Echoing this question.
I worked in smallcap investment banking for several years. My bank wouldn't speak to you if you didn't have 2-3 years of Audited financials (note: not 'Reviewed' or a 'Compilation'). Often we would request an additional audit if we didn't recognize the firm that did the prior auditing.
All for a valuation range of $200MM - $500MM.
Meanwhile a hastily compiled excel sheet seems to satisfy the largest VC's in the market? Billion dollar valuations based on totally unsubstantiated numbers?
Audit's are expensive (like $30-$80k). But surely better than losing $200MM on hot air.
It's worse than that. That spreadsheet was created after FTX became insolvent. When Sequoia invested, they probably didn't even have something as good as that terrible spreadsheet.
Or more charitably, Sequoia presented with something more professional looking, but completely incorrect.
Famously, SBF was playing League of Legends while pitching to Sequoia, and they just about fell over themselves in aww at his quirky genius. Matt even quotes this bit in the article.
The piece Sequoia had on their website about SBF, which they have since removed, described a meeting they had with SBF, and at the end of the meeting they walked over to him and found him playing League of Legends on his laptop. For some reason, this made them think even more highly of him.
> What Sequoia was reacting to was the scale of SBF’s vision. It wasn’t a story about how we might use fintech in the future, or crypto, or a new kind of bank. It was a vision about the future of money itself—with a total addressable market of every person on the entire planet.
> “I sit ten feet from him, and I walked over, thinking, Oh, shit, that was really good,” remembers Arora. “And it turns out that that fucker was playing League of Legends through the entire meeting.”
> “We were incredibly impressed,” Bailhe says. “It was one of those your-hair-is-blown-back type of meetings.”
Sequoia may have gotten FTT or SRM tokens issued to them as part of their investment. If they did, they could have sold them to bag holders. In theory they could have known that they would profit from their investment even if the company went to zero, making due diligence optional.
I have no idea if anything like this happened. But if it did I don't think anyone has to report it. And I don't think it would be illegal. (But I think it should be illegal.)
This wasn't seed capital, this was $213mm. And it wasn't just a bet that didn't turn out, it was fraudulent at its core.