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VCs refrain from taking board seats in crypto startups: Where do Binance and FTX stand?

26 Mar 2022 : 06:53
3 min read
  • FT reported that investors in crypto startups pass on the chances of getting a board seat
  • There are dozens of investors backing FTX exchange but none have a board seat
  • On the other hand, Binance is set to create a board as per Financial Times

The crypto industry is mostly unregulated and as a result, investors are often in doubt if they should get knee-deep in this field for wait for regulatory laws to kick in. On the other hand, a recent report from Financial Times outlined the fact that the absence of regularity clarity has led to investors in crypto startups abstaining from taking board seats in these firms.

Binance to establish a board

As per FT, the absence of regulations surrounding exchanges, DAOs, and tokens has given immense power to the founders and creators of these platforms who enjoy major stakes. Despite getting investments from major venture capital firms, many exchanges and crypto startups don’t have board seats.

On the other hand, Binance, the world’s biggest cryptocurrency exchange has confirmed that it will be creating a board as the firm is ready to transform from “a disruptive tech company to a global financial institution” and it is also “pitching to sovereign wealth funds and other large investors for outside financing,” as per FT.

Cryptonary also reported in a previous note that Binance aims to go global seeking to raise funds from venture capital firms. Moreover, the creation of board seats will further the firm’s vision of complying with regulatory authorities. 

Detailed analysis of FTX

The report from FT implemented a detailed analysis of many firms who have received funding from notable venture capital firms but did not take a board set in return which is a regular trend in the tech industry. It is to be noted that dozens of companies have invested in one of the biggest cryptocurrency exchanges in the world, FTX, which is just 3 years old. Following recent funding round, the company was valued at $32 billion

On the other hand, FTX granted a board seat to an outsider who is an attorney based in its corporate home of Antigua and Barbuda while the only other 2 directors are SBF and Jonathan Cheesman. “We really value the relationships we have with our investors, but we also think that it’s important that governance reflect what is important for the company’s operations and oversight rather than monetary contributions,” Bankman-Fried wrote in an email to FT. 

Notable backers of FTX exchange are Paradigm, Sequoia Capital and none of them have a board seat which seems astonishing but it’s true. It can also be confirmed that the existing directors of the firm have strong authority over the activities of the exchange.

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