Sequoia Capital just wrote down to zero the value of a stake that, until last week, represented one of the company’s biggest unrealized returns in its 50-year history. In short, Sequoia has decided not to bail out the beleaguered cryptocurrency exchange after its abrupt implosion in recent days.
This story is developing: here is the letter you just sent to your limited partners.
Dear limited partner,
We reached out to share an update on our investment in FTX. In recent days, a liquidity crisis has created a solvency risk for FTX. The full nature and extent of this risk are not known at this time. Based on our current understanding, we are reducing our investment to $0.
Sequoia Capital’s exposure to FTX is limited. We own FTX.com and FTX US in a private fund, Global Growth Fund III. FTX is not a top ten position in the fund, and our cost base of $150 million represents less than 3% of the fund’s committed capital. The $150M loss is offset by ~$7.5B in realized and unrealized gains in the same fund, so the fund remains in good shape.
Separately, SCGE Fund, LP invested $63.5 million in FTX.com and FTX US, representing less than 1% of SCGE Fund’s portfolio as of 09/30/2022 (at fair value).
We are in the business of taking risks. Some investments will surprise to the upside and others will surprise to the downside. We do not take this responsibility lightly and do extensive research and due diligence on every investment we make. At the time of our investment in FTX, we carried out a rigorous due diligence process. In 2021, the year of our investment, FTX generated approximately $1 billion in revenue and more than $250 million in operating income, as disclosed in August 2022.
The current situation is developing rapidly. We will communicate in a timely manner when more information becomes available. If you have any further questions, please contact Andrew Reynolds, Marie Klemchuk and Kathleen Forte at firstname.lastname@example.org. If you have questions about SCGE, please contact Kimberly Summe at email@example.com.
To be honest.
Global Growth Fund III (GGFILI) data is as of September 30, 2022 and is based on US GAAP. The $7.5 billion is made up of $5.8 billion of unrealized gains and $1.7 billion of realized gains. which includes the General Partner distribution on May 27, 2021 pursuant to the 2021 Amendment. Past performance is not indicative of future results
Global Growth Fund III (GGFIII) refers to Sequoia Capital Global Growth Fund III – Endurance Partners, LP and does not include Sequoia Capital Global Growth Fund III – US/India Annex Fund, LP, Sequoia Capital Global
Growth Fund III – China Annex Fund, LP, and its parallel funds
More on this story shortly. . .