FTX’s bankruptcy filing is having ripple effects that extend far beyond the cryptocurrency exchange market. Indeed, FTX’s business failure has implications for MSP software investors, cybersecurity professionals, teacher pension funds and regulators worldwide.
The background: Multiple MSP software company investors and owners (such as Thoma Bravo, Softbank and Insight Partners) also invested in FTX Trading as part of a July 2021 funding round. The $900 million Series B round valued FTX at $18 billion.
Fast forward to January 2022, and FTX raised $400 million in Series C funding valued at $18 billion. Participants included Temasek, Paradigm, Ontario Teachers’ Pension Plan Board, NEA, IVP, SoftBank Vision Fund 2, Lightspeed Venture Partners, Steadview Capital, Tiger Global, and Insight Partners, among others.
Amid FTX’s bankruptcy filing on November 11, those investments may now be worthless. A case in point: Softbank wrote down nearly $100 million on the FTX investment, TechCrunch reported. Moreover, Softbank’s chief operating officer expressed regret in the investment, and described a “Fear of Missing Out” for the ill-fated crypto bet, the TechCrunch report said.
The FTX funding frenzy shows how some venture capital firms and venture capital firms — known for savvy enterprise and MSP software investments — got swept up in the highly speculative cryptocurrency investment craze. Alas, some teacher pension funds and education-focused organizations may also suffer financial blows.
VCs, PE Firms Extended From MSP Software to Cryptocurrency Investments
Thoma Bravo, for instance, apparently invested $130 million into FTX as part of that July 2021 funding round, The Wall Street Journal reported, though ChannelE2E has not independently confirmed that figure.
To be clear: The vast majority of Thoma Bravo investments are focused on less speculative, more reliable enterprise- and MSP-focused software companies — including names like ConnectWise, N-able and Sophos.
Meanwhile, peer FTX investors also have stakes in the MSP software market. Examples include FTX investor Softbank (which also backs the Pax8 cloud marketplace for MSPs) and Insight Partners (owner of Kaseya and Datto, and Veeam).
Softbank, in particular, has been hard hit by investments that turned bad starting in August 2022 or so. Fast forward to November 14, and Softbank’s stock fell further after the company reported a heavy loss at its Vision Fund investment arm for a third consecutive quarter, Reuters reported.
Nobody is suggesting wrongdoing at the venture capital or private equity firms that backed FTX. But we’ll be watching to see if or how FTX’s collapse impacts the performance of each investment firm, and their overall investment thesis strategies. We’ve reached out to Thoma Bravo, Insight and Softbank for comment, and will update this article if they share perspectives on the FTX situation.
And on a brighter note, Wall Street and MSPs are signaling continued momentum in the MSP software market despite recession fears.
FTX Business: Growth, Collapse and Cyberattack?
For those who aren’r familiar with FTX’s rapid rise and fall, here’s some background.
FTX, founded in 2019 by Sam Bankman-Fried, ran a cryptocurrency exchange that supported derivatives, options, volatility products and leveraged tokens. The platform was designed to be “robust enough for professional trading firms and intuitive enough for first-time users,” the company said.
FTX revenues surged to $1.02 billion in 2021, and net income reached $388 million that year, Business of Apps reported in September 2022 — though we don’t know if those finances were audited. FTX founder Sam Bankman-Fried emerged as a hero within the cryptocurrency market. But behind the scenes, FTX was using billions of dollars of customer money to fund risky trades by Alameda Research, a digital-currency firm that Bankman-Fried also funded, The Wall Street Journal reported.
Both FTX and Alameda filed for Chapter 11 bankruptcy protection in November 2022. Bankman-Fried resigned among the collapse. A day after the bankruptcy filing, FTX on November 12 said it was investigating “unauthorized transactions” flowing from its accounts, as crypto researchers documented suspicious transfers of $515 million that may have been the result of a hack or theft, The New York Times reported.
FTX Business and Bankruptcy Timeline
Here is a timeline tracking the FTX’s formation, funding, rise and collapse — along with various implications across the technology and security markets. Keep checking back for updates.
May 2019: Sam Bankman-Fried and Gary Wang founded FTX.
July 2021: FTX raised $900 million at an $18 billion valuation from such venture capital firms as Softbank and Sequoia Capital.
January 2022: FTX raised $400 million in Series C funding at a $32 billion valuation. Source: PR newswire.
October 17, 2022: The state of Texas begins to investigate FTX for allegedly selling unregistered securities. Source: The Texas Tribune.
November 2, 2022: CoinDesk reports that a big chunk of Alameda Research’s assets were held in FTT, and Bloomberg earlier reported that the FTT-Alameda relationship would have been prohibited in traditional equities markets. Sources: Multiple.
November 7, 2022: Binance decided to sell its FTT holdings, triggering an FTX liquidity crisis — triggering an 80% drop in FTX’s stock. Source: CNBC.
November 9, 2022: Binance considered acquiring all of FTX, but abandoned the idea because FTX allegedly mishandled customer funds. Source: CNBC.
November 10-12, 2022: Multiple reports highlight the deep relationship between FTX and Alameda Research — which included FTX client deposits allegedly being transferred to Alameda Research without customers’ knowledge or approval.
November 11, 2022: FTX filed for Chapter 11 bankruptcy protection.
November 11, 2022: FTX’s collapse could be a catalyst for regulation, according to Hester M. Peirce, a commissioner at the Securities and Exchange Commission (SEC). Source: Coindesk.
November 12, 2022: Roughly $1 billion to $2 billion in FTX customer funds could not be accounted for. Also, new FTX’s CEO John Ray said the company was hacked last night in an attack that “drained hundreds of millions of dollars in crypto out of the exchanges’ wallets.” Source: Coindesk.
November 14, 2022: Softbank, the venture capital firm that backs Pax8, wrote down a $100 million investment in FTX. Source: TechCrunch.
November 14, 2022: New FTX CEO John J. Ray previously helped creditors recover billions of dollars from Enron and Nortel Networks. Source: The Wall Street Journal.
November 15, 2022: The FTX bankruptcy case involves over 100,000 creditors and that figure may climb to more than 1 million creditors. FTX also described an alleged November 11 cyberattack that triggered “unauthorized transactions” on the platform. Source: Reuters.
Note: Keep checking this article for additional timeline updates as they happen.