Benchmark Backs Bitcoin Secure Storage Provider Xapo

Xapo Ltd., a provider of secure online storage for Bitcoins, has raised $20 million in a first round of funding led by venture capital firm Benchmark.

Ribbit Capital, a Silicon Valley venture firm that invests in technologies for financial services, and Fortress Investment Group LLC, a New York-based private-equity and hedge-fund manager, participated in the round, Wences Casares, Xapo’s founder and chief executive officer, said in an interview yesterday. He declined to comment on Xapo’s valuation.

Bitcoin’s popularity has made it an alluring target for hackers and thieves, spawning a growing industry of startups seeking to protect investors against losses. The security of Bitcoin holdings entrusted to online service providers came into focus following the bankruptcy last month of Mt. Gox, a Tokyo-based online exchange that was once the world’s largest exchange for the virtual currency. Xapo’s servers are stored in secret underground locations around the world, which are staffed by armed security guards, Casares said.

“We are the first Bitcoin vault fully protected and insured against hacking and bankruptcy,” Casares said.

Casares started Xapo two years ago while he was the CEO of mobile-payments provider, which LifeLock Inc. bought in December for $50 million, Casares said. Palo Alto, California-based Xapo, which is insured by Meridian Insurance Group Inc., offers secure storage vaults for Bitcoins, as well as Web-based wallets for sending and receiving the virtual currency.

Vault, Wallet

At Mt. Gox, hackers stole 750,000 Bitcoins belonging to its customers and 100,000 of its own, for a total of 850,000, the company said.

Xapo already has several thousand accounts, including holders of large Bitcoin deposits such as hedge funds, venture capital funds, sovereign wealth funds and family offices, said Casares, who declined to comment on their identity.

“We have been talking to Wences about Bitcoin for quite a long time and we think Xapo offers a unique wallet-with-vault service which is secure offline and online and therefore compelling for institutional as well as retail investors,” Matt Cohler, the partner who led Benchmark’s investment in Xapo, said.

Benchmark’s First

Xapo is Benchmark’s first public investment in a Bitcoin company. Cohler, a former Facebook Inc. executive, said he personally owns Bitcoins and stores them with Xapo.

Casares, 40, was born to a family of sheep farmers in Argentina’s Patagonia region. He and Micky Malka, Ribbit’s founder, have started four financial-service companies together. Ribbit, one of the few venture-capital investors that also invests directly in Bitcoins, also stores its holdings with Xapo, Malka said.

Elliptic Enterprises Ltd., a London-based Bitcoin vault, debuted in January. James Smith, Elliptic’s CEO, said he found an underwriter for insuring the company against any loss of Bitcoins via Lloyds of London Ltd. Smith declined to identify his underwriter. A Lloyds of London representative said their underwriters didn’t insure Elliptic.

While Smith had initially said Elliptic clients would be reimbursed in British pounds in the event of any loss, the company issued a statement yesterday after learning of Xapo to say that it will also compensate customers by purchasing Bitcoins at market rates using payouts in pounds.

Casares, Cohler and Malka said Xapo has no competitors offering similar services.

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