Finland capital

Doug Leone of venture capital firm Sequoia Capital on the fallout from the FTX collapse

Doug Leone, managing partner at Sequoia Capital LLC, speaks at the Bridge Forum conference in San Francisco, California, U.S., Wednesday, April 17, 2019. The event brings together finance and technology leaders from Asia and Silicon Valley to connect and share knowledge.

David Paul Morris | Bloomberg | Getty Images

HELSINKI, Finland — Billionaire venture capitalist Doug Leone said his company Sequoia Capital could do little to predict FTX’s solvency crisis.

Luciana Lixandru, partner of Sequoia, asked Leone on stage at the Slush startup conference in Helsinki: “Sequoia has been getting a lot of attention over the past two weeks. What should we have done differently?”

Without mentioning FTX by name — albeit heavily hinting at it (“I won’t mention any acronyms”) — Leone, Sequoia’s global managing partner, said Sequoia had done “due diligence” on FTX.

Sequoia, which invested $210 million in FTXreduced the value of its stake in the crypto exchange to zero last week after rival exchange Binance’s withdrawal of a corporate bailout bid left it facing bankruptcy.

FTX founder Sam Bankman-Fried stepped down as the company’s CEO last Friday as a company deposit for Chapter 11 bankruptcy protection. FTX, once valued at $32 billioncollapsed within days amid a cash crunch and allegations that he was misusing client funds. The Securities and Exchange Commission and the Department of Justice are would have investigating what happened.

“What you see at the end of the quarter is a statement of due diligence [which] does not reflect what anyone has been able to do in the middle before,” Leone told an audience of entrepreneurs and investors in Helsinki.

“We looked at it,” he said, adding, “We couldn’t have done much differently.”

Sequoia was one of many blue chip funds that backed FTX before its demise. Other funders included SoftBank, Tiger Global and the Ontario Teachers’ Pension Plan.

In a article on Sequoia’s website, Bankman-Fried was hailed as a “genius” who would create the “dominant all-in-one financial super-app of the future”. In this same room, which has deleted sinceit is revealed that the FTX leader was playing the League of Legends video game during a Zoom meeting with the Sequoia partners.

Bankman-Fried was replaced as CEO by John Ray III, who previously oversaw Enron’s bankruptcy. On Thursday, Ray said in a filing with the bankruptcy court for the U.S. District of Delaware that in his 40 years of legal and restructuring experience, he had never seen “such a complete failure of corporate controls and such a total absence of reliable financial information”.

short term pain

Leone hinted that the FTX implosion could affect Sequoia’s investment principles in the short term. Sequoia is “in a dream business” with contractors, Leone said. “I can tell you that, for the next three to six months, we are going to dream a little less,” he added.

However, the venture capitalist added: “Like having a child, you forget the pain of having that child three months later, a year later. We want to be in a dream company.”

“We don’t want to lose…our true belief in aligning with you and dreaming with you – I think we’re losing that and we’re bankrupt,” Leone said.

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