The whole Sequoia thing is so interesting. Here is an excerpt from their (now taken down) profile of SBF, highlighting the moment he convinced them to invest:
> That’s when SBF told Sequoia about the so-called super-app: “I want FTX to be a place where you can do anything you want with your next dollar. You can buy bitcoin. You can send money in whatever currency to any friend anywhere in the world. You can buy a banana. You can do anything you want with your money from inside FTX.”
> Suddenly, the chat window on Sequoia’s side of the Zoom lights up with partners freaking out.
> “I LOVE THIS FOUNDER,” typed one partner.
> “I am a 10 out of 10,” pinged another.
> “YES!!!” exclaimed a third
Like, he’s rambling about how you should buy bananas with Bitcoin. How was this compelling to people who control serious money?
It always struck me as the opposite. If someone running a crypto futures exchange said they wanted people to buy bananas and groceries on their platform that’s be a signal to pass, right?
I think the practical business/technical goals are almost irrelevant. It's not that SBF had a brilliant business model in mind. It's that he fit the "look" of a founder that those VCs expected. He was one of them, with the right pedigree and right connections. It's affinity fraud [1].
To be fair, FTX had decent traction and Alameda had been successful in the past. I think it's easy to say "pass" on SBF now that we know he's a crook, but there are genuine legitimate exchanges out there that are worth plenty. Coinbase, in the middle of a bear, has a market cap of $20B (it was valued at more than $80B in early 2021).
SBF was just a thief and a gambler, and an incompetent one, at that. I still think Sequoia does have some responsibility here, but I suppose my point is only that hindsight is always 20/20.
>To be fair, FTX had decent traction and Alameda had been successful in the past.
No, they weren't successful. When you leverage up and make (paper) money and later those same investments are wiped out and destroy the comany, you don't get to say you were "successful".
Early Alameda strategy was BTC arbitrage in Asian markets (which is very above-board). They were definitely successful. Once that well dried up (arbitrage is usually an "early bird gets the worm" game), they started gambling on shitcoins, which is where the troubles began.
The BTC arbitrage in Asian markets was absolutely NOT very above board. He lied to get Japanese bank accounts opened and to keep them open. Transferring the BTC into Korea was against the law there. He just figured out how to do it for quite a while without getting caught.
Yes, it made money. Yes, he claimed it was legit, but it wasn't--it was money laundering illegal gains. It just sounds so much better when you call it "arbitrage".
They were definitely not successful. Anyone looking at BTC prices between NA and Korea saw the arbitrage opportunity. The fact that it sat there so obviously for so long was a testament to how impossible it was to profit from it. In fact, the whole reason for the pivot to an exchange from a pure arbitrage play was due to their lack of success.
No. That is incorrect. A brokerage / exchange may not use customer assets for their own benefit. They are not a bank -- they are custodians. If they are doing that, they are committing a crime.
I believe Binance was bigger than FTX. That being said, it’s hard to tell how big any of these organizations really are because they do not release audited financial statements.
If you look at recent Nobel Prize winners in sciences, many are not weirdos, just smart and without relying on nonsensical gimmicks. Jennifer Doudna, Emmanuelle Charpentier, others, all examples of just smart and persistent and focused.
Unfortunately the people in power do not care for revolutionary change. They want change that makes them money, not change that fundamentally restructures society.
Change that fundamentally restructures society does not need permission from anyone. When the tech is here it will speak for itself, in spite of any of the major resource allocators being blind to those who bring it -- because a part of that change is those resource allocators being made irrelevant. They have held back the human race with their ego, blindness, and total lack of vision.
They will spend $200m+ on a clown like this but ignore countless people with real innovations.
You gotta remember, what's being sold in this kind of pitch is not a business model. They're looking for unicorns. What's being sold is the maximum possible size of the market you can extract value from.
I'm no VC, but I feel like if I am and you're telling me that _all_ consumer transactions of any kind are going to flow through a portal _you_ own, it doesn't get much bigger than that. The odds of success don't have to be that high, and in principle you just factor the possibility that the founder's full of crap into those odds; you don't have the time to understand every possible market and every person pitching you in the depth necessary to make that determination, right?
the line between "crazy, brilliant founders who will build world changing companies" and "crazy, lunatic founders who will lie and cheat and be awful" is very hard to distinguish, especially at the series seed/series A level.
It can lead to false positives and false negatives all the time.
FTX didn't have a CFO. They didn't have a legitimate board of directors.
No VC in their right mind should ever pour billions into a finance company that doesn't have a CFO or risk management team, doesn't have properly audited financial statements, doesn't have board oversight, etc. Especially so in a risky industry like crypto where scams and fraud are well known to be rampant.
This is the main criticism I have of the people who invested in FTX. Even if you thought SBF was a world-changing entrepreneur 2 years ago, the structure of his company should have disqualified it from investment.
This, to me, is just a myth that is pushed by investors that don't know what they are doing, and media outlets who want to talk about spicy people. There's no strategic reason to put your eggs in the basket of crazy people. We only hear about the crazy people because they are newsworthy.
I don't know. To the extent that Musk had a plan at all with his $44B Twitter purchase, a big part of his idea seems to be that he wants X to be the next banking app/Venmo.
Venmo is valuated at something like 40 billion dollars, and a huge amount of its use is people making $10 payments to each other.
I'd hate to live in a world where I conducted all my business on FTX, but you can see why it might be appealing to investors.
> How was this compelling to people who control serious money?
Access to money, and intelligence, are not positively correlated. Jury is out on whether there is no correlation, or if there is negative correlation. Given the braindead antics of the wealthy over the past 10 years, I'm leaning towards the latter.
Anybody remember that rich dude who built a submarine against every single convention and over the screaming shouting objections of literally every other person alive who's built submarines, who then tried to go to the Titanic and killed himself and four other people?
How about Musk who bought a successful if mid-tier social media site for 44 billion dollars and has cratered it to being worth barely 4?
How about Zuck who renamed his entire damn company in a bid to pivot to the metaverse just in time for that entire house of cards to come crashing down?
I suspect the sole purpose of ideas like wealth tax is to point out undiscerning left leaning voters.
You know, the people whose mental model of "the rich" comes from scrooge mcduck - wealth being mostly stored in gold coins that are easy to dive into and/or tax on annual basis.
This whole exchange made me think that there must have been a family or friend connection back to Sequoia.
As a humble poor, if I were running the show over at Sequoia I would have these people out on their asses, but again, I also don't have buckets of money clouding my judgement.
Sequoia likely made plenty of money by underwriting their in-house e-coin FTT, hyping up SBF across the media, and then dumping FTT on retail investors afterwards.
No proof, because absolutely nothing was audited. That's the whole point of crypto, avoiding securities regulations.
Regardless, what I'm describing is exactly what an investment bank does for a legit public company. They purchase shares from the issuing company to guarantee a certain amount of capital for the company, and then sell it on the secondary market, which in most cases would be to other invstment groups or directly on the NYSE. The difference is that those companies issue S-1s disclosing their performance and numbers, allowing secondary market investors to make an informed buying decision.
This just goes to show all the critiques of this kind of investing were very true. FTX and Theranos are examples of how this can all go very wrong.
I've gotten in a number arguments with people who don't understand white collar crime, think these guys are "smart", and are so surprised by how basic their scheme is, and how they thought they'd get away with it.
These people aren't smart, any more than your local gang banger, or small time fraudster... the stories are remarkably similar.
There's lots of white collar criminals that have cloaked their schemes as part of "altruism". This isn't even new.
What else should investors do in the time of ZIRP? This looked like a potentially crazy return, right? That's point of investing like this, right? Pour money into a "winner" and ride the crypto-future-promise-delusion-wave...
It's pretty wild how unhinged they became about pretty much rambling...
> If someone running a crypto futures exchange said they wanted people to buy bananas and groceries on their platform that’s be a signal to pass, right?
Not if you're so silly as to think you can replace the currency people use, plus control completely its medium of exchange, plus be able to trade against those same exchange's participants. It boils down to people trying to rebrand casinos as markets.
Wow wow wow. He's talking about inserting a business in the normal person's payment path. It's certainly ambitious and could be profitable if you could get on that trajectory. The question would be whether there is a credible path from crypto futures exchange to that, technical, financial or marketing-wise - but that's a different question.
Yeah but back in the Bitcoin crazy time it wasn't that unrealistic for "serious money". Mastercard, Visa and AmEx move trillions of dollars a year, capturing even a slice of that marketshare means being in possession of a money printer, which explains the (often absurd) investments into anything crypto.
I think that idea in particular is quite good actually ^_^
I mean, I'm not imagining that they have groceries listings on the app, but that the app allows you to transfer money directly to someone from your crypto wallet. Like a venmo payment but with crypto.
> but that the app allows you to transfer money directly to someone from your crypto wallet. Like a venmo payment but with crypto.
The thing is that's not a novel concept, just about every crypto wallet app can already do this. And the achilles heel of all of these apps is the gas fees that are out of their control. The only way to conceptually get around gas fees is to keep everyones money centralized and sidestep the trading of crypto all together, but in the process you defeat the entire purpose of crypto.
I think it's a good reminder that large investors are human and don't possess any special knowledge or magical foresight. Consequently, everything they say about the future of technology and society should be taken with a large grain of salt - not treated like god's honest truth.
> That’s when SBF told Sequoia about the so-called super-app: “I want FTX to be a place where you can do anything you want with your next dollar. You can buy bitcoin. You can send money in whatever currency to any friend anywhere in the world. You can buy a banana. You can do anything you want with your money from inside FTX.”
> Suddenly, the chat window on Sequoia’s side of the Zoom lights up with partners freaking out.
> “I LOVE THIS FOUNDER,” typed one partner.
> “I am a 10 out of 10,” pinged another.
> “YES!!!” exclaimed a third
Like, he’s rambling about how you should buy bananas with Bitcoin. How was this compelling to people who control serious money?
It always struck me as the opposite. If someone running a crypto futures exchange said they wanted people to buy bananas and groceries on their platform that’s be a signal to pass, right?