Amid SEC battle, crypto company Ripple Labs buys back its Series C investment
This newsletter is called Term Sheet for a reason, and every once and a while we see the behind-closed-doors negotiations between businesses and investors spill out into the open.
That’s exactly what’s happening over at Ripple Labs, the San Francisco-based blockchain technology company that supports more than 300 financial institutions in sending assets across borders. At the end of 2019, Ripple raised $200 million in Series C funding led by Tetragon and joined by SBI Holdings and Route 66 Ventures. Now Ripple is buying it all back—at a premium.
The crypto payments company has purchased all the preferred stock it sold in its Series C round, Ripple CEO Brad Garlinghouse told me in an interview yesterday afternoon. Per the negotiated terms of the original agreement, Ripple paid those investors a 50% premium for those shares, he says (A Tetragon spokesperson says that the investment company also received accrued paid-in-kind dividends from Ripple). After the buyback, Ripple is now valued at $15 billion—up from $10 billion from its Series C, according to the company.
“We decided that this was a good use of capital and very accretive to other shareholders, in my judgment. And so we decided to exercise that right,” Garlinghouse says.
All of this comes amid Ripple’s ongoing—and heated—battle with the Securities and Exchange Commission. In 2020, the regulator sued Ripple, charging the company and its executives of selling $1.3 billion in unregistered securities due to the sale of XRP, a digital asset affiliated with the company that was once the second most popular cryptocurrency after Bitcoin. It’s a lawsuit that could have wide implications on the crypto market. Garlinghouse and Ripple have maintained that the SEC is “dead wrong” and accused the agency of attacking the entire U.S. crypto market.
Shortly after the SEC filed its charges, U.K.-based investment firm Tetragon sued Ripple, too, seeking $175 million in repayment from its Series C investment. In March 2021, a Delaware judge rejected Tetragon’s claim.
“As you might imagine, that set an awkward footing for your lead investor to have sued you and lost,” Garlinghouse says.
After the lawsuit’s close, Tetragon purchased additional shares of the company on the secondary market. (A Tetragon spokesperson says the company remains invested in these shares and “is supportive of the company’s current position as well as its direction and maintains its conviction in its prospects.”)
Ripple is leaving the Series A and B investments be—those shares weren’t tied to governance or dividends rights like the preferred stock from the Series C rounds, Garlinghouse says. Additionally, “the Series A and Series B are happy shareholders,” Garlinghouse pointed out. Indeed, SBI Holdings came to Ripple’s defense regarding the SEC lawsuit and later launched an On-Demand Liquidity (ODL) service with the company in Japan.
After the buyback, Ripple has $1 billion in cash in the bank and zero debt, according to Garlinghouse. Transactions for RippleNet, the company’s global payments network, doubled in 2021, and its payment volume run rate—meaning the flows of cross-border payments taking place on its platform—exceeded $10 billion, doubling that of 2020, according to the company. It plans to hire “hundreds” of employees this year after signing partnerships with the Royal Monetary Authority of Bhutan and the Republic of Palau.
“We think the shares are worth more than the $15 billion,” Garlinghouse says. Why not buy them back?
Inside Katie Haun’s new fund: The former prosecutor made a splash when she departed a16z to branch out on her own and launch a new crypto fund late last year. With a scrappy team of six, she is out raising $1 billion to make it happen, which would be the biggest crypto raised by a solo female VC. “Will Haun 2.0 have what it takes to survive that volatility and get founders to sign on the dotted line?” My colleague Michal Lev-Ram has the story.
Gwyneth Paltrow’s next move: The actress and founder of Goop is now an investor and board member at Wonder, the food delivery and cloud kitchen venture of Jet.com founder Marc Lore. “We’ve always been aligned on great food and wine,” Paltrow tells my colleague Emma Hinchliffe.
See you tomorrow,
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FUNDS + FUNDS OF FUNDS
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