Venture capitalists who had managed to get into white-hot deals to fund the cryptocurrency exchange FTX in the past couple of years used to boast privately that Sam Bankman-Fried was “the most important person in crypto.”
The 30-year-old, shaggy-haired finance savant not only controlled two separate cryptocurrency exchanges and a successful trading firm, but also had a publicity megaphone to tout the benefits of a rising crypto token, solana, that Silicon Valley investors also piled money into. For a while, investors saw Bankman-Fried’s ability to squeeze cash from his different fiefdoms as a reason to put money into his companies without asking too many questions, said two people whose firms invested in FTX.
That willful ignorance has now come back to haunt those venture investors, who are likely to lose nearly $2 billion they invested in FTX, which on Friday filed for chapter 11 bankruptcy protection, along with other companies in Bankman-Fried’s empire, including his trading firm, Alameda Research. The episode is the latest example of how venture capitalists, in their haste to get a piece of fast-rising companies, sometimes skimp on doing due diligence or pushing for stricter oversight of firms in which they invest.