18 November 2022 |

The Curious Case of FTX’s Venture Strategy


Late August/Early September 2022

After spending a few weeks in Bermuda working and meeting with the Bermuda Monetary Authority and learning more about their digital asset regulations, Stevie and I decided to take a little break and spend a few days in Malibu. We were back at our old spot—the Malibu Aviator Nation (where Stevie and I first came up with Vol. 1 Ventures.)

Stevie went outside for a phone call while I worked on some stuff inside. She came back with a curious look on her face. 

“Everything OK?” I asked. 

“Yeah I just spoke to FTX again.” Stevie had been chatting with some folks at FTX after they heard through the grapevine of our work in Bermuda. We were helping a few crypto companies move their corporate entities to Bermuda; not only was it better for the crypto firms in terms of taxes, but there BMA there is much more open to working with alongside companies and legal teams to make sure they’re compliant while also allowing for the right kind of innovation. 

The FTX folks was impressed because, from what we’ve heard, they had originally tried to go to the Bermuda over the Bahamas, and were rejected. How was Stevie doing it? They were also super curious around Stevie’s lobbying experience—they asked for details on which folks Stevie knew in DC, and apparently there was very little overlap and FTX was eager to speak to the regulators and politicians Stevie knew and had worked with (Stevie is a healthcare and crypto lobbyist for Vol. 1 Ventures.) 

“Uh we got a weird offer,” Stevie said. “FTX said they’d be open to putting in a small check into the fund, around $2.5 million, because that’s all they can do into funds from FTX. But they also said that Sam would back the whole fund and give us $30 million if we have them as an exclusive incubation partner.”

“Uh I’m sorry what?” I was surprised, but also this could potentially save us from a grueling fundraising process. The market had shifted dramatically from when I had first thought about raising a fund—the bar for emerging managers is significantly higher now that capital is much more constrained and LP’s are being much more conscious about where their dollars are going. (That’s even more true now, post FTX blowup.)

“Yeah…what do you think?” Stevie asked as she sat down at our spot (yes, we have a specific spot in the Aviator Nation lounge.) 

“I mean I would take $2.5 from them but I don’t know if I want to be beholden to any single LP…it would fuck up future funds for sure. We’re eventually going to need to do a real raise and having a single LP is not a great idea. We might as well work at FTX and get health insurance too. Also how rich is this guy that he can throw around $30 million?”

“Yeah I totally agree,” Stevie concurred. “I found it a bit weird.” 

“Yeah it’s sus. Why are they so interested in the incubator?” I asked. We haven’t been too public with our incubator except for chatting about it with potential EIR’s, founders we work with, and of course LP’s. But our thesis, to put it succinctly, is that true innovation in fintech and crypto is still pretty nascent. VC’s are worried about “not getting venture returns” from companies that try something truly novel. Part of the reason behind that is because pursuing fast growth in highly regulated sectors isn’t sustainable and leads to potential makes (case and point: FTX.) By securing a larger ownership percentage through building companies and leading their preseed rounds, we can not only implement and execute the change we want to see in the world, but also ensure that the fund is getting the returns that we and our LP’s want. 

“They said they had acquired a bunch of companies and they’re now thinking about the next steps and want to incubate some companies with them. But it would be easier for them structurally do it with a partner.”

“So…we end up with a bunch of ex-FTX EIR’s building stuff through our incubator, we get decent ownership, but…wait are they our ideas or theirs that we’re building?” 

“No idea. They also said they could put a lot more money into an incubator and potentially co-lead stuff as we spun it out.”

“This is so weird lol,” I said. “How do you feel about it? Did you like them?” I asked. I already kinda knew the answer.”

“I mean they’re fine” (This is Stevie-speak for, no I didn’t really like them.) “I also think its so weird.” 

“Why don’t they just get one of their employees to run an incubator for them? Or like hire one and spin it out? Doesn’t make sense why they wanna get us involved either.”

“I think it also has to do with the lobbying stuff too…they were really interested in that and have been spending a ton in DC to get crypto regulation through.” 

“Yeah I mean I don’t know if I just want to work for SBF…we can just get a job at a fund if we wanted to do that. Also I don’t want to incubate their ideas, I want to research and incubate ours. Let’s just say we’ll let them know and we’re more interested in the $2.5m from FTX than them fully backing the fund. 

“Yeah I think that’s good. I’m not sure if I even want them to back the fund but let’s deal with that later…they just seem a bit ‘sus,’ as you’d say.” 

I rolled my eyes at Stevie’s use of sus and we went back to work. We really didn’t think much of it—we’ve gotten similar offers from PE funds to expand our fund size and fully back our fund, but that creates misaligned incentives for fund managers in our opinion. Management fees are great and all but I’m of the opinion that fund managers should be incentivized by the carry of the fund, not annual fees. Similarly, working with a single LP puts fund managers at a massive disadvantage—you don’t develop relationships that will help future fundraises, you may be overrun and pressured into investing in deals you don’t want to, and you put yourself at a huge risk of being a one-and-done fund manager. 

Conversations between us and FTX never got super serious beyond a phone call or 2 but even if it did, it would have been a hard pass from us. 


Fast forward to the past few weeks, and Stevie and I have been thinking a lot about that weird verbal offer. What would have happened if we had taken that money? Now its clear that $30 million isn’t that much for SBF (it was reported that he had taken $300 million in a secondary sale during one of their fundraising rounds, and he had a $1 billion loan from Alameda Research, his own crypto trading firm.) Also, after all this legal stuff that’s going on, the $30 million would have been clawed back anyway and our reputations would have been tarnished in the process. 

Jason Choi had an incredible thread on the history of FTX, and, in hindsight, a lot of things now make sense. 

By co-incubating projects (as our only LP they probably would have had a ton of say into what we incubate), in theory SBF could get a partner to incubate token projects, have Alameda buy up a ton of tokens pre-launch, and list it on FTX to prop it up. By backing an incubator versus doing it themselves, they would have been a few more steps removed and could have operated under the guise of ignorance, saying that these were all separate projects. As FTX blew up, we would have been fucked. 

There’s a lot of sketchy stuff that happens in the world of venture capital—Stevie and I are learning about it firsthand. There’s one key rule of thumb that I like to adhere to—understand everyone’s incentives. If you don’t, its not worth it, even if it does make your life a lot easier. Taking $30 mill would have made our short term lives a lot easier, but would have been disastrous for us in the long run. As my mother always says, if it’s too good to be true, it probably is. Our unusual interaction with FTX definitely falls into that bucket.