How Coinbase Became the Top-Funded Bitcoin Startup

What's This?

By Seth Fiegerman2013-12-12 16:44:32 UTC

Less than two years ago, Brian Armstrong had to struggle just to explain the idea of Bitcoin to investors. On Thursday, his startup announced that it had raised what may be the largest funding round to date in the Bitcoin space.

Coinbase, a startup that provides a digital wallet for Bitcoin transactions, revealed that it has raised $25 million in a Series B funding round led by Andreessen Horowitz, the VC firm founded by Netscape founder Marc Andreessen. The funding is seen as another vote of confidence for the Bitcoin startup space from one of the most influential venture capital firms in Silicon Valley. But it's also a testament to the vision that Armstrong and his team had early on.

See also: These Startups Are Betting Everything on Bitcoin

"The press tends to portray Bitcoin as either a speculative bubble or a scheme for supporting criminal activity," Chris Dixon, an investor at Andreessen Horowitz, wrote in a blog post explaining the firm's decision. "In Silicon Valley, by contrast, Bitcoin is generally viewed as a profound technological breakthrough." Dixon, who will take a seat on Coinbase's board, went on to argue that the startup's technology has the potential to "significantly accelerate" Bitcoin adoption.

In an interview with Mashable earlier this year, Armstrong said that he first read about Bitcoin in late 2011 while working at Airbnb and saw an opportunity to create tools to make the digital currency more mainstream.

"I realized Bitcoin was stuck in this world where everyone was running a server on their laptop. Bitcoin was kind of a low-level protocol," Armstrong said in the interview. "Those are not mainstream tools. I realized there was an opportunity to build a legitimate platform on top of this protocol."

At the time, however, many investors either hadn't heard of Bitcoin or didn't want to touch it. "We got a lot of 'no's," he admitted in the interview when asked about his luck approaching investors. "In general, people who already knew what Bitcoin was before coming into the meeting were more likely to invest."

"I couldn't explain the whole concept of Bitcoin to someone in a pitch and also get them to invest," he added.

Armstrong managed to attract $100,000 in funding early on from IDG, an investment firm focused in China, that was well aware of the currency. Coinbase then joined the prestigious Y Combinator startup incubator program in the first half of 2012. By early this year, interest in Bitcoin had started to climb — and so did interest in Coinbase. After trying and failing to woo investors a year earlier, investors started reaching out.

"Whenever people reach out, we say 'thank you' and put their name in a spreadsheet," he told me in April. The following month, the startup raised $5 million led by Union Square Ventures in what was then the largest funding round for any Bitcoin startup.

Since then, the price of Bitcoin has soared as high as $1,200 Coinbase's user base has grown fast. It hit 300,000 users in mid-October and now has 600,000 accounts. The goal of the new $25 million round of funding is to help Coinbase scale more quickly to keep up with that user growth.

"This funding solidifies our position as the largest and fastest growing Bitcoin service in the U.S," the company wrote in a blog post on Thursday. "We plan to use the funds to expand our team, continue to educate the market, and promote the mainstream adoption of Bitcoin."

Image: Flickr, Antana

Topics: Bitcoin, Business, coinbase, Startups