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Sequoia Capital Invests over $500M to Participate in Crypto Governance

California-based venture capital firm, Sequoia Capital, is doubling down on its bullish stance in the digital currency ecosystem with the launch of a $500 to $600 million investment dubbed the Sequoia Capital Fund.

As detailed by the company, the establishment of the fund is aimed at becoming an active participant in the key decentralized and open-source protocols that it backs.

According to the company, its major partners in the crypto ecosystem have often asked it to do more than just invest in the space and evolve into either a liquidity provider of any of such related activities that sustains a blockchain-backed project. With the new funds, Sequoia Capital will invest “primarily on liquid tokens and digital assets.”

“Our goal with this fund is to participate more actively in protocols, better support token-only projects, and learn by doing ourselves,” the Venture Capital said in an announcement. “We remain committed to working collaboratively with the crypto community, including providing ongoing support for open-source research. We will also continue to partner with crypto teams across every stage of their journey out of our seed, venture, growth, and expansion funds.”

According to a Bloomberg report, citing Shaun Maguire, a partner at Sequoia Capital, crypto is believed to be a technology that will form a “megatrend over the next 20 years” additionally calling it “the future of money.”

Founded in 1972 by Donald T Valentine, Sequoia Capital has always put its money where its mouth is and the firm has a number of sizable stakes in digital currency-based firms. As reported by Blockchain.News, Sequoia Capital led the recent $450 million Polygon Network private token sale earlier this month.

The company is also a major investor in Reddit, as well as FTX Derivatives Exchange. The new Fund and the company’s plans are billed to transform Sequoia from just a passive partner to a major offshoot that helps keep protocols running.

Image source: Blockchain.news

Sequoia Capital's $213.5m Investments in FTX Marks Down to $0

The liquidity crisis in the cryptocurrency trading platform FTX.com continues to escalate in the crypto market. On November 10, Sequoia Capital shared a note on FTX sent to Global Growth Fund III on Twitter.

“Based on our current understanding, we are marking our investment down to $0,” the Silicon Valley-based firm said Wednesday.

The statement reads the liquidity crunch created solvency risks for FTX. The full nature and extent of this risk are not yet known.

Sequoia said the company is still trying to reassure investors that it has limited exposure to FTX.

Sequoia Capital emphasized that even among the fund with the largest exposure to FTX named GGFIII, which has investments in FTX.com and FTX.US, is not in the fund’s top ten positions, and the $150 million cost basis only accounts for the fund has less than 3% of committed capital. Losses of $150 million were offset by realized and unrealized gains of $7.5 billion, so the fund held up well.

The SCGE Fund invested a total of $63.5 million in FTX.com and FTX.US, representing less than 1% of the SCGE Fund’s September 30, 2022 portfolio at fair value.

Sequoia told investors that it spent about $213.5 million on FTX’s international and U.S. operations last year.

“We’re in a risk-taking business,” Sequoia Capital said. “Some investments will surprise you, and some will disappoint.”

In addition, it stated that when choosing to invest in FTX, it conducted strict due diligence on it. In 2021, when it invested, FTX generated about $1 billion in revenue and more than $250 million in operating income.

However, the rapid change in the cryptocurrency market was unexpected for the company, but fortunately, FTX is not the fund’s top ten holdings.

The company said it will communicate with investors in a timely manner if there is any further news.

The reason why Sequoia Capital directly chose to write down can partly explain that the company has lost confidence in FTX and believes that there is no other clear way to recover its investment in FTX.

Other companies, including BlackRock, Tiger Global, SoftBank Group, and the Ontario Teachers’ Pension Fund, which ranks among the top five pension funds in Canada, are all on the list of FTX’s customers and may also suffer losses this time.

According to Bloomberg, FTX may face a funding gap of up to $8 billion, and without a cash injection, the company will need to file for bankruptcy.

Binance has announced on Twitter that it will “not pursue the potential acquisition of FTX”, among other reasons, due to FTX’s mishandling of customer funds.

FTX to Sell Remaining Interest in Sequoia Capital to Abu Dhabi Sovereign Wealth Fund

According to the papers filed with the court, Alameda Research, the investment division of FTX, has reached an agreement to sell the company’s remaining stake in Sequoia Capital to Al Nawwar Investments Company Ltd, which is controlled by the government of Abu Dhabi. The transaction is valued at $45 million, and its completion is anticipated by the 31st of March, provided that the Delaware bankruptcy judge John Dorsey gives his consent. FTX made the decision to enter into the agreement with Purchaser because Purchaser had a more attractive offer and was capable of carrying out the selling transaction in a shorter amount of time.

The remaining stake that FTX has in Sequoia Capital has been put up for sale as part of the company’s ongoing attempts to sell its investments and satisfy its financial obligations to its creditors. Previously, Dorsey gave his blessing for the firm to sell certain assets, such as LedgerX, Embed, FTX Japan, and FTX Europe. This allowed the company to go through with the sale.

After being sued by Alameda Research for unpaid loan repayments, Voyager Digital has decided to put aside $445 million in response to the lawsuit. Dorsey has given his blessing to the move, and as a result, the firm will have to put the money away in order to pay off its debt.

The recent developments in the bankruptcy case involving FTX bring to light the persistent difficulties that cryptocurrency exchanges must overcome and the need of preserving their financial stability. Since the cryptocurrency sector is expected to continue expanding in the next years, it is essential that businesses place a high priority on openness and accountability in order to safeguard the interests of creditors and investors. The decision by Voyager Digital to put aside $445 million and the sale of the remaining shareholding held by FTX in Sequoia Capital both reflect a commitment to financial discipline and might assist to recover trust in the sector.

EDX Markets Debuts Cryptocurrency Trading Platform and Wraps Up Latest Investment Round

In a key milestone, EDX Markets has successfully kick-started its cryptocurrency trading operations and completed a fresh funding round. Based in Hoboken, New Jersey, EDX has been established as a trusted marketplace for digital assets, promoting safe and compliant trading through reliable intermediaries.

EDX has garnered the attention of major financial institutions, becoming the preferred cryptocurrency marketplace for industry leaders. The platform stands out with its non-custodial model designed to prevent conflicts of interest. It also offers benefits like enhanced liquidity, competitive quotes, and a retail-only quote, giving retail-originated orders a better pricing advantage. Currently, EDX supports the trading of well-known cryptocurrencies (mainly POW), including Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Bitcoin Cash (BCH).

Another milestone is on the horizon for EDX. Later this year, it plans to launch a clearinghouse, EDX Clearing, which will settle trades matched on EDX Markets. The clearinghouse will function as a central counterparty for trades, reducing settlement risks, promoting price competition, and increasing operational efficiency.

The launch of EDX and the forthcoming EDX Clearing comes on the heels of a successful new funding round. The round saw participation from strategic investors such as Miami International Holdings, DV Crypto, GTS, GSR Markets LTD, and HRT Technology. These firms join the platform’s founding investors, including heavyweights like Charles Schwab, Citadel Securities, Fidelity Digital AssetsSM, Paradigm, Sequoia Capital, and Virtu Financial. The newly secured funding will bolster the ongoing development of EDX’s trading platform and strengthen its market leadership position.

Jamil Nazarali, CEO of EDX, expressed his confidence in the platform’s potential and its ability to attract investors. He stressed EDX’s commitment to incorporating the best practices from traditional finance into the cryptocurrency market and hinted at the significant edge EDX Clearing will provide by improving competition and operational efficiency.

Former Sequoia Partner Michelle Fradin, Involved in FTX Investment, Joins OpenAI

Michelle Fradin, a former partner at Sequoia Capital known for her key role in the investment in FTX, has transitioned to a new position at OpenAI, where she will spearhead data strategy, acquisitions, and operations. This move marks a significant step in her professional journey, intertwining her expertise in venture capital with the rapidly evolving landscape of artificial intelligence.

At Sequoia Capital, Fradin was integral in shaping investment strategies, particularly in the cryptocurrency sphere, most notably with FTX. Her tenure at Sequoia witnessed a dynamic period, especially in the wake of the FTX collapse, leading to significant shifts within the firm. Beyond her investment acumen, Fradin played a pivotal role in Sequoia’s exploration of AI and its integration into various industries. This experience provided a foundational understanding of the interplay between technology, business, and investment, fueling her transition to a more AI-focused role.

Fradin’s interest in technology and its commercial applications was evident early in her career. Starting at McKinsey, she gained insights into leadership and organizational structures before moving to Google, where she led the Creative Lab team, delving into e-commerce, payments, and AI/ML products. This phase was instrumental in honing her storytelling skills and scouting early-stage investments for Google. Her pursuit of understanding what constitutes a great business led her to Hellman & Friedman, a private equity firm, further solidifying her investment prowess. It was her move to Sequoia that synergized her passion for investing, serving others, and continual learning.

At Sequoia, Fradin was involved in groundbreaking discussions on the role of large language models (LLMs) like ChatGPT in innovation, observing their growing integration into products across various companies. She contributed to Sequoia’s engagement with 33 companies, spanning seed stage startups to large enterprises, to understand their AI strategies and the evolving landscape of AI applications. Her work highlighted the adoption of language model APIs, the importance of retrieval mechanisms for enhancing the quality of AI outputs, and the increasing interest in customizing language models for specific contexts.

Michelle Fradin’s move to OpenAI is a testament to her deep understanding of both the venture capital world and the transformative potential of AI. Her journey from Sequoia Capital to OpenAI reflects a broader trend in the technology sector, where AI is increasingly becoming central to business strategies and operations. As she embarks on this new chapter, her experience and insights are poised to make a significant impact in shaping OpenAI’s data strategies and future innovations.