Venture Capital In Bitcoin
Investment interest in bitcoin companies has grown in recent months as media coverage and infrastructure increases, yet virtual currency remains largely untapped by interested investors. To address this, the Bitcoin London conference featured a panel of VCs discussing their views on the market. On the panel were:
- Nick Shalek, Ribbit Capital
- Stefan Glaenzer, Passion Capital
- Michael Jackson, Mangrove
- Stephanie Baker, Bloomberg (Moderator)
Nick Shalek summarized bitcoin venture capital when he stated, “we consider ourselves early investors in the space and our first investment was in March.” Ribbit has invested in two bitcoin companies to date, including Coinbase and one undisclosed venture. The remaining two VCs on the panel from Passion Capital and Mangrove have not yet made bitcoin investments.
A Bootstrapped Industry
Naturally, Ms. Baker opened the discussion by asking those who have not yet invested in bitcoin why that is. The answer was simple and consistent: they simply haven’t been made aware of bitcoin companies seeking investments. “We saw from April 2012 to 2013 nearly 2,000 business plans, none were for bitcoin.” Jackson echoed the sentiment, stating that none had yet hit his inbox, but they both expect that to change soon.
Nick Shalek from Ribbit went on to explain why there is so much VC interest in the space, pointing out the characteristics that are different than most FinTech. Most notably is that bitcoin has virality: enthusiasts actively share and evangelize it. He also addressed the unique way bitcoin addresses financial markets. “Most FinTech tries to build on top of existing infrastructure, this doesn’t have to do that,” he stated, going on to explain that bitcoin is global and borderless, allowing it to address underserved markets. Traditional FinTech is largely restricted to serving only those with good credit and banking access.
Interest Drivers For VCs
As anyone who has tried to buy or trade bitcoins will tell you, the market still has immense need for infrastructure. “If the products aren’t there, it just exists in oblivion,” Jackson stated when asked about what would drive further VC interest, before explaining a common theme in the VC world – herd mentality. “If a lot of respectable people are in the space already, it’s easier for me to justify doing something.”
Shalek expanded by addressing the current need for infrastructure. “We’re not at the point of problem solving for people yet. Right now we’re at the base layer of the platform, there are many layers that can be built on top of it.”
As with any bitcoin discussion, the topic of regulatory uncertainty was raised. “People from fractional reserve banks give us money to invest in bitcoin, which is ironic in a way,” Jackson explained, “We have to ensure they’re investing in a regulatory-compliant framework.”
“When new technology comes around, it takes time for regulation to catch up,” Shalek expanded, “There are reasons financial services are regulated. People need these things to get comfort, you have to comply to build a valuable business over time.”
Addressing the question in the typical fashion of an entrepreneur-turned-VC was Stefan Baker when he stated, “If there’s no grey area, there’s no room for great successes.”