Exclusive: How billionaire Sam Bankman-Fried approaches a crypto deal

Exclusive: How billionaire Sam Bankman-Fried approaches a crypto deal
Exclusive: How billionaire Sam Bankman-Fried approaches a crypto deal

Depending on who you ask, Sam Bankman-Fried is either crypto’s “white knight” — or a mercenary intent on getting deals at a time when the recent downturn has many companies on the ropes. Perhaps unsurprisingly, the 30-year-old multi-billionaire who runs the massive crypto exchange FTX sees himself as the former.

Bankman-Fried, widely known as SBF, admits that he first got into crypto to make a lot of money. But i Fortune’s latest cover feature, he says that his overarching motive – especially lately – is also to contribute to the greater good. “I want to be in a position where when we’re working with people, we’re a little more generous than we have particular reason to be,” he said.

But what is his strategy when it comes to who – or what – he invests in, and how does he approach a deal?

“There are a couple of things that go into it,” SBF said.

Breaking down the crypto king’s investment strategy

When the algorithmic stablecoin Terra imploded in May, it set off a domino effect that hit the industry’s biggest players along with everyday investors. By summer, the industry was reeling from a market crash so bad that even Bankman-Fried “hadn’t guessed” it.

With cryptocurrency investors in trouble – their life savings stuck on platforms with little hope of returns – and the future of the industry in question, Bankman-Fried decided to step in. Investing directly, or through FTX or Alameda Research (a trading shop he founded), SBF offered lifelines to a number of battered crypto companies, from broker Voyager Digital to lender BlockFi.

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In assessing a potential investment – ​​or rescue mission – SBF says he first asks himself: “Is there a way for us to stop customer funds?”

When he looks at a “potentially threatened company,” he looks to see if their “endangered” customer funds can be stopped, he said. “BlockFi is an example where the answer was just ‘Yes’.” But why?

While BlockFi didn’t have “a ton of capital” on its balance sheet before the crash, SBF said, “otherwise they were a pretty healthy business. They had real business relationships with some places that went out, but had real risk management in place and their losses were minimal [post-crash] because of that.”

BlockFi, according to SBF, wanted more capital to act as a buffer for customer assets amid the market downturn, but was otherwise a “healthy business,” he said. That health, for him, determines whether he can stop or not.

Next, the SBF considers whether helping a company would stop “contagion … You know, if one place blows up, could that cause more places to blow up? Are we going to see a chain reaction?” In that case, it adds value overall to try to stop it, he explained.

Finally, SBF asks: “Is it a good deal for us here? Or to be precise, is it a “not bad” deal for us here? The mandate here was not to try to make amazing acquisitions. The mandate here was to make deals that are reasonable, maybe even a little bad, but not terrible.”

He adds that, just because FTX has a healthy balance sheet, “We can’t afford everything on a stupid piece of shit.”

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Although it is nice to try to help many businesses in need, SBF explains that sometimes it is healthy to let certain projects die. By not doing that, “you’re trying to revive what shouldn’t have been there in the first place,” he said.

The “bigger part of this” – which is something SBF “underestimated when I first started in the business” – is trust between business partners. “Lack of trust is a huge transaction cost.”

“I don’t want to worry when I’m making a deal about whether the other side is going to try to screw me in 20 ways I don’t expect. Because if that’s true, that just makes the deal impossible, doesn’t it?”

His standard is quite simply, “we’re just not going to try to screw you. We’re going to try to be reasonable. We’re going to try to be generous when we can. Let’s just try to work reasonably together and consider things from what is good for the sum of us perspective, and then we can think about sharing the pie.”

To learn more about SBF’s views on dealmaking, as well as his thoughts on the future price of Bitcoin, be sure to check out the full Fortune conversation.

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