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VC firm Sequoia Capital’s Doug Leone on the fallout from FTX collapse

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

David Paul Morris | Bloomberg | Getty Images

HELSINKI, Finland — Billionaire enterprise capitalist Doug Leone said there wasn’t much his firm Sequoia Capital could do to predict the solvency crisis at FTX.

Leone was asked by fellow Sequoia partner Luciana Lixandru onstage on the Slush startup conference in Helsinki: “Sequoia has been within the press quite a bit for the past couple of weeks — what should we’ve got done in another way?”

Without mentioning FTX by name — though strongly hinting at it (“I’m not going to say any acronyms”) — Leone said Sequoia had done “careful due diligence” on FTX.

Sequoia, which invested $210 million in FTX, wrote down the worth of its stake within the crypto exchange to zero last week after rival exchange Binance’s withdrawal of a suggestion to rescue the corporate left it facing bankruptcy.

FTX founder Sam Bankman-Fried stepped down because the firm’s CEO last Friday as the corporate filed for Chapter 11 bankruptcy protection. FTX, once valued at $32 billion, collapsed in a matter of days amid a liquidity crunch and allegations that it was misusing customer funds. The Securities and Exchange Commission and the Department of Justice are reportedly investigating what happened.

“What you see at the top of the quarter is a due diligence statement [which] doesn’t reflect what someone can have done in the center before,” Leone told an audience of entrepreneurs and investors in Helsinki.

“We have checked out it,” he said, adding: “There’s nothing much we could have done any in another way.”

Sequoia was considered one of quite a few blue-chip funds that backed FTX before its demise. Other backers included SoftBank, Tiger Global and the Ontario Teachers’ Pension Plan.

In an article on Sequoia’s website, Bankman-Fried was praised as a “genius” who would go on to create the “dominant all-in-one financial super-app of the long run.” In that very same piece, which has since been deleted, it’s revealed the FTX chief was playing the video game League of Legends while on a Zoom meeting with Sequoia’s partners.

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

Short-term pain

Leone hinted that FTX’s implosion may affect Sequoia’s investing principles within the near term. Sequoia is “in a dream business” with entrepreneurs, Leone said. “I can inform you that, for the subsequent three to 6 months, we’ll dream a bit less,” he added.

Nevertheless, the enterprise capital investor added: “Like having a baby, you forget the pain of getting that child three months later, a 12 months later. We wish to be in a dream business.”

“We don’t want to lose … our true belief to align ourselves with you and to dream with you — I believe we lose that and we’re out of business,” Leone said.

Leone joined Sequoia in 1996 and, up until earlier this 12 months, led the firm’s global operations. He was replaced as Sequoia’s “senior steward” in July by Roelof Botha, one other top executive on the firm.

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