Friday, May 20, 2022

Sequoia Capital Sues Binance for Allegedly Violating Investment Agreement

Sequoia Capital Sues Binance for Allegedly Violating Investment Agreement

A rising legal dispute in the crypto space has come to light  between Zhao Changpeng, CEO of the largest crypto exchange Binance, and giant venture firm Sequoia Capital.

Also see: Thomson Reuters Survey Finds One-fifth of Financial Institutions Considering Trading Cryptocurrencies

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According to a Bloomberg report, a unit of the world’s second-biggest venture firm Sequoia Capital has sued Binance founder Zhao after a funding deal gone wrong.

Bloomberg’s findings are based on Hong Kong court filings dated March 26th and April 24th. The court filings elucidate communications between Zhao and several big venture firms. It also interprets how these venture firms had valued Binance.

Binance Reportedly Barred From Negotiating With Other Investors

In August last year, Binance CEO Zhao and Sequoia Capital began discussing exclusive financial terms that would have given the California-based venture firm an 11 percent stake in the exchange, as per court filings. At the time, the crypto exchange was valued at $80 million USD.

However, in December when Bitcoin hit the $20,000 mark, the discussions broke down. At that point, Binance declined Sequoia Capital’s offer as they claimed it under-valued the exchange.

In that same time span, another San Francisco-based venture firm IDG Capital showed interest in venturing into the crypto exchange. IDG Capital offered to invest over two funding rounds, valuing the exchange at $400 million and $1 billion.

Now, Sequoia Capital has accused Zhao of infringing their originally claimed exclusive agreement by negotiating investment terms with IDG Capital. However, the Bloomberg report cites that both parties are to settle the disagreement in arbitration. Accordingly, Sequoia Capital has taken the matter to court, whereas IDG Capital commented that it has no partnership with the exchange.

For now, the court has told Zhao to refrain from discussing investment terms with other investors until the court arrives at a final judgment.

Binance Needs Help With Licensing, Not Funds

Zhao in the past has indicated that Binance does not require investment injections, but rather requires venture capital firms to deal with regulators in attaining operating licenses. Lately, the crypto exchange has been facing issues from regulators around the world, which has played into their decision to migrate to Malta. 

Binance is not even a year old and has already become one of the biggest names in the crypto industry. The exchange’s growth is one of the major early success stories of the space. However, Binance has been secret about its finances, while Zhao has claimed the exchange to be valued at around $3 billion.

Will Sequoia Capital receive a stake in Binance? Share your views in the comments section.

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