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Smart Money VCs Pump Brakes On Bitcoin & Blockchain Companies

2016 saw only 5 top investors participate in 8 deals, the lowest number since investment to the sector first began.

Since early in bitcoin funding history, top venture capitalists — our “smart money investors” — have been notably active in financing to bitcoin and blockchain startups.

Between 2012 and 2016, 19 of the 24 smart money investors participated in 46 unique financing rounds to 27 bitcoin and blockchain companies. Those 46 rounds totaled $740M in funding and accounted for roughly half of all funding to the sector. Of the top ten largest bitcoin and blockchain financings overall, eight have included at least one smart money investor, with multiple smart money investors often participating in the same rounds. Since 2014, however, these investors have begun slowing their pace of activity.

We used the CB Insights platform to evaluate smart money investments to bitcoin and blockchain companies from Q1’12 to Q4’16. Additionally, we used the CB Insights Business Social Graph to visualize how investors and target companies are related and where the top investors are placing bets.

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Our definition of bitcoin and blockchain companies includes cryptocurrency-focused companies involved in the trading, storing, or usage of cryptocurrencies — primarily bitcoin — and companies developing industry-specific applications of blockchain technology. At the most basic level, blockchains are cryptographically secured, distributed ledgers, first developed as the underlying infrastructure of bitcoin. For more information on our classifications and definitions, see our bitcoin and blockchain market map.

Please see the explanation and full list at the bottom of this post of our 24 “smart money VCs.”

Annual financing history

2016 saw only 5 of the top investors participate across 8 deals, the lowest number since investment to the sector first began. The prior year saw 10 smart money investors participate in 12 financings, a 33% decline in smart money deals compared to 2015. The group first began to invest in the sector in 2013, with 8 smart money VCs participating in 11 financings.

The total dollar amount of financings where smart money investors participated fell as well, from approximately $295M in 2015 to $212M in 2016, a 28% decline. In contrast, total bitcoin and blockchain dollars from all investors rose year-over-year, from approximately $524M to $550M. 2015’s smart money dollar total were buoyed in large part by 21’s $111M Series C — the largest bitcoin and blockchain financing to-date — in which smart money VCs Khosla Ventures and Andreessen Horowitz participated.

2017.02.20 Smart Money Total Financing v2

Quarterly financing history

Q2’16 was the year’s best quarter for smart money investors, with three financings totaling $71M. Circle Internet Financial took the bulk of funding, with a $60M Series D, in which General Catalyst Partners invested, after previously participating in the company’s $9M Series A, $17M Series B, and $50M Series C. Accel Partners invested at three earlier stages, but did not invest at the Series D round.

2015’s monster Q1’15 included 21’s $111M Series C and Coinbase’s $75M Series C, in which top investors Andreessen Horowitz and Union Square Ventures participated. The two firms have co-invested in 6 bitcoin and blockchain deals since 2013 across 4 companies.

While 2016 saw the lowest number of smart money investments, average dollars per financing have increased, from $12M in 2014 to about $27M in 2016. Combined with the sector’s first Series D in Q2, as mentioned above, this data indicates a maturing sector.

2017.02.20 Smart Money Quarterly Financing

Smart money vs. overall bitcoin and blockchain deals

Overall, investors made 132 deals to bitcoin and blockchain companies in 2016, the lowest number since 2014 and an 18% drop from 2015′s high of 161. Total funding to the sector rose just 5%, from $524M in 2015 to $550M in 2016.

As noted, smart money investors charted a similar course, with deals falling to their lowest levels. In addition total funding dollars dropped by 28%.

2017.02.20 Smart Money Deal Comparison

Visualizing smart money bitcoin and blockchain investments

We used CB Insights’ Business Social Graph to visualize how smart money VCs and the bitcoin and blockchain companies they invest in are related.

Please click to enlarge – image includes investments from 1/1/12 – 2/20/17.

2017.02.21 Blockchain Smart Money BSG v2.1

Here are some takeaways from the Business Social Graph:

  • Wallets and money services in focus: Within bitcoin and blockchain, smart money investors have focused on a couple of key subcategories. In terms of dollars, the group participated in $252M worth of funding to cryptocurrency wallets and money services firms, dedicating more money to the subcategory than any other. Circle Internet Financial is the largest bitcoin and blockchain company that falls into this category, and smart investors haven’t shied away from the opportunity, as highlighted above. Xapo, a wallet company that also provides fully insured, underground cryptocurrency cold-storage security via its Vault platform, has received approximately $40M in a Series A round that included top investors Emergence Capital Partners, Benchmark, Greylock Partners, and Index Ventures. Index Ventures also participated in a 2014 $30M Series A to BitPay, another wallet and money services platform.
  • Invest often, invest together: Andreessen Horowitz and Union Square Ventures made repeat investments in OpenBazaar, a bitcoin peer-to-peer marketplace that does not charge traditional middleman fees and has received $4M in two funding rounds. The marquee firms are the top two most active smart money investors in the sector by number of deals and are also co-investors in cryptocurrency-focused hedge fund Polychain Capital, cryptocurrency exchange Coinbase, and content rights and identification platform MediaChain.
  • Full steam ahead: Lightspeed Venture Partners participated in three 2013 seed stage rounds totaling $7M for financial services blockchain company Ripple. The company has since received $87M in additional funds, putting its total war chest at $94M to date.

Note: To analyze smart money trends, we looked at the activity of 24 top VC firms, selected according to portfolio valuations and investment outcomes. Some of the investors are linked to relevant research briefs. Here’s our full list of 24 smart money investors:

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