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What Is the Future of Crypto Investing by VCs?
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By Marc Vartabedian, WSJ Pro
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Good day. This week’s question: Following the implosion of crypto exchange FTX, what is the outlook for venture investments in crypto startups?
Please email responses to marc.vartabedian@wsj.com.
Last week we asked if recent layoffs at public tech companies will spur similar moves at startups. Or will talent-hungry startups snatch up workers who have been let go?
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Ali Hamed, general partner at Crossbeam Venture Partners, said: “I think we’re still near the front end of most layoff announcements and we’re far off from any consistent hiring sprees.” While valuations have come down, prices still aren’t that cheap and few companies have had restructurings or difficult fundraising processes, he added.
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Jonathan Lehr, a general partner at venture firm Work-Bench, said he thinks Series A and B startups are best positioned to capitalize on newly available talent as they were in the most difficult spot the last couple of years to find senior and midlevel workers. “With more talent on the market available and less competition, they can take the time to thoughtfully find those 1-2 key hires to help unlock their next phase of growth."
And now on to the news...
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Sequoia Capital's offices in Menlo Park, Calif. PHOTO: ELIJAH NOUVELAGE/BLOOMBERG NEWS
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FTX fallout. A marquee roster of investors from Silicon Valley and Wall Street swarmed FTX. They invested nearly $2 billion with few strings attached and no oversight on the cryptocurrency exchange’s board, promoting it as a safe bet, The Wall Street Journal reports. Now the backers are nursing a high-profile black eye as the three-year-old company—valued at $32 billion at its peak—teeters.
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Venture-capital firm Sequoia Capital said on Wednesday that it is writing a $150 million investment one of its funds had in FTX down to zero because of solvency risk.
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FTX Chief Executive Sam Bankman-Fried told several investors on a call Wednesday that he needed emergency funding to cover a shortfall of up to $8 billion, the Journal reported. Mr. Bankman-Fried said he hoped FTX could raise as much as $3 billion to $4 billion in equity.
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Besides Sequoia, dozens of others backed FTX’s rise, including Ontario Teachers’ Pension Plan, SoftBank Group Corp., a venture-capital arm of Samsung Electronics Co., Dan Loeb’s Third Point LLC, Tiger Global and football star Tom Brady.
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FTX Tapped Into Customer Accounts to Fund Risky Bets
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Crypto exchange FTX lent billions of dollars worth of customer assets to fund risky bets by its affiliated trading firm, Alameda Research, setting the stage for the exchange’s implosion, a person familiar with the matter said, WSJ reports. FTX Chief Executive Sam Bankman-Fried said in investor meetings this week that Alameda owes FTX about $10 billion, people familiar with the matter said. FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call, one of the people said. All in all, FTX had $16 billion in customer assets, the people said, so FTX lent more than half of its customer
funds to its sister company Alameda.
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Crypto Lender BlockFi Halts Withdrawals, Citing FTX’s Problems
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Cryptocurrency lender BlockFi Inc. said it was pausing withdrawals and limiting activity on its platform, becoming the latest casualty of the sudden collapse of Sam Bankman-Fried’s crypto empire, WSJ reports. “We are shocked and dismayed by the news regarding FTX and Alameda,” BlockFi said late Thursday on its Twitter account, referring to the crypto exchange FTX and an affiliated trading firm, Alameda Research, both controlled by Mr. Bankman-Fried. “Given the lack of clarity on the status of FTX.com, FTX US and Alameda, we are not able to operate business as usual,” BlockFi said, adding that its priority is to protect its clients. BlockFi, based in Jersey City, N.J., obtained a financial lifeline from
FTX this summer after steep declines in crypto prices set off a liquidity crisis that engulfed many lenders.
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40
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WeWork said it is closing about 40 underperforming locations in the U.S., as the company cuts costs and seeks to turn a profit.
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FTC to Expand Use of Law Against Anticompetitive Practices
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The Federal Trade Commission said Thursday that it plans to expand its use of a century-old statute that could allow the agency to bring more lawsuits against what it sees as anticompetitive corporate behavior, WSJ reports. The move—broadening its interpretation of the 1914 law that created the FTC—opens the door to more legal challenges against businesses engaging in alleged coercive or deceptive conduct that undermines competition, Chairwoman Lina Khan said in a briefing with reporters. The change could be used to go after behavior seen in the tech sector, she suggested. For example, it conceivably could be used in cases where the FTC determines that “dark patterns”—online designs aimed at tricking users into doing
things they don’t want to do—are part of a scheme to undermine competition, she said.
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The New Saying Among Tech CEOs: I Apologize
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Tech leaders who spent years eagerly adding to their staffs are now lining up to deliver a different message: Sorry, we grew too fast. Mark Zuckerberg on Wednesday joined the ranks of tech executives offering a mea culpa, when the chief executive of Facebook parent Meta Platforms Inc. said the company would cut 11,000 workers, or 13% of its staff. Mr. Zuckerberg told employees that he had believed the sharp shift online after the onset of Covid-19 would be permanent. “I got this wrong and I take responsibility for that,” he said.
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Funds
Stockholm-based asset manager EQT AB closed its EQT Ventures III fund with €1.1 billion in commitments, including €1 billion of fee-generating assets, to back technology startups in Europe and North America. So far, the fund has led investments in 13 companies including Juni, Nothing, Knoetic and Candela.
Climate tech-focused VoLo Earth Ventures closed its inaugural fund with $90 million in commitments, nearly double the original $50 million target. Founded in 2020, the Snowmass Village, Colo.-based firm has invested in companies including Blue Frontier Inc., Ion Storage Systems and Banyan Infrastructure.
People
Sofinnova Partners, which focuses on European life sciences investments, appointed Mats Eklund as partner and chief operating officer. He was previously a senior advisor to NREP and Sprints Capital.
Atlanta-based automotive technology and mobility investor Automotive Ventures added Chip Perry as operating partner. He was previously chief executive at TrueCar, A2Z Sync and AutoTrader.com.
Washington, D.C.-based C5 Capital, which invests in cybersecurity, space and energy security, appointed Tom Sheehy, co-founder of Quinella Global, as operating partner.
Healthcare-focused LRVHealth said Josh Flum joined the Boston-based firm as a managing partner. He was most recently at CVS Health.
Exits
Cloud-based farm accounting software startup Traction Ag Inc. is adding Corteva Agriscience’s farm management technology with the acquisition of the company’s Granular Business. Terms weren’t disclosed. In September, Traction Ag said it raised a $3 million seed round from Hageman Group, Allos Ventures and Elevate Ventures.
Urbint, an artificial intelligence critical infrastructure security startup, acquired iRestore, a mobile workforce management platform serving energy utilities, for an undisclosed amount. New York-based Urbint is backed by investors including Energize Ventures, OGCI Climate Investments, Energy Impact Partners, National Grid Partners, Blue Bear Capital and Salesforce Ventures.
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Amagi, a provider of cloud broadcast and targeted advertising services to broadcast and streaming TV platforms, picked up more than $100 million from General Atlantic, bringing the company’s valuation up to $1.4 billion. Accel, Norwest Venture Partners and Avataar Ventures invested in Amagi earlier this year.
Ordergroove Inc., a New York-based provider of subscription and membership services to retailers and brands, landed a $100 million investment led by Primus Capital Partners.
Xanadu, a Toronto-based quantum computing startup, scored $100 million in Series C funding at a $1 billion valuation. Georgian led the round, which included participation from Porsche Automobil Holding, Forward Ventures, Alumni Ventures, Pegasus Tech Ventures, Silicon Valley Bank, Bessemer Venture Partners, Capricorn, BDC Capital and Tim Draper.
Ramp, a London-based crypto startup, secured $70 million in Series B financing. Mubadala Capital and Korelya Capital co-led the round, which included contributions from Balderton Capital and Cogito Capital. Frederic Lardieg of Mubadala Capital joined the company’s board.
Kyte Inc., a San Francisco-based startup that delivers cars for daily, weekly or monthly use, grabbed $60 million in Series B funding. InterAlpen Partners led the round, with founder Stephen George joining the board. Additional new investors Valor Equity Partners, Anthemis, Citi Ventures and Hearst Ventures also participated in the funding, alongside previous backers DN Capital, 1984 Ventures, FJ Labs and Urban Innovation Fund.
Beekeeper AG, a Zurich-based platform for deskless employees, nabbed $50 million in Series C funding. New investors EGS Beteiligungen and Kreos Capital were joined by existing backers Energize Ventures, Thayer Ventures, SwissCanto, Keen Ventures, Alpana Ventures, Edenred Capital Partners and Verve Capital in the round.
Fathom Inc., a San Francisco- and Toronto-based medical coding automation provider, closed a $46 million Series B round. Co-led by Alkeon Capital and Lightspeed Venture Partners, the funding included additional support from Cedars-Sinai, Inflect Health, ApolloMD, Founders Fund and Tarsadia. Lightspeed’s Galym Imanbayev and Alkeon Capital’s Mark McLaughlin will join the board.
Elemental Machines, a Cambridge, Mass.-based connected lab platform, snagged $41 million in Series B funding. Sageview Capital and Omega Venture Partners co-led the round, which included contributions from Gutbrain Ventures and Digitalis Ventures.
SubjectWell, an Austin, Texas-based clinical trial patient recruitment startup, fetched $35 million in Series B funding led by Asset Management Ventures.
Brightside, a financial health platform for employees, raised $33 million in Series B funding. Obvious Ventures led the round, which saw participation from Andreessen Horowitz, Trinity Ventures, Clocktower Technology Ventures and Chestnut Street Ventures.
Rewst, a Tampa, Fla.-based robotic process automation platform for managed service providers, secured $21.5 million in Series A financing led by OpenView Venture Partners.
Coefficient, a spreadsheet automation startup, collected $18 million in Series A funding. Battery Ventures led the investment, which included support from Foundation Capital and S28 Capital.
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Research at Purdue University tests the effects of different solar-panel configurations on crops growing beneath them. PHOTO: KELLY WILKINSON/INDIANAPOLIS STAR/USA TODAY NETWORK
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