Equity valuation is too low! Early investors in Binance decide to take legal action.

An early investor in Binance claims to have invested $3.5 million in the exchange in 2017 but has not received shares for three years. The investor is currently gathering evidence and preparing to take legal action.

Binance Equity Dispute

According to the Chinese self-media "Wu Shuo Blockchain,"reports, Chen Weixing, the chairman of Pantera Capital, claimed that when Binance was established in October 2017, he spent only 5 minutes deciding to purchase a 5% stake in Binance. At that time, Binance was valued at $70 million, which meant Chen Weixing invested approximately $3.5 million at the time.

Exclusive: Binance’s early investor is preparing to sue Binance. What happened? Weixing Chen said that he invest several million three years before, but Binance did not give confirmation of shares and not allow transfer. Binance only allows him to withdraw at a very low price. pic.twitter.com/8F36JYqG3G

— Wu Blockchain (@WuBlockchain) September 2, 2020

In the following months, the exchange rose in the market and quickly became one of the world's largest cryptocurrency exchanges, with daily trading volumes reaching billions of dollars. Coupled with the bull market in the cryptocurrency market at the time, Binance's valuation significantly exceeded its original $70 million valuation. The author of Wu Shuo Blockchain pointed out:

"Valuing non-public companies is indeed difficult. Generally, it is based on the valuation amount from the previous round of financing or based on the valuation of similar companies in the industry. According to the former, Binance benefits; according to the latter, referencing Coinbase's $8 billion valuation is favorable to early investors."

However, when Chen Weixing wanted to cash out, Binance's proposed solution was a phased cash buyback. However, there are reports that Binance was only willing to offer a valuation equivalent to its annual profit ($5-10 billion) for the phased buyback, which was far from the market valuation at that time. Investors were unable to transfer their shares with certainty or enjoy profit dividends. Chen Weixing was very dissatisfied with Binance's handling and told Wu Shuo Blockchain that he is currently preparing materials to sue Binance.

The report also adds that there are many disputes regarding early financing of Binance, including cases where Sequoia Capital signed a term sheet (TS) but Binance backed out, and previous promises to provide consultant fees in the form of BNB to multiple advisors were not fulfilled. The author of Wu Shuo Blockchain stated that the root cause of so many financing disputes is that Binance lacked funds when it was founded in 2017 and did not anticipate such rapid development in a short period. Therefore, they gave out a large amount of equity and platform tokens at a lower valuation early on. Who knew that a few months later, the industry would start to develop at an unexpectedly fast pace, leading to many subsequent disputes.