Telstra Ventures stung by FTX crypto collapse as market surveys carnage
US VC giant Sequoia last week wrote to its backers to tell them that $US210 million it had poured into FTX was now worth nothing. In Australia, Telstra Ventures is the most notable investor in FTX, having put money in from its recently announced $US350 million third fund.
AirTree Ventures’ John Henderson said FTX’s collapse was a huge setback for the crypto industry. Jeremy Piper
The stellar image Mr Bankman-Fried had enjoyed until a week ago saw him feature in the cover story of The Australian Financial Review Magazine’s Young Rich issue this month as the wunderkind who “built a $US25 billion fortune from crypto” and was now “trying to stop the meltdown”.
He also featured on a Fortune magazine cover asking if he was the next Warren Buffett. In line with such coverage, Telstra Ventures posted a series of interviews between its general partner Yash Patel and the FTX founder on its YouTube channel after investing.
Telstra Ventures’ managing partner, Matthew Koertge, declined to comment on its stake in FTX on Sunday. However, the Financial Review understands its losses would pale in comparison to Sequoia’s and are in the single-digit millions.
FTX was founded in 2019, and Australian investment firms were encouraged to invest in the company through brokers from Tribeca Private in mid-2021.
A report from its then executive director Fredrik Blencke, chief investment officer Damien Williamson and associate William Clark told would-be investors that FTX had the “pillars in place” for fintech success.
“The FTX business model falls in the strategic category of being based at the intersection of substantial crypto trading volumes, where it takes a fee of about 2bp for the value provided,” they wrote.
“Online platforms effectively have no capacity ceiling in generating incremental revenues, where increased earnings can be driven by strong market shares, market growth, product innovation and geographic expansions.”
Martin Rogers, chief investment officer at Sydney-based KTM Ventures’ Innovation Fund, has been a longstanding advocate of the crypto space, but said FTX’s collapse was a damaging event.
He never succumbed to the pitches of FTX for investment, but said the sudden collapse of an apparently trustworthy operator had hit him emotionally and was making him worried about how the public would view crypto assets.
“What a mess, FTX’s bankruptcy is just as damaging as the Medibank hack, it is devastating, and a total betrayal for their customers,” Mr Rogers said.
“This is an example of poor risk control and possibly criminal execution from FTX and is completely heartbreaking. A lot of people think the collapse of FTX is evidence that crypto doesn’t have a future, but for me, it’s the exact opposite.”
Drawing a comparison to the global financial crisis, Mr Rogers said the collapse of Lehman Brothers had not stopped people from putting money in banks and he expected the FTX bankruptcy would be similar, by inspiring a “flight to quality” exchanges.
“People will avoid offshore exchanges. FTX was in the Bahamas and didn’t even have a board of directors,” he said.
“Local custody will become important and so will audits and processes. Independent Reserve is audited voluntarily in Australia but in Singapore it is part of law because they have a license there. Independent Reserve got the first license in Singapore. Both Binance and FTX failed on standards and Binance was told to leave operations in Singapore.
“Unfortunately, you need something like FTX to occur to make the sector stronger. Those that will survive will be stronger and sustainable for the long term.”
The partner in charge of the crypto and web3 fund at local VC firm AirTree Ventures, John Henderson, said his firm had no exposure to FTX but he was still shocked by the sudden disaster.
He said Mr Bankman-Fried had been broadly perceived as a leader within the crypto industry and seemed to be driving productive dialogue with regulators about policing the sector.
“The fact that he was doing so while, apparently, trading with customer funds is mind-boggling and incredibly damaging to how the whole industry will be perceived for a long time,” Mr Henderson said.
“The size of his profile amplifies the impact of his conduct. This is a huge setback for the crypto industry.
“From a regulatory perspective, at a minimum, we need audited proof of reserves for all major centralised exchanges moving forward. However, a knee-jerk, heavy-handed local clamp-down likely won’t achieve much.”
