THE COLLAPSE of FTX has underscored a "distortion" in the venture capital market and the need for a correction across the industry, the boss of a global investment body has said.

Cate Ambrose, chief of the Global Private Capital Association, said the implosion of FTX, which at its peak boasted a $32bn (£26bn) valuation as a result of splashy bets by investors like Sequoia Capital and Softbank, had highlighted a lack of discipline among VC firms.

"When you look at what happened with FTX it is really breathtaking," she told City A.M. in an interview.

"But I think that's where I see the scale of the money available does create distortion, and when there's zero per cent interest rates or an opportunity to resell, of course that distorts markets."

She added that there was now a "necessary correction" in the industry as cheap cash dries up and "accountability" returns.

"When there's so much money out there and so much speculation irresponsible things get done," she said.

A host of big name investors were forced to publicly write down their stakes in Sam Bankman-Fried's firm just before it collapsed into bankruptcy on 11 November. Storied VC investor Sequoia Capital wrote to its investors on 10 November saying it would write down its roughly $210m investment into the firm down to zero. Softbank and the Ontario Teachers Pension Plan were forced to make similar announcements to their investors.

John Ray III, the new boss brought in to oversee the bankruptcy proceedings of FTX, has described the firm as suffering from an "unprecedented and complete failure of corporate controls".

Questions have since been swirling in the industry over how FTX was able to part prolific investors from their cash. The former COO of Softbank admitted that he had succumbed to "fear of missing out" and had a lack of understanding of FTX.

(c) 2022 City A.M., source Newspaper