How to raise $2 billion from a sloppy Excel spreadsheet

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

Sam Bankman-Fried, the CEO of FTX (which was spun off from Alameda Research in 2019), who resigned last week when the exchange filed for bankruptcy, says he had “poor internal labeling of bank-related accounts.” as he tweeted. But he also had a rather amateurish voice. That’s alarming given that the Bahamas-headquartered company has raised about $1.8 billion through multiple funding rounds. It reached a $32 billion valuation in January. FTX has been backed by some of the largest venture firms including Sequoia Capital, SoftBank and Tiger Global Management.

My colleague Luisa Beltran received documents showing SBF’s style. “With each FTX round raised, Bankman-Fried sent prospective investors a spreadsheet detailing items such as revenue, profits and losses, daily users and expenses for FTX, according to an executive who received the documents,” Beltran writes. “wealth Two sets of spreadsheets were sent on condition that we could review but not publish the original documents of December 2021 and June 2022.”

She continued: “Taken together, the documents present an early picture of an outrageously fast-growing company led by a founder who has embraced traditional management structures, board oversight, teams of accountants and lawyers, and other standard practices of companies growing to this size , avoids . The spreadsheets are a far cry from audited financial data; Rather, they appear to be homegrown Excel files that are sometimes confusing and have inaccurate naming.”

“They are sales documents and do not provide a clear explanation of how FTX has valued its various tokens or liabilities when calculating numbers such as ‘net earnings,'” Beltran writes. “And yet, Bankman-Fried was able to translate such documents from some of the world’s savviest investors to nearly $2 billion.” For more details on the numbers in the table and the analysis, see Beltran’s full story here.

So what are the general fundraising documents typically presented to investors? It can be very different in private companies, especially early-stage private companies versus more mature late-stage private companies, Andrew Murphy, a managing partner at Loup, a Minneapolis-based technology investment firm, told me.

“Typically, in the early stages, a private company shares a deck with potential investors,” Murphy explains. Often these companies don’t have much to report on financial activities or audits, he says. “When an investor expresses interest, the company sometimes sends documents to demonstrate the investor’s due diligence, including a term sheet, cap table, corporate documents such as articles of incorporation and articles of incorporation, past financing documents, contracts, finances, tax returns, etc.,” he says Later private companies typically provide a potential investor with a link to a data room that contains all of these aspects, Murphy says.

“For a company in the stage and worth of FTX, fundraising documents are typically detailed legal agreements that contain important provisions to protect the investor from fraud and conflicts of interest (now and in the future),” said David Spreng, Chairman, Founder and CEO by Runway Growth Capital LLC. “It’s very unusual for a company raising hundreds of millions of dollars (or at valuations that high) not to have audited financial statements,” adds Spreng. “Most late-stage equity investors and lenders require reviews.”

Another factor to consider when obtaining documents are the requirements of the country where the company is based, Qian (Cecilia) Gu, an associate professor at Georgia State University’s J. Mack Robinson College of Business, told me. Gu specializes in venture capital investments. “The rules are very important,” she says. “When you’re headquartered in the Bahamas, it’s a very different business than when it’s incorporated in the United States. The extent to which you disclose information and present your finances depends on the arena, the industry in which you operate, the environment and government regulations. For this reason, many companies register abroad for disclosure reasons.”

Perhaps FTX investors were content with a hot chaos chart. Or maybe they didn’t really seem to care because the numbers on the chart were almost too good to be true.

See you tomorrow.

Sheryl Estrada
[email protected]

Big thing

Thirteen mergers and acquisitions were announced in the US banking sector in October, according to S&P Global Market Intelligence. According to the report, the total number of deals so far this year is 139, up from 176 in the same period in 2021. The total value of deals was $1.01 billion in October, compared to $1.50 billion in September. “Bank M&A activity remains high in the Lone Star State,” said the S&P Global Market Intelligence report. “Three of the targets announced in October are headquartered in Texas, bringing the state’s total number of deals to 14 in 2022, the second-highest in any state after Illinois.”

go deeper

“The Economic State of Latinos in the United States: Determined to Prosper,” states a new McKinsey report US Latinos make up the fastest growing portion of US GDP. As consumers, Latinos already represent a $1 trillion market and their purchasing power is increasing (6% annual growth over the past decade). However, the needs of Latino consumers are not being served in many product categories on offer, from food and beverages to financial products, the research found. “When brands address the drivers of dissatisfaction around access and value propositions, a total of $109 billion in revenue is at stake when considering current spend and future potential if improved products are offered,” said McKinsey.

leaderboard

John Klinger has been promoted to EVP and CFO at The TJX Companies, Inc. (NYSE: TJX), an off-price apparel and home fashion retailer, effective January 29, 2023. Klinger will continue to report to Scott Goldenberg, the company’s CFO in 2012. Goldenberg will assume the position of senior executive vice president of finance. Klinger joined TJX in 2000 as a business analytics manager at Marmaxx. He held various finance positions at HomeGoods and Marmaxx before being promoted to VP, Division CFO of AJWright. Thereafter, Klinger held the positions of VP of Corporate Finance and SVP, Divisional CFO, TJX Europe. He later became EVP and Corporate Controller. Prior to joining TJX, Klinger was Director of Finance at Stride Rite.

Ben Halladay has been promoted to CFO at Esperion (Nasdaq: ESPR), a pharmaceutical company, effective November 16. Halladay has served as the company’s senior director of financial planning and analysis since August 2022. Before joining Esperion in January 2020, Halladay held various finance roles at National Oilwell Varco, BMC Software and Pfizer. At Esperion, he will serve as a member of the executive management team, reporting to Sheldon Koenig, President and Chief Executive Officer.

overheard

“The crazy kids in the garage approach doesn’t work well with blockchain technology. They need governance and risk management and all the stuff that crypto people think is boring.”

—Pascal Gauthier, CEO of Ledger, a leading provider of hardware wallets for securely storing digital currencies, said wealth this is a great lesson from the collapse of crypto exchange FTX.