The news start-up Semafor began operating late last year with big ambitions backed by deep-pocketed investors. But the company soon found itself in a pickle: How to handle its biggest outside investment, roughly $10 million, from Sam Bankman-Fried after his crypto company collapsed and he was accused of fraud by the federal government.
Now, Semafor is planning to buy out Mr. Bankman-Fried’s ownership while it explores raising new money.
“We are planning to repurchase Sam Bankman-Fried’s interest in Semafor and to place the money into a separate account until the relevant legal authorities provide guidance as to where the money should be returned,” said Justin Smith, Semafor’s co-founder and chief executive.
The company’s fund-raising conversations haven’t resulted in any investments yet, according to several people with knowledge of the company’s operations.
Semafor is one of several media companies that received money from Mr. Bankman-Fried or his affiliates. Mr. Bankman-Fried is a founder and former chief executive of the cryptocurrency exchange FTX, which declared bankruptcy in November after a run on customer deposits exposed an $8 billion hole in its accounts. In December, federal prosecutors accused him of fraud and other charges. He has pleaded not guilty. A spokesman for Mr. Bankman-Fried declined to comment Tuesday.
Some of the other media companies, including Vox Media and ProPublica, said they would return contributions shortly after Mr. Bankman-Fried was arrested. Semafor had said that it would wait for guidance from legal authorities to determine its next steps. That position generated some criticism of the company, which was co-founded by Justin Smith and Ben Smith, who was previously The New York Times’s media columnist.
Until Semafor replaces Mr. Bankman-Fried’s investment, setting the cash 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 about $25 million overall before its launch in October. It struck deals worth more than $2 million each with several advertisers before it began publishing, guaranteeing the company monthly cash flow, according to two people with knowledge of the deals.
Since the company struck those initial advertising agreements, it has signed ad deals between $100,000 and upward of $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 audience and ad revenue growth, but it declined to provide specific numbers.
Steven Brill, a media entrepreneur who is the co-founder of the news ratings company NewsGuard, said that there was no shame in having raised money from Mr. Bankman-Fried before he was accused of fraud. But because Mr. Bankman-Fried was arrested, even a privately held media company has an obligation to be transparent about the deal terms, he said.
“It’s awkward,” Mr. Brill said. “But it would be hard to argue that this was predictable.”