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Blockworks exclusive: Crypto exchange FTX recently scuttled plans to raise yet another venture round at a significantly lower valuation, sources told Blockworks
Behind closed doors, the upper-echelon of executives at cryptocurrency exchange FTX in recent weeks broached the prospect of yet another multibillion-dollar venture round — for the first time, at a lower valuation than previous rounds, according to three sources familiar with the matter.
The company, meanwhile, has been entertaining a “quite sizable” hiring push, according to two sources, in an effort to install merger and acquisition specialists as the firm works to integrate an unprecedented spending spree instigated by founder Sam Bankman-Fried.
After publication, Bankman-Fried tweeted that this article contains certain “incorrect or confusing statements.”
The founder said the exchange plans to pursue a growth strategy of 50% to 100% employees a year, emphasizing that the increase would not happen overnight. He added that the company was “never considering” a raise with the mentioned specification, but alluded to other potential fundraises that the company is still considering, saying FTX has not “discarded any ideas.”
One source pegged the increase — which would not happen immediately — at 1,000 employees, up from just 250 to 300 recently.
That would be “aggressive” and on the high end, according to another source — and contrary to Bankman-Fried’s longrunning preferred business model of overseeing a relatively lean team that manages a great deal of market-making in crypto, with the assistance of savvy quantitative algorithms, as well as machine learning and artificial intelligence more broadly.
Bankman-Fried said the 1,000 figure is more of a “medium term cap.”
The planned capital raise, which was met with the prospect that already-tanking private markets would soon fall even lower, never occured. The company also viewed its acquisitions to come, including beleaguered crypto lender BlockFi, as potential sources of revenue and new staffers, to boot.
“Sam ain’t done yet — not even close,” one source said.
A recent tearsheet obtained by Blockworks from a third-party asset manager that keeps tabs on the secondary market for digital-asset shares estimated FTX was worth $32 billion in June, down from $46 billion less than a year ago in October 2021 — a staggering 35.9% drop.
A spokesperson for FTX declined to comment. Sources were granted anonymity to discuss sensitive business dealings.
It’s not clear if the recent floated fundraising round would have given FTX a valuation that matched those figures, or the amount of the capital injection, but crypto secondary markets in private companies are typically more liquid than those for more conventional startups, market participants say — indicating the round likely would have fallen more or less in line.
The price of individual shares of the exchange, according to the tear sheet, trended downward from $46 to $37 apiece over the same period. It’s not clear if the company issued more shares to dilute its price action or bought back some to stabilize its secondary trading.
The firm recorded one of the largest-ever crypto venture raises in January, drumming up some $400 million in a Series C round that valued the market-maker at $32 billion — its third such haul in just six months amid a rapid expansion.
Despite the marked decline in FTX’s market capitalization, one source said “in the long run” it’ll be “great for them,” considering the essential monopoly Bankman-Fried is building — with the only notable exceptions, perhaps, being deep-pocketed traditional finance firms now largely staying on the digital asset sidelines, wary of entering an unpredictable, topsy-turvy market.
BlockFi, which FTX is narrowing in on acquiring, Blockworks reported, recently attempted to raise a down round in an apparent harbinger of things to come.
The demise of fellow crypto lender Celsius, as well as the travails of publicly traded Voyager, have meanwhile dealt a punishing blow to digital asset companies already on the ropes from the implosion of the Terra blockchain ecosystem, prompted by the rapid unpegging of its stablecoin, UST, from its one-to-one link with the US dollar.
A number of exchanges, asset managers, custodians and other big-name market players have shed staff en masse, as over-leveraged balance sheets that ballooned when the going was good during the massive bull market run suddenly came under intense stress.
BlockFi and Crypto.com are among those that have made substantial layoffs — with the world’s largest market-maker, Coinbase, taking the rare step of rescinding offers from incoming hires. In many cases, those professionals had already put in notice at their current firms.
FTX maneuvered itself into an advantageous position, two sources said, by issuing and underwriting longer-dated loans and revolving lines of credit at attractive rates, considering the state of the borrowers.
What’s more, the company structured the emergency cash infusions as convertible notes that would transfer to equity down the line. Those shares, snapped up at deep discounts, would have allowed the exchange to acquire the entity outright at a price far less than its latest valuation.
The convertible arrangement additionally put existing shareholders in a tight spot, considering BlockFi would have to issue FTX new shares, substantially diluting the value of the outstanding equity and sending the value of investments from later-stage backers spiraling toward zero. A number of those venture capitalists mounted counteroffensives in bids to outfox FTX and buy BlockFi, but either couldn’t raise enough capital quickly enough or didn’t have the inside edge FTX had as the late-stage startup’s largest creditor.
“Everyone else that invested in BlockFi is pissed,” one source said. “Their stake is zero now, and someone else owns it.”
This article has been updated to clarify information surrounding the prospects of a capital-raise, as well as the timeline for hiring incoming FTX staffers. It also reflects comments by Bankman-Fried after publication.
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