How to raise $2 billion with a sloppy Excel spreadsheet

Ting Shen—Bloomberg/Getty Images

Good morning,

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

Sam Bankman-Fried, the CEO of FTX (which spun out of Alameda Research in 2019), who stepped down last week as the exchange filed for bankruptcy, by his own telling had “a poor internal labeling of bank-related accounts,” as he tweeted. But he also had a rather amateurish pitch, too. That’s alarming since the company, headquartered in the Bahamas, raised about $1.8 billion through several rounds of funding. It attained a $32 billion valuation in January. FTX was backed by some of the biggest venture companies including Sequoia Capital, SoftBank, and Tiger Global Management.

My colleague Luisa Beltran obtained documents that showcase SBF's style. “With each round FTX raised, Bankman-Fried sent a spreadsheet to potential investors displaying items like revenue, profit and losses, daily users, and expenses for FTX, according to an executive who received the documents,” Beltran writes. “Fortune was sent two sets of spreadsheets on the condition that we could review but not publish the original documents, which were dated December 2021 and June 2022.”

She continued, “Taken together, the documents show an early picture of an outrageously fast-growing enterprise run by a founder who eschewed traditional management structures, board oversight, teams of accountants and lawyers, and other standard practices of businesses that grow to this size. The spreadsheets are a far cry from audited financials; rather, they appear to be homespun Excel files, which are at times confusing and have inaccurate labels."

"They are sales documents and do not provide a clear accounting of how FTX was valuing its various tokens or liabilities when calculating figures such as 'net profits,'" Beltran writes. "And yet Bankman-Fried was able to translate such documents into nearly $2 billion from some of the savviest investors around.” For more details about the figures on the spreadsheet and analysis, read Beltran’s complete story here.

So, in general, what do fundraising documents submitted to investors normally look like? For private companies, it can vary widely, particularly for early-stage private companies compared to more mature, late-stage private companies, Andrew Murphy, managing partner at Loup, a tech investment firm based in Minneapolis, told me.

“Typically, an early-stage private company will share a deck with prospective investors,” Murphy explains. Many times these companies don’t have much to share regarding financial activity or audit, he says. “If an investor expresses interest, the company will sometimes send documents to support the investor's diligence, including a term sheet, cap table, corporate documents like articles of incorporation and corporate bylaws, prior financing docs, contracts, financials, tax returns, etc.," he says. Later-stage private companies typically offer to a prospective investor a link to a data room that includes all of these aspects, Murphy says.

However, “For a company at the stage and value of FTX, fundraising documents are normally detailed legal agreements that include significant provisions to protect the investor from fraud and conflicts of interest (now and in the future),” says David Spreng, chairman, founder, and CEO at Runway Growth Capital LLC. “It is very unusual for a company raising hundreds of millions of dollars (or at such lofty valuations) to not have audited financial statements,” Spreng adds. “Most late-stage equity investors and 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 matter a lot,” she says. “If you’re headquartered in the Bahamas, then it’s a very different business than if it were set up in the United States. The extent to which you disclose information and present your financials depends on the stage, the industry you’re in, the environment, and governmental regulations...That's why we see a lot of the companies register overseas for disclosure reasons.”

Perhaps FTX investors were satisfied with a hot mess spreadsheet. Or maybe they didn't really seem to care because the numbers the spreadsheet contained were almost too good to be true.

See you tomorrow.

Sheryl Estrada

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