Text/Chase Peterson-Withorn
The troubled cryptocurrency exchange FTX announced last Friday that it had initiated bankruptcy protection procedures, and its former billionaire CEO Sam Bankman-Fried resigned from the company, and the liquidity crisis forced the exchange, which once valued at $32 billion, to collapse. Although this caused Sam Bankman-Fried to lose a huge amount of wealth, FTX investors were also suffering from the losses.
Previously, with the expansion of the scale of Bitcoin exchanges, FTX became a hot commodity in the eyes of venture capitalists , who were eager to get a piece of the Bitcoin craze. In June 2021, FTX raised $1 billion from venture capitalists such as Paradigm, SoftBank and Sequoia Capital at a valuation of $18 billion; three months later, FTX received another $421 million in investment, pushing its valuation to $25 billion, with investors including Temasek, Tiger Global Management and Ontario Teachers’ Pension Plan. In January this year, cryptocurrency prices began to fall, but FTX is still moving forward. Many investors who invested in the previous rounds of financing invested another $400 million in FTX, bringing its valuation to $32 billion.
Now, this valuation has been wiped out, and investors have invested more than $1.8 billion in FTX over the past three years have also gone into vanish: at least two major shareholders have reduced their investment value in FTX to $0 - Sequoia and Paradigm, a cryptocurrency-focused company. Forbes has taken the same approach, removing Sam Bankman-Fried and its co-founder Gary Wang from the billionaires list last week, as both FTX and two trading company Alameda Research went bankrupt.
Strictly speaking, FTX investors’ losses are limited to the $1.8 billion they invest, but their book losses are much higher. If these investors cash out when FTX peaked at $32 billion in January, they would make tens of millions or even hundreds of millions of dollars more, but the reality is just the opposite, and they are likely to end up having nothing.
Who has suffered the biggest losses? Forbes has a list of FTX shareholders, which was provided by Sam Bankman-Fried when Forbes reported on the US Rich List. If FTX is not saved, the VCs, pension plans and two celebrity spokespersons on this list will suffer heavy losses.
(The above analysis does not include stock of the exchange's U.S. branch FTX U.S. branch. FTX U.S. raised $400 million in a Series C round of financing this January, with a valuation of $8 billion. It is unclear how the problems facing FTX will affect the valuation of FTX U.S. Losses in U.S. business may push up some investors' total investment in Sam Bankman-Fried Empire.)
Sequoia Capital
stake in FTX: 1.1%
Estimated investment amount (FTX only): $200 million
Value at the peak of valuation in January 2022: $350 million
This Silicon Valley Venture Capital Fund is well-known for investing in technology giants such as Apple, Google and Airbnb. A letter shared by Sequoia Capital on Twitter last Wednesday showed that it participated in FTX's Series B and B-1 rounds of financing with another entity, Sequoia Capital Global Equities, with a total investment of more than $200 million. "FTX is the high-quality global cryptocurrency exchange the world needs. Sam is the perfect founder of the company and the team's execution is also excellent." This kind of favorability is mutual: According to a report released by The Information last Thursday, FTX Ventures, a venture capital fund supported by Alameda Research and Sam Bankman-Fried, promised "hundreds of millions of dollars" to funds operated by Sequoia and two other companies.
Sequoia Capital’s investment value in FTX peaked at $350 million earlier this year, marking the biggest loss that outside investors on the exchange could suffer.Sequoia Capital said in a letter to investors that its FTX stake accounts for less than 3% of a fund's promised capital, which had a $150 million loss offset by approximately $7.5 billion in realized and unrealized gains.
Temasek
stake in FTX: 1%
Investment amount: US$205 million
Value at the peak of valuation in January 2022: US$320 million
Temasek is an investment company , a subsidiary of the Singapore government, and is the second largest external investor on the FTX capital composition table. holds 47 million shares. DBS Group and Singapore Airlines , with assets of US$297 billion, own a large stake in FTX and have participated in all three major rounds of FTX. Now, Temasek's once worth $320 million in FTX is on the verge of being worthless. A Temasek spokesman told Reuters on Wednesday that they "understand the developments" and are "engaging with FTX as shareholders."
PARADIGM
stake in FTX: 1%
Investment amount: US$215 million
Value at peak valuation in January 2022: US$315 million
Paradigm is an investment company "focused on supporting crypto/Web3 companies and future agreements". The company has invested in the exchange's Series B and C rounds of financing, and as of August this year, the company has held nearly 7 million FTX shares. Paradigm co-founder Matt Huang said in July 2021: "The future of Sam and FTX is bright, and Paradigm is excited to be one of them."
According to The Information, Alameda Research has also invested at least $20 million in Paradigm.
Ontario Teachers Pension Plan
holds a stake in FTX: 0.4%
Investment: $80 million
Value at peak valuation in January 2022: $125 million
Ontario Teachers Pension Plan manages the retirement funds of 333,000 teachers in Canada, and between the end of 2021 and early 2022, the plan invested a total of $95 million between FTX and FTX U.S. After FTX's Series C round, the FTX portion of that investment alone is worth about $130 million — though that was before the cryptocurrency winter and the current crisis. "While there is uncertainty about the future of FTX, given that this investment accounts for less than 0.05% of our total net assets, any financial losses from this investment will have limited impact on the program," the Ontario Teachers Association wrote in a statement. "
Although these are the major shareholders on the FTX total capital list obtained by Forbes, there are also some large investors who have not been mentioned that may also suffer heavy losses. Other FTX Series B investors, the investors who participated in the $1 billion financing in June 2021, own another 3.5% of the exchange. These investors include entities related to billionaires Paul Tudor Jones, Daniel Loeb and Israel Englander, as well as companies such as Tiger Global Management and SoftBank, which also participated in FTX's Series C rounds in January, which may also be key shareholders of FTX. According to the capital composition statement, investors in this round (excluding Temasek and Paradigm) hold nearly 1% of FTX shares, with book losses of more than $270 million. This is a big number, although it is only a drop in the bucket for these funds. After all, these funds usually have a lot of capital and have the ability to invest large amounts of money in dozens of risky unicorns, as long as at least one or two of them succeed.
At least two celebrities who have endorsement agreements with FTX will also face losses. According to a capital composition table previously shared by Sam Bankman-Fried with Forbes, as of June 2021, NFL legendary player Tom Brady and fashion supermodel Gisele Bundchen hold 0.15% and 0.09% of FTX shares respectively. Forbes estimates that the two now have FTX shareholding ratios of 0.14% and 0.8% respectively, given the possible dilution in subsequent rounds of financing.It is unclear how much the former couple invested in their stock, but before cryptocurrency prices fell and Sam Bankman-Fried invested in their jet fire extinguishers, Tom Brady's shares were estimated to be worth $45 million and Giselle Bundchen's shares were worth $25 million.
The most affected person is FTX employees. According to its capital composition statement, as of August, the company's option pool held 20,858,124 shares, accounting for approximately 3% of FTX shares. In January, FTX employees owned up to $950 million worth of stock, but they may be worthless now. Can they get the money back? Sam Bankman-Fried has made it clear that his various matters are prioritized: According to a series of tweets he posted last Thursday, users are put first, and then he will focus on "new and old" investors -- before saying that he will take care of workers, the people who "fight for the right things in his career." He clarified, "They should not be responsible for anything bad."
This article is translated from https://www.forbes.com/sites/chasewithorn/2022/11/10/exclusive-these-investors-stand-to-lose-the-most-from-ftxs-implosion/?sh=5d9b01f26700
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