The new start-up Semafor started at the end of last year with great ambitions, supported by investors with big pockets. But the company soon ran into trouble: how to deal with Sam Bankman-Fried’s largest outside investment, about $10 million, after his crypto business collapsed and he was accused of fraud by the federal government.
Now Semafor intends to buy out Mr. Bankman-Fried’s property while it explores raising new funds.
“We intend to repurchase Sam Bankman-Fried’s stake in Semafor and place the funds in a segregated account until relevant legal authorities issue guidance on where to return the funds,” said Justin Smith, co-founder and CEO of Semafor. .
The company’s fundraising talks have not yet led to investments, according to several people with knowledge at the company.
Semafor is one of many media companies that have received money from Mr. Bankman-Fried or his affiliates. Mr. Bankman-Fried is a founder and former CEO of the cryptocurrency exchange FTX, which filed for bankruptcy in November after a run on customer deposits exposed an $8 billion hole in its accounts. In December, federal prosecutors charged him with fraud and other charges. He has pleaded not guilty. A spokesperson for Mr Bankman-Fried declined to comment on Tuesday.
Some of the other media companies, including Vox Media and ProPublica, said they would refund contributions shortly after Mr Bankman-Fried was arrested. Semaphore had said that it would await guidance from legal authorities to determine its next steps. That position led to some criticism of the company, which was co-founded by Justin Smith and Ben Smith, who was previously The New York Times media columnist.
Until Semafor accepts the investment of Mr. Bankman-Fried, putting the money aside would mean giving up the capital the company could have used for its early expansion.
Semafor, which publishes with a staff of about 60 people, raised a total of about $25 million before its October launch. It struck deals worth more than $2 million each with several advertisers before publishing, guaranteeing the company a monthly cash flow, according to two people with knowledge of the deals.
Since the company landed those first advertising deals, it has made advertising deals between $100,000 and more than $2 million, one of the people said. The company plans to generate at least $15 million in revenue this year through a mix of advertising and events, according to another person with knowledge of the company’s finances. Mr Smith said the company had exceeded its targets for growth in viewership and ad revenue, but declined to provide specific figures.
Steven Brill, a media entrepreneur who co-founded the news valuation company NewsGuard, said there was no shame in having raised money from Mr Bankman-Fried before he was accused of fraud. But because Mr Bankman-Fried has been arrested, even a private media company has a duty to be transparent about the terms of the deal, he said.
“It’s uncomfortable,” Mr. Brill said. “But it would be hard to argue that this was predictable.”
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