PitchBook News - Bankman-Fried trial: A lust for risk

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The Weekend Pitch

October 15, 2023

Presented by Stout

(Joey Schaffer/PitchBook News)

Overheard, in a Manhattan federal courthouse:

"We're all waiting for Caroline to testify."

"I just came to watch Caroline."

"Have you read her Tumblr posts? I want to see her diary entries."

The anticipation was palpable on Tuesday afternoon when Caroline Ellison, former CEO of Alameda Research, finally took the stand in the federal fraud trial of disgraced FTX founder Sam Bankman-Fried.

Ellison, 28 and Bankman-Fried's former on-and-off girlfriend, oversaw many of Alameda's risky bets from the infamous FTX house in the Bahamas, allegedly under SBF's direction. She's now part of crypto lore.

Following the courtroom drama alongside me has been a mix of press, tech founders, hacks and passersby. Even "pharma bro" and convicted fraudster Martin Shkreli has come down to the courthouse.

Ellison's lengthy testimony this week revealed Bankman-Fried's remarkable capacity for risk-taking from the viewpoint of one of the people who knew him best. Bankman-Fried would brush aside company governance questions and insist upon quick-turnaround term sheets, playing into investors' FOMO while cultivating an image as a Zuckerberg-esque eccentric. Many investors looked past the red flags and did only light-touch due diligence, perceiving his penchant for risk as a mark of ambition, rather than recklessness.

When Bankman-Fried wanted to make $3 billion in venture investments—a sum that would cement him as a tycoon of the decentralized banking revolution, on par with the likes of Andreessen Horowitz and Sequoia—Ellison ran the numbers. According to her testimony, she calculated that there was a "100% chance" that Alameda would not be able to repay its lenders if they recalled its loans. That was the case even if Alameda dipped into FTX customer funds, billions of dollars of which they were allegedly spending on expenditures, political donations and risky investments.

The company went on a startup-investing spree anyway.

This is the Weekend Pitch, and I'm Rosie Bradbury. You can reach me at rosie.bradbury@pitchbook.com or @_RosieBradbury on X, formerly known as Twitter.

Trivia

(NurPhoto/Getty Images)

Earlier this week gas and oil giant ExxonMobil announced it was purchasing a shale-specialist company for a blockbuster $59.5 billion, making the deal the largest corporate M&A deal so far in 2023. What was the name of the company it purchased?

A) Kinder Morgan
B) Chesapeake Energy
C) Pioneer Natural Resources
D) Antero Resources

Find your answer at the bottom of The Weekend Pitch!

Private equity faces dizzying reversal in exit trends

(zhihao/Getty Images)

On the dealmaking front, there are signs of improvement in PE. Banks are returning to their traditional roles in financing LBOs, and while fundraising may be tracking down from 2022, commitments are tallying higher than expected.

Realizing old investments, however, has become more difficult. Exit value in Q3 dropped to one of its lowest points since the global financial crisis, according to the Q3 2023 US PE Breakdown, sponsored by Stout and Barings.

Startups dip into rainy day funds

(BrianAJackson/Getty Images)

The Instacart and Klaviyo IPOs were a good start, but the VC market isn't out of the woods yet, according to the Q3 2023 PitchBook-NVCA Venture Monitor, sponsored by Insperity, J.P. Morgan, Dentons, and Deloitte. Total exit value is extremely low despite some signs of an IPO-market thaw.

The GPs still deploying capital have slowed down, keeping powder dry. In turn, startups are starved for capital. The market is more investor-friendly than ever, which is unlikely to change until exits rebound—probably not until 2024.

High-growth cities for
high-growth companies

(Harald Nachtmann/Getty Images)

Dubai is the fastest growing VC ecosystem globally, according to our first-ever Global VC Ecosystem Rankings. The former fishing village, now home to the tallest building in the world, tallied $3.8 billion across 815 VC deals over the past five years.

Detroit, Berlin and Raleigh, N.C. also boasted high growth scores, according to the methodology, which is meant to help founders, operators and investors to identify locations for expansion and investment.

Quote/Unquote

(Image by Michael M. Santiago/Getty Images)

"As a trader, I was a customer on exchanges and if I knew this was happening at another exchange I would be uncomfortable leaving money there."

—Caroline Ellison, testifying about the alleged misuse of FTX customer funds at the trial of disgraced CEO Sam Bankman-Fried.

Related: Read PitchBook's latest analysis from the trial, 'FOMO fundraising' and 'orange flags': Bankman-Fried's lust for risk was obvious

Stay tuned

Keep an eye out for these insights and research reports coming out this week:

2023 Foodtech overview
Q3 2023 EU PE Breakdown
Q3 2023 EU Venture Report
Antitrust regulations and their impact on M&A

Trivia

Answer: C)

ExxonMobil purchased Pioneer Natural Resources, an upstream shale specialist, for $59.5 billion. Read more about that deal and how PE firms might respond here.

This edition of The Weekend Pitch was written by Rosie Bradbury and Emily Burleson. It was edited by James Thorne and Ron Prichard.

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PitchBook News - Bankman-Fried trial: A lust for risk

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PitchBook News - Bankman-Fried trial: A lust for risk

Trivia

Private equity faces dizzying reversal in exit trends

Startups dip into rainy day funds

High-growth cities for high-growth companies

Quote/Unquote

Stay tuned

Recommended Reads

Trivia

Older messages

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High-growth cities for
high-growth companies