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‘10 cents on the dollar’: What happens if Sam Bankman-Fried’s empire is forced into a fire sale of its investments

November 10, 2022, 11:05 PM UTC
A partial look at the SBF empire’s investments, including lead investments and major companies in the crypto space
Fortune Illustration

Sam Bankman-Fried’s reach in the crypto universe extends far beyond FTX. 

And while his personal holdings may remain in limbo, industry players suggest to Fortune that his companies’ privately held equity likely will be sold in the coming months, for pennies on the dollar—or later liquidated during bankruptcy proceedings. The question yesterday was how much he was in the hole. The question now is how dismantling his empire will ripple throughout the crypto ecosystem. 

At the core are four firms—including the two exchanges, FTX, and FTX US—the VC arm FTX Ventures, and a hedge fund, Alameda Research, all of which were active participants in the broader crypto ecosystem. 

“They’re going to have to liquidate their portfolio,” said Nic Carter, a general partner at VC firm Castle Island Ventures and a vocal critic of centralized crypto firms. “I look forward to bidding on it at 10 cents on the dollar.”

A partial look at the SBF empire’s investments, including lead investments and major companies in the crypto space.

A sprawling empire 

According to data from Crunchbase, which isn’t comprehensive, the FTX umbrella of portfolio companies is spread across Alameda Research, with 184 investments; FTX Ventures, with 48 investments; and FTX, with 21 investments. FTX and FTX US have also made acquisitions, including troubled lender Voyager Digital’s assets in a September deal for $1.4 billion.

FTX Ventures was actively investing prior to FTX’s recent troubles. Amy Wu, who heads the firm’s $2 billion fund, told Fortune last week it had deployed “close to” half of that sum year to date. Bankman-Fried was the fund’s sole limited partner, or investor, and Wu described his relationship with the fund as “essentially his family office.”

Wu also explained the working relationship between FTX Ventures and Alameda. When some of FTX Ventures’ companies would launch a token, Alameda would “oftentimes” act as the counterparty market maker on the other side, she said. Meanwhile, Wu added via email, FTX Ventures was “maybe” considering raising funds as recently as last week.

Wu did not respond to multiple requests for an interview this week. A spokesperson for FTX Ventures did not respond to a request for comment on the relationship between Alameda and FTX Ventures.

A spokesperson from FTX told Fortune, “No comment from FTX on this matter.”

While Bankman-Fried is currently trying to cobble together funding to salvage FTX and its customers’ funds, Carter from Castle Island described him as living in a “suspended reality where they still think they can get this thing back on track.”

“Trust has been irreparably broken,” Carter told Fortune. “There’s no confidence remaining from the investors, because no one is big enough to bail them out.”

‘The best team out there’ 

Gautam Chhugani, managing director of global digital assets at Bernstein, said FTX is in a situation where it immediately needs liquidity, meaning it would likely have to unload equity at estimated discounts of 30% to 50%. 

Companies that raised smaller amounts from FTX said they would not be affected. A spokesperson for Bored Ape Yacht Club NFT creator Yuga Labs, which received funds from FTX Ventures in March, directed Fortune to a tweet showing a leaked Discord chat message from Yuga Labs cofounder Greg Solano, where he wrote, “FTX was a small investor as part of our seed round, but obviously we got that check a long time ago. Doesn’t affect our operations.” 

Other recipients may not be so fortunate. One such company, which received funding from the FTX umbrella and spoke to Fortune on the condition of anonymity, said it’s received offers from multiple investors to buy the equity at or above the last round’s price. The source added that initially taking money from the FTX sphere was an obvious move: “They were literally the best team out there.” 

Companies at different stages likely will see varying outcomes, someone familiar with the firms under SBF’s umbrella told Fortune. Early-stage or seed companies may be able to find buyers at the same price, but ecosystem companies with tokens and later-stage companies likely will see their equity sold at a discount.  

Some VCs are still watching from the sidelines. “Like everyone else, we are looking it over,” David Pakman, managing partner at crypto-focused firm CoinFund, told Fortune via email, adding that he couldn’t say “whether or not we are interested in anything as of yet.” 

Complicating the matter, The Information reported on Thursday that the Bankman-Fried empire had also invested in other prominent venture funds, with Alameda investing at least $20 million in Paradigm, and Alameda and FTX Ventures committing hundreds of millions of dollars to Sequoia Capital, Altimeter Capital Management, and Multicoin Capital.

A person familiar with the matter confirmed to Fortune that Paradigm raised exactly $20 million from Alameda, representing less than 1% of assets in the fund.

Sequoia, Altimeter, and Multicoin did not respond to requests for comment. 

‘Things can’t get worse’ 

“In the event that a company had a major investment from FTX via shares, the risk is that a discounted sell price could set a new price,” said a source at another company that received funding from the FTX umbrella, who also spoke under the condition of anonymity. “In distressed times, however, values are always lower.” 

Castle Island’s Carter said that with markdowns already seen throughout the sector, secondary equity being sold at a discount will not necessarily have an impact.

“People understand that this is a motivated seller, so the markdowns don’t necessarily matter that much,” he said.

Michael Anderson, cofounder of crypto-focused VC firm Framework Ventures, said that his firm is not yet buying anything directly from FTX’s holdings, although it has been approached by third-party brokers offering tokens and token rights.

He told Fortune that as more assets become available, Framework would look at anything, but it needs to evaluate what may still collapse.

“Catching falling knives is definitely not in our investment mandate,” he said.

Even with Framework’s existing portfolio companies, the firm has to evaluate what happens if FTX also invested, with that equity possibly falling in the hands of creditors or receivership over the next few years.

“It becomes dead weight on the cap table that you’re going to have to deal with,” he told Fortune.

For Carter, what happens to FTX holdings may become material immaterial, with the empire’s failure shaking confidence in the entire industry.

“There’s no trust remaining,” he said. “So liquidating the assets, I don’t think that makes things worse, because things can’t get worse.”

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