Unfortunately, you need something like FTX to happen to strengthen the industry. Those that survive will be stronger and more durable in the long run.
The partner in charge of the crypto and web3 fund of local venture capital firm AirTree Ventures, John Henderson, said his company had no exposure to FTX, but he was still shocked by the sudden disaster.
He said Mr. Bankman-Fried had been widely seen as a leader within the crypto industry and appeared to be conducting a productive dialogue with regulators on oversight of the sector.
“The fact that he was doing this while apparently trading with client funds is mind-boggling and incredibly detrimental to how the whole industry will be viewed for a long time,” Mr Henderson said.
“The size of his profile amplifies the impact of his ride. This is a huge setback for the crypto industry.
“From a regulatory perspective, at a minimum we require verified and verified proof of reserves for all major centralized exchanges in the future. However, a harsh and brutal local crackdown is unlikely to achieve much.