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The venture capital invested in FTX amounted to $ 1.8 billion plus over the course of three years with high profile names like BlackRock, Tiger Global and Sequoia investing heavily in FTX.

Sam Bankman Fried deceived some of the smartest and brightest in the cryptocurrency industry and many echoed Alfred Lin’s sentiments. SBF had a larger than life persona that swayed people from performing their essential due diligence.

“FTX is the high-quality, global crypto exchange the world needs,” Sequoia partner Alfred Lin said in June 2021, after the series B round. “Sam is the perfect founder to build this business, and the team’s execution is extraordinary.”

There’s no doubt SBF was a brilliant trader but FTX on the inside was a train wreck run by a group of friends in the Bahamas without a board or a defining corporate structure. The thought of a $32 billion dollar company using QuickBooks for record keeping and chat service Slack for communications is inconceivable.

Billionaire and venture capitalist Chamath Palihapitiya said on the Dec. 3 episode of the podcast “All-In” that “He took client funds and all this money, he made tens of millions of dollars in political donations, he wrapped himself in this Progressive, left-leaning thing called ‘effective altruism’ cover, and all the mainstream media fell in love with it and embraced it, as did some politicians, because it ran counter to everything they bought into it themselves.”

SBF painted himself as a whiz kid who didn’t care about money but only cared about humanity’s greater good. With $70 million in political donations over the course of two years and numerous trips to Capital Hill to push for regulation he effectively portrayed himself as the ” good guy ” in an industry full of ” seedy characters ” and the media loved SBF and the persona that he built.

How Could Venture Capital be so Gullible ? Why Was No One Asking Questions ?

VC notable Chamath Palihapitiya reports that when he was invited to participate in an FTX fundraising round, his team made a few recommendations. They were standard safeguards for venture investors, such as creating a board of directors and providing some reps and warranties. The response from FTX’s employee was “F — — you!”

Sequoia Capital , one of the most successful VC firms well known for their investing in Airbnb , Google and Apple wrote off their $ 214 million investment in FTX telling clients that they had conducted their due diligence on FTX . On the same call a partner said that ” it will in the future have the financial statements of startups it is looking into audited by a Big Four accounting firm “.

During an investor pitch to the Sequoia partners via Zoom in July 2021, the partners fixated on the fact that SBF was answering their questions while in the middle of playing a video game. Declared a multitasking genius, he was called in the Sequoia profile a “10 out of 10.”

Tiger Global which pays Bain & Co. over $100 million a year to research private companies wrote off their $ 38 million investment in FTX. Sam Bankman Fried’s oversight of a vast web of FTX linked entities was one of the risks highlighted during the due diligence process but the money manager still believed it was a sound investment at the time as reported to Yahoo Finance.

In retrospect there wasn’t just one reason that allowed this debacle to happen but many.

Investors embraced a charismatic leader instead of due diligence. Media loved his effective altruism persona and SBF portrayed himself as a promoter of the crypto space calling for increased regulation.

Due diligence by VC firms was lacking. Was it assumed that other VC firms did their due diligence in previous funding rounds ? There was a huge amount of money put up with very few strings attached.

Where was the transparency ? Who oversaw the financial statements of FTX ? Sam played it fast and loose and there was no one to hold him accountable.

The relationship between FTX and Alameda Research. Alameda served as the FTT token’s main market maker, buying and selling a majority of FTT. FTT was popular with the exchange’s investors, who were enticed by the trading discounts it offered, and Alameda began using its holdings as collateral for more loans to facilitate its trading activities. Falling crypto prices reduced the value of FTT, and Alameda struggled to pay its lenders.

It’s little comfort to the retail investor but if the ” smart money ” got snookered how did we stand a chance ?