How Sam Bankman-Fried Blue-Chip investors seduced

It was a surprising call to an old university professor who brought the private equity investor Orlando Bravo to become one of the most prominent and volume supporters of Sam Bankman-Fried and his crypto trade company FTX.

The call came from Joseph Bankman, a professor of law and business at Stanford University, who had taught Bravo in the late 1990s. At that time, mid-2021, Bravos opened $ 122 billion, difficult private equity company Thoma Bravo, an office in Miami, the city in which Bankman's son Sam had just paid $ 135 million for a 19-year name law with the local NBA team.

Bankman said Bravo, his son looking for instructions for philanthropic projects in Miami to promote his mission of "effective altruism". Only after they had spoken, Bravo learned that Bankman-Fried also found that a 900 million finance round of series B with an evaluation of $ 18 billion with a WHO-IS-WHO from investors such as Sequoia Capital, Blackrock and Softbank. He quickly called Bankman back to find an introduction and a way into the deal that quickly progressed and would be the greatest capital procurement in the history of the crypto exchange.

When Bravo and a partner Tre Sayle started with the Due Diligence for the financing round, they were surprised by the figures from FTX. The two-year-old start-up, which is led by a relatively small team of young traders, was well on the way to generating over $ 200 million in business profit for the year, unprecedented margins for a growth company in the early phase that would normally lose money. Bravo was overwhelmed. Thoma Bravo invested more than $ 125 million in the round in June 2021 and became one of the greatest supporters of FTX.

Thoma Bravo is just one of the Blue-Chip investors, including the state-owned fund Temasek from Singapore, Tiger Global and the Ontario Teachers' Pension Plan, whose support has contributed to lending Bankman-Fried's business empire credibility this week suddenly collapsed, which was driven by concerns to his own retail group Alameda this week Research.

Since its introduction in 2019, FTX has raised USD 1.8 billion and was last rated $ 32 billion. His shareholders include some of the most viewed hedge fund managers, including Alan Howard by Brevan Howard Asset Management, Izzy Englander from Millennium Management and the family of Paul Tudor Jones.

Now that FTX has filed for bankruptcy, their investments seem to be completely wiped out. Investors such as Sequoia, Softbank and Paradigm, which was co-founded by the former Sequoia partner Matt Huang, set their shares in the company to zero and destroyed hundreds of million dollars in value.

These investors are confronted with difficult questions by their own customers, how they misunderstood it, why they did not require seats on the board of FTX and whether they have ever really understood how the company earns money.

that shouldn't end. Investors said that the eccentric 30-year-old founder of FTX, who presented himself as an acceptable face of a wild-west industry, was able to invest in cryptocurrencies from the desire of people from more traditional financial areas, and also out of their fear of missing something, hitting capital on the next big thing.

The Sequoia, which was based in California, a former supporter of Google, PaysApp, invested $ 210 million in FTX and developed into one of Bankman-Fried's largest cheerleaders.

In September she published a long and flattering article about the FTX boss, in which it was said that the company was being encouraged by its "vision about the future of money itself-with a completely addressable market for everyone on the entire planet". His "intellect is as great as it is intimidating", enthused the profile that was deleted this week when Sequoia wrote his investment in FTX to zero.

"We were seduced," said a top investor who invested large sums in FTX. In retrospect, he thinks that his company, when she asked Bankman-Fried before the investment, should "have concentrated more on details about governance and financial controls of the crypto exchange"-instead of the snowball profile of her founder. The investor's duty of care at FTX, he added, was only as good as the questions that his managers asked the young entrepreneur, whose companies were feverishly encountered by the largest funds and banks in the world at that time.

The investor said that he had some reservations during the first talks with Bankman-Fried, including the way the entrepreneur "behaved" and the feeling that he believed that everyone else in the financial world was "idiots".

"I wouldn't have touched him," he added, but it was not his final decision.

A risk capital provider that invested in FTX said that the Due Diligence had not uncovered the high leverage in the business - investors were only shown the balance at the end of the quarter, and the leverage was not on it.

mainstream assets have tried to deal with cryptocurrencies to gain customers who are interested in the sector. The pressure is so great that a senior employee of a large financial institution said that his company even briefly discussed the purchase of FTX as part of an internal advance in order to "grow up on crypto". However, the idea was rejected because of the "highly speculative nature of the business" model and the underlying assets, ”he added.

It is common in the risk capital for investors to ask for a seat on the board of a portfolio company, but none of the investors had a board representation at FTX.

After the quick negotiation rounds, the only board members of FTX Bankman-Fried, the FTX manager Jonathan Cheesman, who later left the company, and a single external director, a lawyer based in Antigua and Barbuda, the company's headquarters.

Orlando Bravo would become one of the volume supporters of Bankman-Fried an der Wall Street and an advocate of cryptocurrencies and FTX. He believed that the company had the potential to suppress some of the largest banks in the world, a future that is written by its founder. Bankman-Fried even said last year that the purchase of Goldman Sachs was "not excluded" when FTX became the largest crypto exchange.

Multicoin Capital, a crypto hedge fund, informed his investors this week that his commitments were numerous. Its funds had invested in FTX and the company also used the company to trade crypto. MultiCoin was able to deduct a quarter of its total assets from FTX before the withdrawals were suspended, but this week informed investors that about 10 percent of the fund's assets were stuck.

The company was also an active dealer of the FTT token, which was apparently part of the decline of FTX. It sold the FTT tokens during a break-in this week, but the fund was unable to withdraw the assets. Multicoin said that Solana, a cryptocurrency associated with Bankman-Fried, was his largest single investment position. The value of the token has decreased when Bankman-Fried tokens sold to try to support his trading empire.

Solana lost 45 percent of its value last week.

"[All] of the company units, funds and MultiCoin employees," said co -founder Kyle Samani of the Financial Times.

himself as a number of failure of the cryptocurrency exchange this year led to increasing pessimism in the industry, many investors kept their optimism in terms of FTX.

In September, Bravo said that he is pulling the company back from new crypto investments due to concerns about the business practices of the industry-but retained high expectations of FTX.

He said at an investment conference in Cannes that the company was becoming "a big winner", and he described Bankman-Fried as "one of the best entrepreneurs" to whom he met.

Additional reporting by Mercedes Ruehl in Singapore and Kaye Wiggins in London.