Binance CEO Claims VC Giant Hurt His Reputation (UPDATED)

By Linas Kmieliauskas

Binance founder and CEO Changpeng Zhao seeks an unspecified "reasonable compensation" from Sequoia Capital China, a subsidiary of venture capital giant Sequoia Capital, Coindesk reported, citing a filing submitted on May 20 to the High Court in Hong Kong. (Updated on UTC 12:05 AM: a new section 'A bitter victory' has been added.)

According to the report, the CEO claims that Sequoia Capital China hurt his reputation and prevented him from raising money at favorable valuations.

At a first hearing on June 25, the court will look into the demand to determine whether Zhao “has sustained any and what damages” resulting from the injunction order Sequoia obtained on Dec. 27, 2017, which allegedly prevented the Binance founder from raising capital from other investors until March 1, 2018, the report said.

In December 2018 the Hong Kong International Arbitration Centre dismissed all of Sequoia Capital’s claims that Zhao had breached an exclusivity agreement when negotiating Binance’s Series A equity financing.

A bitter victory
"I won, but the case was very damaging. First, Sequoia took out an injunction against me which prevented me from raising finance for Binance at the end of 2017 which was a critical time in the market and when there was huge interest in Binance from other VCs and investors," Changpeng Zhao said later today, adding that he was unable to to publicly defend himself because the arbitration was confidential.

Moreover, according to him, Sequoia paid USD 2.4 million in legal fees for their part, and lost the case, while he had to "front USD 779,043 for over a year" to cover his legal expenses, which eventually were paid by Sequoia, also.

"For most entrepreneurs, they will not be able to: front USD 779,000 to fight a lawsuit; secure additional funding for their startup given a pending lawsuit, even one that’s clearly without proper base and where the claimant will surely lose," the CEO said, stressing that this tactic would have worked for venture capitalists in most cases.

"It is a weakness in our legal system, and unprofessional behaviour by VCs. VCs are supposed to help entrepreneurs," the CEO said concluding that "luckily for today’s entrepreneurs there are other options available now", such as blockchain based fundraising.

Sequoia Capital China did not respond to a request for comment.

As previously reported, Sequoia sued the CEO over a funding deal gone awry. The court filings showed that a negotiation on investment in Binance between CZ and Sequoia started in August 2017, which would have given Sequoia a nearly 11% stake and valued the exchange at about USD 80 million. Zhao denied all of Sequoia Capital China's allegations at the time.