The Wall Street Journal has announced that bitcoin startup, Coinbase has received $5 million in Series A funding, with the investment being led by Union Square Ventures. The investment marks the largest round of financing for a bitcoin startup, and follows the $600,000 seed round Coinbase raised last September. In typical funding, seed rounds mark a startup’s first investment from sources not affiliated with the founders, with the funds used to either bring a new product to market or increase its marketing efforts. The following Series A round is a much larger investment that is used by startups to grow their internal teams to further their product’s growth.
Using industry estimates for Series A funding, the $5 million investment values Coinbase between $15-25 million. According to new data posted on their blog, Coinbase has reached $15 million in monthly bitcoin processing. With a 1% fee, this calculates to $150,000 in monthly revenues. But, their valuation isn’t based on those figures, as much as the growth that has taken place so quickly at Coinbase. The $15 million in monthly processing came only three months after the startup announced they hit the $1 million milestone.
Coinbase offers hosted bitcoin ‘wallet’ services for businesses and individual. Customers can link bank accounts or merchant payment gateways to their Coinbase wallet. While not being a bank themselves, Coinbase’s is in a way becoming a bitcoin bank as it is becoming a location for both merchants and individuals to deposit, withdraw, and handle bitcoin transfers with third parties. According to an interview of Coinbase’s founders with the WSJ, the funding will be used to hire additional employees to handle demand.
The presence of Union Squre Partners, which was Co-Founded by Fred Wilson appears to be a natural fit for both Coinbase. Back in October 2012, in a series of posts Wilson published on Business Insider, he wrote a business model for a bitcoin bank. The model including low costs, third party integration, and easy for customers to access. As such, for Coinbase, Wilson comes as more than just an investing partner, but also a promoter of bitcoin technology and in favor of their business model.
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MtGox/CoinLab Lawsuit – Who Cares
Earlier this week we wrote about the MtGox/CoinLab lawsuit. CoinLab, has sued MtGox for $75 million as they accuse the bitcoin exchange of breach of contract with their partnership. One of the immediate worries following the lawsuit was that with MtGox responsible for over 70% of bitcoin trading, it could lead to price destabilization if the exchange is affected by the lawsuit.
What we are seeing though is the opposite occur. Rather than an exit of investors and bitcoin users, a new batch of firms is moving into the space. In discussion Forex Magnates has had with upcoming firms, these startups are being led by bitcoin enthusiasts with diverse backgrounds in areas such as investment banking, online commerce, IT security, and the military. Driving their aspirations are investors who have witnessed the ‘proof of concept’ of digital currencies and are studying the sector for opportunities. More than just a currency, bitcoins and digital currencies are being viewed as a technology play on the future of online payments.
In conversations with startups, founders have indicated that they have either been funded or are receiving multiple requests from investors for more information. New startups that are emerging also are benefiting from being able to learn from the mistakes of earlier firms. Founders are pointing to banking and security as the two main issues that need to be solved before going public. This knowledge of the market occurs after they have seen exchanges being shut down by their banks due to the failure of establishing an understanding of their business with financial institutions, as well as seeing the plethora of sites being hit by DDoS attacks.
As such, looking to the near future, we should soon see a much more financially and technology bitcoin market. While Coinbase has become the first high profile funded bitcoin startup, it could very possibly be one of many large investments that take place this year as we witness new bitcoin exchanges, trading platforms, and fund transfer firms enter the market.