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Why VC fund sequoia capital sued binance exchange founder

Why VC Fund Sequoia Capital Sued Binance Exchange Founder

The Menlo Park, California-based venture capital firm, Sequoia Capital, has sued Binance cryptocurrency exchange founder, Changpeng Zhao. He is also known as CZ. The founder of digital coin exchange is being accused of infringing an exclusive agreement with the venture fund. The main charge is that CZ has engaged himself in negotiations with another company breaching its exclusive deal. The virtual coin exchange attracted venture capital financing last year at the height of the booming market.

Court Filings

Filings in the Hong Kong court between March 26 and April 24 suggested that Sequoia commenced its discussions on the possible investment in August last year. That investment would have allowed the venture capital fund to have close to an 11 percent stake in Binance. The valuation of the cryptocurrency exchange was just about $80 million. However, the prices of most of the digital coins witnessed a sharp surge in prices and continued its rally. As a result, CZ felt that the deal was not an attractive one, news.bitcoin reported. This led to a collapse in discussion during the middle of December last year when prices of virtual currencies have hit their lifetime highs.

The cryptocurrency exchange claimed that it is the biggest exchange in the trading venue at the start of the current year. The exchange has seen more than 2.9 million users joining the platform after its introduction in July last year. The fair value based on the incredible growth indicated that Binance is worth millions or even billions of American dollars.

By December 14 last year, the founder’s people have told the venture capital that its current shareholders have reviewed the proposal. The net result was that Sequoia had undervalued the virtual currency exchange. Most of the coins price has hit the rooftop around Christmas, i.e., ten days after the founder’s response to VC. Though the prices of the digital currencies have plunged since then, the interest for the segment has not waned completely. That indicated that valuation would not have slumped like the digital coins price.

However, the venture capital firm suspected that the reason behind Binance founder rejection was not just the soaring valuation mismatch. On the other hand, Sequoia believed that CZ received a competing better proposal. The VC firm felt that IDG Capital has approached with two rounds of funding offer. The valuation of the exchange was between $400 million and $1 billion.

Exclusivity Agreement

The bone of contention is that CZ had engaged in discussions when he struck an exclusive agreement. However, the latest developments indicate that both the parties are keen to settle the issue through arbitration. The decision would have been based on the belief that settling a case in court takes a longer time than arbitration.

For its part, IDG Capital reacted to the news and denied any relationship with Binance. That meant that there were no investments from it. The Hong Kong-based exchange supports several languages. This included Chinese, Korean, Japanese, Spanish, Russian, German and French. Incidentally, Malta prime minister has welcomed Binance cryptocurrency exchange.

About the author


Prateek Kulhari

Prateek is a business editor who writes about various topics such as technology, health and finance. At Pressly, he works along with the colourful folks that build a nation through tech startups. He is also a professional football player and video games enthusiast.