How to raise $2 billion with a sloppy Excel spreadsheet

Good morning,

Just when you thought the story of the collapse of the FTX crypto exchange couldn’t get any worse, there’s even more detail and it involves every CFO’s worst nightmare: messy Excel spreadsheets.

Sam Bankman-Fried, CEO of FTX (who came from Alameda Research in 2019), who resigned last week as the bankruptcy exchange filed, by his own admission there was “poor internal labeling of bank accounts,” as he tweeted. But he had a rather amateur pitch, too. That’s alarming since the Bahamas-headquartered company has raised about $1.8 billion through several rounds of funding. It reached a $32 billion valuation in January. FTX was backed by some of the largest venture firms including Sequoia Capital, SoftBank, and Tiger Global Management.

My colleague Luisa Beltran found documents that show SBF style. “With each round FTX raised, Bankman-Fried sent potential investors a spreadsheet that showed items such as FTX’s revenue, profit and losses, daily users, and expenses, according to an executive who obtained the documents,” Beltran wrote. “Fortune two sets of spreadsheets were sent on the condition that we could review the original documents, dated December 2021 and June 2022, but not publish them.”

She continued, “Taken together, the documents paint an early picture of a rapidly growing enterprise run by a founder who eschewed traditional management structures, board oversight, teams of accountants and lawyers, and other standard business practices. grows to this size. . The spreadsheets are far from audited financials; instead, they appear to be homey, sometimes confusing Excel files with inaccurate labels.”

“They are sales documents and do not provide a clear accounting of how FTX was valuing its various tokens or liabilities when there were figures like ‘net profits,'” Beltran wrote. “And yet Bankman-Fried was able to transfer such documents to nearly $2 billion from some of the wealthiest investors around.” For more details on the figures on the spreadsheet and analysis, read Beltran’s full story here.

So, in general, what do fundraising documents typically presented to investors look like? For private companies, it can vary widely, especially for early-stage private companies versus more mature, later-stage private companies, Andrew Murphy, managing partner at Loup, a Minneapolis-based technology investment firm, told me.

“Typically, an early-stage private company will share a deck with potential investors,” Murphy explains. Many times these companies have little to share in terms of financial activity or auditing, he says. “If an investor shows interest, the company will sometimes send documents to support the investor’s due diligence, including a term sheet, cap table, corporate documents such as articles of incorporation and corporate by-laws, pre-financing documents, contracts, finances, tax returns, etc. Later-stage private companies typically give a potential investor a link to a data room that includes all of these features, Murphy says.

However, “For a company of FTX’s stage and value, fundraising documents are usually detailed legal agreements that include significant provisions to protect the investor from fraud and conflicts of interest (now and in the future),” he says David Spreng, chairman, founder, and CEO at Runway Growth Capital LLC. “It’s very unusual for a company that raises hundreds of millions of dollars (or at such high valuations) to not have audited financial statements,” says Spreng. “Most equity investors and most recent equity lenders require audits.”

Another factor to consider when it comes to fundraising documents is the requirements of the country where the company is located, Qian (Cecilia) Gu, an associate professor at Georgia State University’s J. Mack Robinson College of Business, told me. Gu specializes in venture capital investment. “The regulations are very important,” she says. “If you’re headquartered in the Bahamas, it’s a very different business than if you were to set up in the United States. The extent to which you disclose information and present your finances depends on the stage, the industry you are in, the environment, and government regulations… That’s why we see many companies overseas exposed reasons.”

Maybe FTX investors were happy with a hot mess spreadsheet. Or maybe they didn’t seem to care because the numbers in the spreadsheet were almost too good to be true.

See you tomorrow.

Sheryl Estrada

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This story originally appeared on

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