Rising inflation rates and talks of an impending recession have affected the pace at which startups around the world are able to raise funds, said Anthony Scaramucci, founder and managing partner at US-based global investment firm SkyBridge Capital.
“The fundraising environment is difficult. I do agree that [investors are looking more at] longer-tail investments with early-stage companies,” he told DealStreetAsia on the sidelines of an event organised by the OxBridge Society in Singapore.
Set up in 2005, SkyBridge Capital invests in hedge funds, digital assets, private equity, and real estate, according to its LinkedIn profile.
Scaramucci noted that the current macroeconomic uncertainty has seemingly been the hardest. “This is my 34th year in business. I have been through eight bear markets, and this is by far the most painful one for me,” he said.
His comments follow the collapse of FTX – one of the world’s largest cryptocurrency exchanges – following a shortfall of assets on its balance sheet. Market watchers reckon that the exchange might have had insufficient liquidity, which in turn saw customers pulling out some $650 million in assets in November.
Calling this a cataclysmic event, Scaramucci said there are similarities between the “failure” of the FTX as well as the collapse of Lehman Brothers back in 2008.
The Lehman Brothers was a publicly traded company valued at $31 billion at the time when it filed for bankruptcy after being overwhelmed by the default of mortgage-backed securities that were mostly backed with subprime loans. Meanwhile, FTX was valued at $32 billion when it collapsed.
“We are talking about 14 years ago (for the Lehman Brothers’ crash). So, inflation-adjusted, [the FTX crash] is a smaller event. However, I think it is equally cataclysmic in terms of the shock because for the Lehman Brothers’ crash, it was a situation of overleverage because they certainly mis-sized the market; it did not look like there was anything massively unethical going on,” Scaramucci explained.
Calling the current FTX downcycle “a crisis of confidence”, Scaramucci noted that it is participated in “by a group of people we cannot trust”.
Given that the market had bottomed in March 2019 some six to seven months after the Lehman Brothers’ crash, Scaramucci is expecting the same to happen after the FTX downcycle.
“I don’t think we are going to see any movement in capital markets for at least six months, possibly longer,” he explained.
Interestingly, FTX founder Sam Bankman-Fried had asked Scaramucci to buy digital tokens created by his cryptocurrency exchange in exchange for a 30% stake in SkyBridge Capital, in an early sign he was trying to support the coin’s price, sources with knowledge of the agreement had told Financial Times.
SkyBridge had bought $10 million worth of FTT, the token issued by FTX, two sources had said.
The bankruptcy of FTX has rocked the cryptocurrency industry, sparking investigations by global regulators and leaving behind as many as 1 million creditors.
Until recently, Bankman-Fried was viewed as a billionaire backer of the crypto industry. He had also come to the rescue of SkyBridge, which has over the past two years invested heavily in crypto under Scaramucci’s leadership.
The deal Bankman-Fried and Scaramucci announced in September involved FTX Ventures paying $45 million for a 30% stake in SkyBridge. Under the terms of the agreement, SkyBridge was obliged to spend $40 million buying cryptocurrencies.