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On May 23, according to CoinDesk, a document from the Hong Kong High Court on May 20 showed that Binance CEO Zhao Changpeng had submitted an application to the court through his lawyer, suing Sequoia Capital for damaging its reputation, preventing Binance from raising funds at a high valuation, requesting a hearing in court, immediately assessing the losses, and hoping that Sequoia Capital would compensate him.
According to the court’s official website, Binance CEO Changpeng Zhao will hold a hearing with SCC Venture VI in court on June 25.
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The Series A financing deal fell through, and Sequoia sued Zhao Changpeng
In April last year, Sequoia Capital was reported to have taken Binance founder and CEO Zhao Changpeng to court over an investment dispute. Zhao Changpeng then publicly challenged the company on Twitter, saying that all future projects on Binance would need to disclose whether they had direct or indirect links with Sequoia Capital. The dispute between the two parties became a hot topic for a while.
This feud started in 2017.
On August 25, 2017, SCC Venture VI Holdco G, Ltd (hereinafter referred to as "SCC"), a subsidiary of Sequoia Capital, signed an investment letter of intent for the sale of the "Series A Preferred Stock Sale Terms" with Zhao Changpeng. The two parties proposed that SCC invest RMB 60 million in BitDJ's Series A preferred stock, with a valuation of approximately RMB 500 million.
On December 14, 2017, Zhao Changpeng informed SCC that existing shareholders or angel investors believed that SCC's valuation was too low.
On the other hand, another venture capital firm, IDG Capital, plans to invest in Binance in two rounds, with valuations of $400 million and $1 billion respectively, which is significantly higher than Sequoia.
On December 19, 2017, SCC’s attorney sent a letter to Zhao Changpeng, requesting him to refrain from negotiating or signing any agreement with other third parties regarding the sale of the group’s equity.
On December 27, 2017, SCC unilaterally applied for an injunction without notifying Zhao Changpeng and filed an arbitration application in January 2018.
02
Sequoia's lawsuit was dismissed, and Zhao Changpeng sued Sequoia Capital in return
In the case, the SCC believed that Binance CEO Zhao Changpeng violated the investment exclusivity agreement and talked with IDG Capital during the Series A financing negotiations with Sequoia Capital. Zhao Changpeng responded that his discussion with IDG was about Series B financing and had nothing to do with Series A financing.
Zhao Changpeng believes that the plaintiff SCC's unilateral application for an injunction without notice is an abuse of procedure.
On April 26, 2018, the court ruled that Sequoia’s application for an injunction was indeed an abuse of process. In addition, according to the final decision made on December 12, 2018, the court rejected Sequoia’s claim that Zhao Changpeng violated the competition agreement, that is, Zhao Changpeng’s discussions with IDG Capital were actually for Series B financing.
According to a document submitted to the Hong Kong High Court on May 20 obtained by foreign media CoinDesk, Zhao Changpeng has submitted an application through his lawyer to hold a hearing in court and compensate for the losses caused by Sequoia Capital's unilateral application for an injunction against Binance, and requested "an immediate and brief assessment of the damages." The hearing of the case will be held on June 25.
“The injunction has caused me losses, and I am entitled to reasonable compensation from Sequoia,” Zhao Changpeng wrote in the filing. “First, I lost the opportunity to raise new funds at a high valuation after several consecutive rounds of financing; second, my reputation was damaged.”
The application submitted by Zhao Changpeng will investigate the impact of Sequoia's ban on Binance. If the investigation determines that Binance's losses are true, Zhao Changpeng will require Sequoia to pay the amount of losses determined by the investigation.
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Zhao Changpeng: All of Sequoia’s claims are groundless. I am fighting for the industry.
Today, regarding Binance's counter-suit against Sequoia Capital, Zhao Changpeng made several responses on Twitter:
1. Most people may not know the final outcome of my case against Sequoia. In short, the arbitration tribunal dismissed all of Sequoia’s claims.
2. I won, but the case was very damaging. Sequoia issued an injunction against me, preventing me from raising funds for Binance in late 2017. This was critical for Binance at the time when other VCs and investors were very interested in Binance.
3. The injunction and Sequoia’s allegations against me are public, but I cannot defend myself publicly because the arbitration is confidential.
4. The Hong Kong court later ruled that the injunction Sequoia applied for was an abuse of process. At the end of last year, the arbitration tribunal finally ruled that all of Sequoia’s claims were groundless.
5. Sequoia China paid $2.4 million in legal fees for losing the case. I also had to pay $779,043 in legal fees over the past year, but since Sequoia lost the case, all of this was eventually paid by Sequoia. But I had to pay these fees first.
6. This case illustrates a few issues. For most entrepreneurs, they will not be able to pay $779,000 to fight a lawsuit; it is difficult for a startup to get additional funds with an unresolved lawsuit, even if the claimant (plaintiff) is destined to lose the lawsuit.
7. Running a startup while being saddled with a lawsuit is a huge distraction. Many startups have no choice but to succumb to unfair terms or practices used by venture capitalists.
8. I cannot make the result public even after I win the case, but the fact that I was sued was immediately made public. This is a loophole in the legal system. I must file a counter-suit in order to make the result public.
9. For VCs, this strategy works in most cases. It is a tool they use legally. This is both a weakness in our legal system and unprofessional behavior by VCs. I don't know how many more cases like this there are, but VCs should help entrepreneurs.
10. We are not just defending, we are fighting for the industry.
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Will the classic investment bully terms hit a snag?
An industry insider commented: "Sequoia used the overbearing terms of traditional investment to try its hand in the blockchain industry , but ran into a snag? The gain does not outweigh the loss. Exchanges are much more powerful than funds."
There is also a view that this is the first misstep in Sequoia's "delayed investment" style.
There has long been debate about whether big-name investment institutions drag down startups, but Sequoia does have a precedent.
In 2014, Koudai Shopping publicly accused Sequoia Capital of “standing up”. At that time, they worked overtime to negotiate with Sequoia for investment, but after more than ten months, there was no news.
Wang Ke said that Sequoia had delayed many projects to death in the past, such as ispeak, which was destroyed by Sequoia after seven months of delay.
It is not ruled out that some big-name investors will use delay as a tactic.
First, they keep delaying, which is secretly putting pressure on startups. If a company does not receive investment after being reviewed by a professional and well-known institution like Sequoia for 10 months, other investors will think that there may be something wrong with the company.
At this point, the startup company may be in the stage of broken capital chain, and the founder is basically collapsed, and the company either has to be sold at a discount or go bankrupt.
Another entrepreneur revealed that Sequoia’s speed in issuing TS (letter of intent to invest) is definitely the fastest in the cryptocurrency circle, but after issuing TS, they don’t care about your life or death.
This time, Sequoia encountered a rapidly developing cryptocurrency exchange, which was making rapid progress, and its "delay" strategy failed. (Sanyan Finance)
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