Binance Founder Runs into Legal Issues With Sequoia Capital

Crypto Billionaire Sued by Sequoia After Funding Deal Goes Awry

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  • Zhao Changpeng, the Binance founder, runs into a legal dispute with Sequoia.
  • The legal dispute revealed how venture capital firms have valued the crypto exchange

Hong Kong: A legal dispute has broken out between the founder of Binance – the world’s biggest crypto exchange based in Hong Kong, Zhao Changpeng, and Sequoia Capital – a big-name venture capital firm. This dispute seems to be offering a glance at the cryptocurrency industry’s fastest-growing firm.

According to Hong Kong court filings on 26th March and 24th April, Sequoia Capital charged Changpeng over a funding deal that went wrong. The filings acted as a pointer to Changpeng’s business deal with Sequoia Capital and disclose in details how the VC firm valued Binance, a nine months old exchange that has turned the largest exchange globally.

Binance’s dramatic growth has been one of the cryptocurrency industry’s most outstanding growth saga, which landed Changpeng on the cover pages of Forbes magazine and helped him build up a personal fortune that he claims worth nothing less than $2 bln. The trading platform has also attracted investigation from financial regulators, who have been cracking down on cryptocurrency exchanges.

The court filings further revealed that the discussion in terms of investment deal began between Changpeng and Sequoia Capital in August. According to the deal, Sequoia would value Binance at about $80 mln and be given about 11% stake in the exchange. The filings showed that discussions continued for few months during when the values of cryptocurrency transaction rose to all-time highs. However, when Bitcoin value soared to near $20,000 last December, the investment deal broke down.

On 14th December 2017, Changpeng’s team informed Sequoia Capital that Binance’s existing shareholders alleged their proposed deal undervalued the exchange. As at then, another venture capital firm, IDG Capital, approached Changpeng with a business offer that would have injected two rounds of funding into the exchange at much higher valuations: $400 mln and $1 bln respectively.

While both Changpeng and Sequoia Capital were making plans to settle a dispute that arose as to whether Changpeng’s discussion with IDG Capital violated his exclusivity agreements with Sequoia. Sequoia made the disagreement public by turning to Hong Kong High Court to obtain an injunction that would bar Changpeng from making deal with other investors. On 24th April, the court stated that further hearings would be required to establish whether Zhao was at fault or not.

No representative of Binance has responded to requests for comment. Sequoia also declines to comment. However, IDG told a news outlet that it has no relationship with Binance and has no investment in the firm. However, Changpeng has earlier told a news source that Binance doesn’t need outside money but that he is only interested in partnering with venture capital firms to help the exchange work with regulators to secure operating licenses.

Changpeng claimed that Binance is conservatively valued at about $3 bln and that the exchange made $200 mln as profit in its second quarter of existence, though he declined to share Binance’s financial statements or a proof of his personal wealth. More so, Changpeng has kept the locations of Binance’s servers and offices secret. Although he had earlier stated that Binance is based in Hong Kong, he announced last month that the exchange would set up operations in Malta.

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