Investing

Sequoia Capital Cuts Cryptocurrency Fund From $585M to $200M, Will Focus on Startups

Tim Fries

Published: July 28, 2023 6:55 am

Last Updated: July 28, 2023 9:10 am

Prominent venture capital (VC) firm Sequoia Capital cut its crypto fund from $585 million to $200 million to address shifting market conditions. The firm poured over $210 million into FTX last year but was forced to ultimately write down the investment due to the solvency risks that surrounded the collapsed exchange.

Sequoia Capital Trims Crypto and Ecosystem Funds

VC investor Sequoia Capital slashed its cryptocurrency fund from $585 million to $200 million to focus more on backing younger startups after the industry downturn reduced the number of investment opportunities.

The company said the move comes in response to recent changes in market circumstances. By downsizing the funds, the VC firm limits the amount of committed capital required from its investors, who are already struggling with waning profits from venture funds. The WSJ report noted that Sequoia also trimmed the size of its ecosystem fund from $900 million to $450 million.

The decision to par back its funds emphasizes the challenges in the startup industry, which is going through one of the most challenging years in recent history. As a result, VC investors are now trying to undo the unprecedented growth and spending that defined the recent startup boom. However, the market is losing steam rapidly as deal-making activities slow and funds struggle to secure more capital.

Sequoia Capital’s FTX Bet

In February 2022, Sequoia announced its crypto and ecosystem funds as part of its business restructuring after months of raising bets on crypto startups. However, the outcome of this move proved to be quite different from what was initially anticipated. The crypto market experienced a substantial downturn, erasing billions of dollars in investors’ funds.

Among those money-losing investments was FTX, whose implosion last year sent shockwaves throughout the industry. To be more specific, Sequoia invested more than $210 million in the collapsed crypto exchange, only to mark the investment down to $0. The VC investors said its exposure to FTX was limited, adding it had invested $150 million in FTX.com and FTX.us through the Global Growth Fund III.

Earlier this year, FTX’s sister firm Alameda Research reached an agreement to sell its interest in Sequoia to the Abu Dhabi sovereign wealth fund for $45 million. The deal was part of Alameda’s endeavors to sell its crypto and tech venture investments to refund creditors.

This article originally appeared on The Tokenist