FTX
Due diligence on founder character is as important as business metrics. Lack of corporate governance enabled massive fraud.
2019 → 2022
$1.8B
Crypto/Fintech
Bahamas
IdeaProof AI Failure Score
What Happened: The Timeline
May 2019
FTX founded by Sam Bankman-Fried
Jul 2021
Series B: $900M raised at $18B valuation
Jan 2022
Series C: $400M at $32B valuation — peak
Nov 2, 2022
CoinDesk reveals Alameda balance sheet concerns
Nov 6, 2022
Binance CEO announces selling FTT tokens
Nov 11, 2022
FTX files for bankruptcy. $8B+ customer funds missing
Root Causes
FTX, once valued at $32 billion, collapsed in November 2022 in one of the most spectacular failures in startup history. Founded by Sam Bankman-Fried, the crypto exchange was lauded by top-tier VCs including Sequoia Capital and SoftBank. The collapse revealed that customer funds were secretly funneled to Alameda Research, SBF's trading firm, to cover massive losses. The lack of basic corporate controls—no board oversight, no CFO, no accounting—allowed billions in customer deposits to vanish. SBF was convicted of fraud and sentenced to 25 years in prison. Key takeaway: celebrity founder status and rapid growth cannot substitute for proper governance, auditing, and fiduciary responsibility.
Key Lessons Learned
2. Due diligence must go beyond metrics
Top VCs invested billions based on growth numbers without verifying basic corporate controls or financial integrity.
3. Celebrity founders create blind spots
SBF's public persona as an "effective altruist" billionaire masked the reality of massive fraud and mismanagement.
Competitors That Won
Coinbase
Publicly traded, regulated, survived crypto winter
Why they won: Regulatory compliance, transparent financials, proper governance
Binance
Largest exchange by volume, paid $4.3B fine but survived
Why they won: Diversified revenue, massive user base, eventually accepted regulation
Frequently Asked Questions
Sources & References
Could This Failure Have Been Prevented?
IdeaProof's AI validates market demand, competitive positioning, and business model viability in minutes — catching the exact issues that sank FTX.