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Binance Founder Zhao Refutes Sequoia Capital Claims in Hong Kong Lawsuit

Binance Founder Zhao Refutes Sequoia Capital Claims in Hong Kong Lawsuit

Reading Time: 2 minutes by on April 28, 2018 Business, Commentary, Finance, News
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Changpeng Zhao, the founder of Binance, is currently involved in a legal tussle with the VC firm, Sequoia Capital, according to a Bloomberg article which reports court filings of the lawsuit made by the VC firm on March 26 and April 24.

The founder of the most popular cryptocurrency exchange globally, Binance, is being sued due to the collapse of a funding deal brought about by a dispute over the exact valuation of the company. Sequoia Capital is a leading California-based VC firm that has invested in companies like Dropbox, Google, and Airbnb.

Growth of Binance Coin (BNB) Source: BitScreener

The Collapse of the Investment Deal

Sequoia began negotiating an investment deal with Zhao in August 2017. The VC firm wanted to invest $80 million in the platform in order to acquire an 11 percent stake in the business. The talks between the Sequoia and Zhao happened in the midst of the 2017 crypto boom as prices soared. By the time bitcoin passed the $19,000 mark in mid-December, talks had broken down between the pair.

Issues over the correct valuation of the platform seem to have played a significant role in the collapse of the deal. According to the information contained in the court documents, Zhao felt that Sequoia’s valuation of the Binance platform was inadequate, a view that was reportedly shared by Binance shareholders. Around about the same time, IDG Capital, another VC company, approached Zhao with an investment offer. IDG Capital planned to inject two funding rounds worth $400 million and $1 billion into Binance.

Reasons for the Legal Dispute

The main bone of contention is whether Binance broke its exclusivity agreement with Sequoia by engaging in talks with IDG Capital. Sequoia has secured an injunction at a Hong Kong High Court that prevents Zhao from having negotiations with other investors. Both Zhao and Sequoia plan to settle the case in arbitration. The court filings also show that there will be further hearings on the dispute to determine whether Zhao break his exclusivity agreement with Sequoia.

Reacting to the matter, Binance has released an announcement via Medium that their CEO denies the allegations being leveled against him by Sequoia. The statement also said that the court had deemed the injunction to be improperly obtained as well as an abuse of process by Sequoia. As a result, the VC firm has been ordered to cover the cost of Zhao’s legal fees. Since the matter is still in arbitration, Zhao has declined to make any further comments.

How Much is Binance Worth?

This legal dispute has brought into sharp focus the question of just how much is Binance worth. The cryptocurrency exchange platform has experienced a meteoric rise, becoming the largest in the world regarding trading volume. According to Zhao, Binance does not need external investments, and the firm is conservatively valued at $3 billion. The firm also saw its revenue jump from $7.5 million to $200 million in the space of one quarter. However, the fact that there has not been any public disclosure of the company’s financial statements, it can be difficult to provide independent verification of these figures.

At the time of writing this article, Binance has hosted $3.9 billion worth of cryptocurrency trades in the last 24 hours. The platform recently announced that it would be moving its operations to the Mediterranean; specifically, the island nation of Malta.

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