Sequoia may have written down its $214 million investment in the now-defunct global crypto exchange FTX which filed for bankruptcy at the end of last week. Paradigm appears to be out $278 million, according to a letter it sent to limited partners last week. And the Ontario Teachers’ Pension Plan plan had thrown in a $95 million investment into FTX's global and U.S. businesses.
But these potential losses pale in comparison to what is on the line for some of the venture capital or hedge funds that stored digital assets on what was, merely two weeks ago, one of the largest and most trusted exchanges in the crypto market.
Approximately $863 million of crypto investor Multicoin Capital’s Bitcoin, Ethereum, U.S. dollars, and other assets are still frozen at FTX—even after the firm withdrew about 24% of its assets being held at the exchange early last week, according to a letter the investment firm sent to limited partners last week, obtained by Fortune, and Securities and Exchange Commission disclosures. That’s some 9.7% of the firm’s nearly $8.9 billion in assets. (A partner at Multicoin Capital didn’t respond to a request for comment on whether those figures had changed at all since last week. The Block first reported Multicoin Capital’s investor letter.)
Genesis said last week that its derivatives business had $175 million locked in with FTX. Meanwhile, the crypto hedge fund Ikigai has all but thrown in the towel, as manager Travis Kling tweeted yesterday that a “large majority of the hedge fund’s total assets” were held at FTX, and that the fund had not been able to withdraw its holdings in time. “I lost my investors’ money after they put faith in me to manage risk and I am truly sorry for that. I have publicly endorsed FTX many times and I am truly sorry for that. I was wrong,” Kling wrote on Twitter. (Kling declined to speak with Fortune at this time.)
Yesterday I spoke with a crypto investor at a family office, who told me that one of the hedge funds they invested in had alerted them that 95% of its assets were with FTX—currently all frozen. (The investor declined to disclose the name of the hedge fund.)
Other investors in the space are exposed to the FTX freeze, though less directly. VC firm Hard Yaka doesn’t trade or have any tokens on FTX themselves, but the firm’s capital is exposed through portfolio companies like wallets and exchanges that use FTX to trade and hold deposits.
“Everybody’s frozen, everybody’s hosed,” investor and Hard Yaka cofounder Greg Kidd told Fortune. Hard Yaka does have a small equity investment in FTX US, and when asked whether he’d mark it to $0 as other firms have done, Kidd said he’s considering the investment "toast." Kidd also says they have exposure through funds that are invested in FTX, “most specifically Race Capital, which was first money into FTX.” (A spokesperson for Hard Yaka confirmed they are an investor in the firm.) Kidd explained that they have exposure via the firm's investments in portfolio companies that trade on FTX and have funds "tied up" with FTX. Kidd estimates less than 2% of AUM is in play with FTX between their small equity investment in FTX and more indirect exposure via portfolio companies and their activities. Kidd says that Hard Yaka doesn’t have external LPs, so “every stupid thing I do, it's just on me.”
The wide reach of the fallout of Sam Bankman-Fried’s sprawling crypto empire is only beginning to be understood. On Friday, Bankman-Fried filed for Chapter 11 bankruptcy for all the 29 entities affiliated with FTX, including its U.S. exchange, trading company, and the venture arm run by Amy Wu (here’s a Fortune chart of all the investments tied to FTX and here’s a Financial Times chart of the company’s various business entities). Bankruptcy filings indicate that FTX owes somewhere between $10-50 billion to its customers—though it also says it has somewhere between $10-50 billion in assets as well, so who knows how it will ultimately pan out. You can look at FTX’s troublesome balance sheet yourself, which was published by the Financial Times this weekend.
Since the Binance deal fell apart and FTX filed for bankruptcy, crypto startups have come out of the woodwork, disclosing that their entire treasuries were held on the exchange. Late yesterday, crypto startup Exotic Markets, which had been backed by Alameda Research, published what it calls its “post-mortem.”
“Given the developments over the past week, we have low confidence in being able to recover any significant amount soon,” the Exotic Markets team wrote.
Paradigm told investors in a letter last week seen by Fortune that it was “actively partnering with founders to help” its portfolio companies that would be impacted by the FTX collapse.
We haven’t even touched on the impact of the token Serum, created by FTX and Alameda Research on the Solana blockchain…I’ll leave that to Matt Levine.
The good news is that FTX’s touch doesn’t seem to be all-encompassing. I reached out to 13 crypto-focused investment firms for this story, many of which said they had no assets at FTX, or at least not anymore.
“Our funds have never invested in FTX, its affiliated companies, or tokens,” says an a16z crypto spokeswoman. “We do not hold any assets in FTX wallets nor do we have any direct counterparty risk related to FTX.”
And, in true VC fashion, many firms are still rather optimistic.
“This technology is larger than any one company’s mistakes,” Paradigm wrote in its letter last week.
As we better understand how all this will evolve, Sequoia has taken down its now-viral, glowing profile of SBF, former SoftBank investor Marcelo Claure is posting lessons learned, and Fortune’s own Jeff John Roberts is contemplating our cover story from August.
In the meantime, I’m sure that several funds will be waiting in enthusiastic anticipation as the bankruptcy proceedings continue on, waiting to discover whether they will see their deposits again.
What SBF is saying…Sam Bankman-Fried still has a lot to say. In an interview with the New York Times, he explains his most recent (and very peculiar) Twitter thread and discusses the collapse of FTX and its related entities. What he doesn’t have much to say about are his current whereabouts, or how the exchange is handling customer funds. You can read the full story here.
40 under 40…In some slightly more light-hearted news, Fortune just published its annual 40 under 40 list, which includes a section just for venture capital and startups. You can visit the list here.
See you tomorrow,
Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
Submit a deal for the Term Sheet newsletter here.
A special thanks to Anne Sraders for contributing to this story.
Jackson Fordyce curated the deals section of today’s newsletter.
