Cryptocurrency Exchange Binance Wins Lawsuit Against Sequoia, $3 Billion Valuation

1

Binance, the world’s biggest cryptocurrency exchange valued at over $3 billion, has won the lawsuit filed by Sequoia against the Malta-based trading platform, its CEO Changpeng Zhao revealed.

Binance Wins Lawsuit Against Sequoia

Zhao, who is better known as CZ to the cryptocurrency community, was sued by major venture capital firm Sequoia for allegedly engaging in conversations with other venture capital firms before rejecting the proposal submitted by Sequoia.

Bloomberg reported that in December 2017, the China-based venture capital firm approached CZ and the Binance team with a deal that valued the exchange at $80 billion. The $80 million valuation of Binance was established as the cryptocurrency market approached a valuation of $800 billion and the prices of major cryptocurrencies such as bitcoin achieved an all-time high at $20,000.

The demand for bitcoin and other cryptocurrencies was surging rapidly and the valuation of cryptocurrency companies like Binance was also increasing at an exponential rate.

During that month, the Binance team also received an investment deal by another venture capital firm, which valued Binance $400 million initially and led a second funding round to finance the cryptocurrency exchange at a billion dollar valuation, making the startup the second ever unicorn in the cryptocurrency industry, after Coinbase.

Although CZ emphasized during an interview with Bloomberg that Binance is not in need of external capital given the company’s healthy balance sheet, large profit margins, and its successful initial coin offering (ICO) to fund its developments and is only interested in partnering with venture capital firms that can help the company cooperate with regulators, the Binance team felt that Sequoia vastly undervalued the company by proposing a valuation that is less than 20 percent of IDG and other venture capital firms.

In April 2018, Binance officially announced that the High Court of Hong Kong ruled Binance against Sequoia and stated that the Chinese venture capital firm abused the process which was improperly obtained.

“SCC (Sequoia) obtained an ex parte injunction without notice against Mr. Zhao at the end of December 2017. After a hearing attended by both parties’ legal representatives in April 2018, the High Court of Hong Kong has now determined that this injunction should not have been granted, as it had been improperly obtained and constituted an abuse of process by SCC,” the Binance team revealed.

The High Court of Hong Kong also ordered Sequoia to pay the legal costs of CZ in relation to the legal proceedings.

What is the Real Valuation of Binance?

In the first quarter of 2018, Binance generated a profit of $200 million, which was significantly bigger than the profit of Deutsche Bank, Germany’s largest financial institution. A valuation of $3 billion places the PE ratio of Binance at just 4.

Most technology companies like Twitter and Spotify often record relatively low profit margins, due to their operating costs and small revenues. As such, a technology company like Binance that is more profitable than a major bank could seek for a PE ratio of 10 to 20, which could potentially value the exchange at $8 to 16 billion, if Binance can maintain its $200 million quarterly profit throughout this year.