Will Bitcoin Venture Capital Investment Reach $300 Million in 2014?

UPDATE (2nd April 11:15 GMT): In addition to the companies listed below, sales portal BitSimple has raised $600,000 in a bitcoin-only seed round.

This article summarizes some of the new State of Bitcoin 2014 data and analysis on venture capital investment presented at last week’s Coinsummit conference in San Francisco.

Several significant venture capital investments in bitcoin startups have been announced in recent weeks, including Circle’s $17m second round, Xapo’s $20m first round, and OKCoin’s $10m first round (Table 1). Table 1: Bitcoin Venture Capital Investments – 2014 YTD

The $72m in 2014 year-to-date venture capital invested in bitcoin startups which has been publicly disclosed (much more has been made quietly) has dramatically advanced CoinDesk's full-year projection published in last month’s State of Bitcoin report.

Just a month ago, the 2014 run rate for venture capital invested in bitcoin startups was just over $100m. Now, $300m is projected for the full 2014 year. The 2014 run rate would equal three times more than the approximately $100m which VCs invested into bitcoin startups in 2013.

Europe lags, Asia is lean, North America dominates

The regional trends identified in the February report have continued to hold with North America outpacing both Europe and Asia both in terms of total number of companies and total investment (Chart 1).

Chart 1: Regional Bitcoin Venture Capital Investments – all time

75% of all bitcoin venture funding has been invested in North America and 57% of VC-backed companies are based there.

Asia venture-backed bitcoin companies appear to be the most leanly funded, with 31% of the total number of bitcoin startups receiving only 15% of the funding pie.

Chart 2: Silicon Valley vs Rest of World – all time

Silicon Valley’s

share of the bitcoin startup ecosystem remains strong. The total number of bitcoin VC-backed companies based in the Valley climbed from 27% last month to 29%.

However, it’s total share of bitcoin startup funding declined to slightly under half at 46% from 51%. Overall, investing in bitcoin startups is very much a global phenomenon, but North America and Silicon Valley still hold pole position.

Six different bitcoin company types

With Circle at last unveiling a part of its business and product strategy the lay of the bitcoin land has now come into sharper focus (Chart 3).

Chart 3: Bitcoin Startup Ecosystem and Sample Companies

Four of the the six distinct company categories defined by CoinDesk are, in essence, pure plays on a specific area of the bitcoin value chain: mining hardware, wallets, exchanges, and payment processors.

The ‘financial services’ category is also comprised of a number pure play companies. However, many companies are either pursuing a unique business strategy, or are small in their total number and size. Therefore, these companies do not yet warrant the creation of a separate ecosystem startup category and are aggregated under the heading of ‘financial services’.

The emergence of the ‘universal’ bitcoin company

Building on the emerging theme of consolidation expressed both in last month’s State of Bitcoin report and in recent analysis of exchange trading volume trends, CoinDesk have defined a new sixth startup ecosystem category, ‘universal’. The universal category was created for companies which house multiple areas of the bitcoin value chain under one roof.

While a number of companies have expressed an interest in operating as a universal (eg Safello) CoinDesk at present sees only two companies – Coinbase and Circle – as having both the products, roadmap and means to execute a universal business model.

Both Coinbase and Circle have disclosed raising more money than any of the other bitcoin startups. The two universals have raised a combined amount ($56m) which is greater than any other startup ecosystem category to date (Chart 4).

Chart 4: Investment Distribution Across Bitcoin Startup Ecosystem – all time

Are the current projections for the total investment in bitcoin startups in 2014 conservative or wildly optimistic? Will most bitcoin companies eventually seek to become or merge into a ‘universal’, or will pure plays be stronger over the long-term? Share your thoughts in the comments below.

Silicon Valley image via Shutterstock