Many corners of finance—stock exchanges, banks, and payments firms—are embracing digital assets, but the private credit industry has largely stayed away from the crypto craze. The startup Valinor aims to change this, and on Monday, the company announced that it’s raised $25 million to put private credit on the blockchain.
Castle Island Ventures led the seed round, which also included the crypto arm of marquee trading firm Susquehanna; Maven 11; and the founders of Bitcoin-mining-turned-AI company TeraWulf. Connor Dougherty and Lily Yarborough, the cofounders of Valinor, declined to specify at what valuation they raised their capital.
“I think what these guys are doing is really just like being … the translation agent between these two industries,” said Sean Judge, general partner at Castle Island Ventures, in reference to the crypto and private credit sectors.
Crypto and private credit
Wall Street already has a growing list of “translation agents” positioning themselves as go-betweens crypto and finance. Those include the Nasdaq and New York Stock Exchange, which are exploring tokenizing stocks, or putting company shares into blockchain wrappers. Banks are experimenting with tokenizing deposits. And asset managers are putting funds, including money-market funds, on the blockchain. There are also crypto-literate startups like Alpaca, which recently raised a $150 million Series D round to challenge Interactive Brokers.
Dougherty and Yarborough believe they can leverage their traditional finance pedigrees to become crypto’s go-between for yet another Wall Street category. The two started their careers as analysts at banks; moved to the private credit arm of asset manager Blackstone to work as investors; and in 2022 made the jump into crypto at a digital asset investment fund.
Two years later, the pair founded the first iteration of Valinor. Yarborough described their initial venture as focused purely on lending to crypto businesses. Eventually, she and Dougherty decided that, in addition to lending to blockchain companies, they could use blockchains themselves to make the lending process more efficient. “We realized there was a real opportunity to use crypto technology to be a more effective lender,” said Yarborough.
When it comes to private credit, large institutions typically rely on a chain of humans to check and verify each other’s work. Take, for example, a $50 million revolving credit line. Every week, a company can take out millions of dollars. If the firm repays a certain amount, it can borrow another sizable sum. It’s a rules-based process, but private credit firms use a combination of spreadsheets and humans to make it work. Dougherty and Yarborough believe that smart contracts, or blockchain-based programs that automatically route money depending on whether certain conditions are met, can replace existing systems. “Especially at a private credit firm, you’ve always had someone who’s actually pushing the wire button,” said Dougherty.
Valinor has already employed blockchain technology to spin up loans for a handful of fintech and crypto companies, said Dougherty. His firm, which currently has six employees, plans to use the new injection of capital to hand out more loans to more customers and hire more staff. And while there are existing lenders that issue loans backed by customers’ Bitcoin or Ethereum, Valinor plans to service what Dougherty calls “real economy credit.”
“We identified a use case within credit where shared ledgers added a lot of value,” said Yarborough.