Data Sheet—How Top VCs Are Betting on Blockchain
(Today’s essay from Robert Hackett offers insight into the latest trends in VC digital currency investing.)
Venture capital firms have been plunking down millions of dollars in funding on startups pitching blockchain tech, the innovative accounting ledgers that underpin cryptocurrencies like bitcoin and also power nifty, distributed databases.
As interest in all things crypto heats up, initial coin offerings—a crowdsourced way for crypto projects to raise money—have become all the rage, allowing fledgling projects to raise ample funds without needing institutional backers. Despite the democratizing trend, VC firms are on track to ink 77 traditional deals with blockchain startups by year’s end—more than any year prior.
So far, VC firms have struck 59 deals this year, already exceeding the 57 signed last year.
Now you can see where the biggest brand name investors’ purses intersect. CB Insights, a market research firm tracking the venture capital industry, mapped out the relationships between some of the most prestigious VC dealmakers in a new report previewed exclusively with Fortune.
Many of the firms will be familiar to people who follow the money in Silicon Valley and beyond: Sequoia Capital, Union Square Ventures, and Andreessen Horowitz among them. The diagram below reveals which traditional equity deals these firms have in common.
Several trends become clear as you peruse the ties. Andreessen Horowitz likes to invest alongside Union Square Ventures, as seen in joint fundings in Coinbase, the most well-known crypto broker, OpenBazaar, a decentralized online marketplace, and Mediachain, a song royalty tracker since acquired by Spotify. Sequoia, meanwhile, places bets more sparingly, backing only Bitmain Technologies, a Bitcoin miner—though the firm has also contributed non-equity investment funding to hedge funds like Polychain and Metastable as well as ICO-backed projects like FileCoin.
Note that the biggest-name investors included above are not necessarily the biggest investors in blockchain tech. Digital Currency Group, an investment firm led by Barry Silbert, founder of SecondMarket (an exchange for private company stock) and alumni of Fortune’s 40 Under 40 list, leads the pack with more than 100 investments in roughly 75 blockchain companies. Blockchain Capital lands in the runner-up spot, with Draper Associates placing third in terms of number of deals.
Check out the CB Insights report for more interesting blockchain VC tidbits. And tune into this October 26 webinar, where CB Insights analyst Arieh Levy, the report’s author, and I will provide a rundown of the blockchain landscape as well as field questions from attendees.
(Update: This post and accompanying graphic have been corrected on October 24, 2017, to reflect the relationships of several VC firms and their investments in blockchain startups. Sequoia Capital was not an investor in the now defunct company Koinify. And while Andreessen Horowitz and Union Square Ventures are both limited partners in the hedge fund Polychain Capital, only the latter is an equity investor.)
Moar bitcoin news. To go with Robert's essay, there's plenty of bitcoin and blockchain headlines, as well. Bain Capital Ventures and Andreessen Horowitz are helping startup Intangible Labs raise money in an ICO via a new cryptocurrency called basecoin. Digital Asset, a startup focused on using the blockchain in the finance industry, raised $40 million the old-fashioned way by selling equity stakes to private investors. Fed chairman Ben Bernanke gave the finance establishment view in a talk on Monday, saying bitcoin itself would fail but the underlying technology was great. “The Fed, the Bank of England, and Japan are very supportive of these technologies because they’ll improve payment systems,” Bernanke said.
Want to know what's really cool? Tired of reading about how every startup you've ever heard is getting backing from Masayoshi Son's almost-$100 billion Vision Fund? Prepare to be even more annoyed. Recode reports the Japanese billionaire is already in "early planning discussions" to raise a second, even larger fund.
L'eggo of my Eggo. It was another strong quarter for Netflix, as the most popular Internet streaming service reported revenue increased 30% to $3 billion and it reached 109 million subscribers worldwide. Netflix also said it may spend as much as $8 billion on content next year. Netflix shares were about unchanged in premarket trading on Tuesday. More importantly to some, the company also debuted a new video promoting the second season of Stranger Things.
Bad idea. Google Maps dumped an experimental feature that showed how many calories a user might burn by walking a route instead of driving, TechCrunch reported. Controversy arose because the Maps app also translated the amount of calories into an equivalent number of mini cupcakes.
Loophole. The Supreme Court decided to hear an appeal of a leading email privacy case. Last year, a lower court ruled that federal prosecutors could not use a domestic search warrant to force Microsoft to turn over emails stored on servers in Ireland as part of a drug investigation.
Secrets uncovered. Apple explored acquiring a startup that builds and runs on-site medical clinics for large companies, CNBC reported. But after months of talks to buy startup Crossover Health, Apple demurred. Asked about health care last month, CEO Tom Cook told Fortune: "There's a lot of stuff I can't tell you about that we're working on."
Unsafe at any speed. Are you long or short betting on stricter drone regulation? It's a day for those pro-regulatory side, as Canada revealed that a drone had collided with a commercial aircraft for the first time there. No one was injured in the collision near the Jean Lesage International Airport in Québec City.
Big ego battle. A company backed by Tony Fadell, who helped invent the iPod, is suing Essential, the phone startup created by Andy Rubin, who helped invent Android. Keyssa, Fadell's wireless communications startup, says Essential stole some of its proprietary transmission technology.
FOOD FOR THOUGHT
You got the headlines yesterday about the newly discovered security flaw in the key Wi-Fi security protocol WPA2. Maybe you also read about the rush to issue patches, with Microsoft Windows getting a quick fix and Apple promising one for its various operating systems. Google may take a little longer. But what exactly is the flaw and how could it possibly have remained undiscovered for so many years? Johns Hopkins University professor Matthew Green both knows about cryptography and how to write a clear essay. He explains:
The critical problem is that while people looked closely at the two components — handshake and encryption protocol — in isolation, apparently nobody looked closely at the two components as they were connected together. I’m pretty sure there’s an entire geek meme about this.
Of course, the reason nobody looked closely at this stuff is that doing so is just plain hard. Protocols have an exponential number of possible cases to analyze, and we’re just about at the limit of the complexity of protocols that human beings can truly reason about, or that peer-reviewers can verify. The more pieces you add to the mix, the worse this problem gets.
IN CASE YOU MISSED IT
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Elon Musk's Tesla Powerwalls Have Landed in Puerto Rico By John Patrick Pullen
Here's How Amazon and Boston Could Win Together By Barb Darrow
Why T-Mobile Merger Talk Isn't Helping Boost Sprint's Stock Price By Aaron Pressman
Facebook Plans to Hire People With National Security Clearances By Don Reisinger
BEFORE YOU GO
Not that you should worry about financial market bubbles after a lot of talk about bitcoin, but this Thursday will mark the 30th anniversary of Black Monday, the day the Dow Jones Industrial Average plunged a record 23% in a single session. Bloomberg has an interesting collection of recollections, including from author Michael Lewis, who worked on Wall Street at the time as a bond salesman.
People were screaming and going absolutely crazy in ways I’d never seen before. It was the first time in my career at Salomon Brothers where I was actually interested in standing beside the equity department and watching these people do their job.