Imagine it is March 2021, and you’re leading a funding round where you’ve raised $350 million at a $3-billion valuation.
Now it’s July 2021, and you’re to raise $500 million at an almost $5 billion valuation.
Now, imagine it is June 2022 — and you’ve taken a $250-million credit line because you’re teetering on insolvency. Just days later, you’re looking at selling the company for just $25 million — to the same people who extended your credit line.
Enter, BlockFi. Enter, FTX.
A term sheet is almost completed and expected to be signed by the end of the week that will see the second-largest crypto firm, FTX, acquire embattled crypto lending platform BlockFi for a paltry $25 million, CNBC reported Thursday, citing sources familiar with the situation. — a shocking 99.5% less than its near $5-billion valuation.
CEO Zac Prince said in a tweet just before 3 p.m. Thursday that the figure reported by CNBC is incorrect.
"Lots of market rumors out there - I can 100% confirm that we aren't being sold for $25M."
Lots of market rumors out there - I can 100% confirm that we aren’t being sold for $25M.
— Zac Prince (@BlockFiZac) June 30, 2022
I encourage everyone to trust only details that you hear directly from @BlockFi.
We will share more w you as soon as we can.
What Happened To BlockFi? Prince attributes the poetic fallout to a “dramatic shift in macroeconomic conditions” and the fact that the company’s growth strategy was unsustainable. It grew from 150 employees at the end of 2020 to more than 850 employees before cutting 20% of its staff.
All of this occurred in under a month, triggered by the Terra/Luna collapse that entangled every crypto fund with exposure.
CNBC quoted a source as saying such an acquisition could take months to complete, and the price could change between now and Friday.
Related Link: Sam Bankman-Fried's FTX Isn't Taking Bad Debt: Walks Away From Celsius Acquisition
The Battle For BlockFi: The reason the price tag may change between now and Friday is that Morgan Creek Digital’s co-founder Anthony Pompliano — known as "Pomp" to the crypto community — is trying to raise $250 million to counter FTX’s revolving credit facility by purchasing a majority stake in the Peter Thiel-backed crypto exchange.
In a call leaked on June 26, Mark Yusko, managing partner of Morgan Creek, said that FTX would eliminate management, employees with stock options and all equity investors in the company's prior venture rounds if the buyout went through.
According to a source who spoke to CNBC, BlockFi's equity investors have been "wiped out" and are writing off the value of their losses. Since there was no "shop clause" in the term sheet, the individual said multiple offers were being considered.
Echoes Of Bear Stearns: We’ve seen this before in traditional finance. During the great financial collapse of 2008, JPMorgan Chase & Co (NYSE:JPM) bought Bear Stearns for $1.4 billion, around 93% lower than its market capitalization in early 2007.
Bankman-Fried’s FTX intends to follow suit by buying BlockFi for a 99.5% discount from its $4.8-billion Series E valuation in July 2021.
This comes after Bankman-Fried’s quantitative research firm, Alameda Research, extended a $500-million term loan to Voyager Digital.
Related Link: Morgan Creek Is Trying To Bailout BlockFi To Counter FTX: Here's Ho
