Bitcoin Startup Gets $25 Million in Andreessen-Led Funding Round
Coinbase Inc., a provider of online Bitcoin accounts and transaction services, raised $25 million in funding led by Andreessen Horowitz.
Existing investors Union Square Ventures and Ribbit Capital are also participating in the second round, which brings the total funding to $31 million, the San Francisco-based company said. Coinbase has about 600,000 users who buy, sell and store the virtual currency online.
Venture capitalists have been seeking opportunities to participate in Bitcoin as a payments system. Tim Draper has invested in mobile-payments provider Gliph Inc., and BitPay Inc. has raised capital from Founders Fund and other investors. As more people flock to Bitcoins as an investment and use them to buy goods and services online, users will need virtual wallets, software tools and merchants that will accept the digital money.
“As far as we know we’re the only site touching all three aspects of the Bitcoin world,” Brian Armstrong, a co-founder of Coinbase, said in an interview.
Chris Dixon, a general partner at Andreessen Horowitz, said the firm opted to invest in Coinbase because it’s the leader in offering “consumer-friendly” ways to transact with Bitcoins, comparing the startup to Web-browser developers that made the Internet accessible to the masses.
The investment also underscores Silicon Valley’s interest in how Bitcoin can become a cheaper and more secure way of moving money, rather than a currency that’s bought and sold speculatively, Dixon said.
“The degree to which the current payment system is broken -- the public awareness is not as high as it should be,” Dixon said in an interview.
The venture firms didn’t disclose their stakes in Coinbase, or the resulting valuation. Coinbase’s user base is growing about 31 percent each month, the company said.
Fred Ehrsam, a Coinbase co-founder, said the company is being “as proactive as possible” in obtaining any necessary regulatory approval. Andreessen Horowitz supports spending “a good chunk of money” for Coinbase to apply for licenses with state regulators, who are still mulling how they will treat Bitcoin businesses, Ehrsam said.
Since Bitcoins exist as software, the virtual currency isn’t controlled by any government or central bank. The digital money emerged in 2008, designed by a programmer or group of programmers going under the name of Satoshi Nakamoto, whose real identity remains unknown. Bitcoins are being used to pay for everything from Gummi bears to digital cameras on the Web, with more than 12 million in circulation, according to Bitcoincharts, a website that tracks the digital money’s activity.
The virtual currency gained credibility last month after law enforcement and securities agencies said in U.S. Senate hearings that Bitcoin could be a legitimate means of exchange. The price of Bitcoins topped $1,000, as speculators anticipated broader use of digital money. The price has since dropped to around $869 on Bitstamp, one of the more active online exchanges where Bitcoins are traded for dollars and other currencies.
The Treasury Department’s Financial Crimes Enforcement Network has said that Bitcoin businesses may be considered money transmitters for the purpose of complying with anti-money laundering laws. State agencies typically license such businesses.
“If their decision is that this needs to be a licensed activity, we will be there day one with an application in hand,” Ehrsam said. He declined to disclose whether Coinbase had applied anywhere yet.
Adam Draper, Tim Draper’s son, founded Boost VC, an accelerator based in San Mateo, California, which has invested in startups such as BitBox, which offers secure Bitcoin storage, and BitPages, which lets people accept Bitcoin payments internationally. BitAngels, a group of investors focused on funding digital-currency-related startups, raised $6.7 million earlier this year to invest in Bitcoin startups.