Given the recent fervor over Bitcoins, it’s unsurprising to see several dedicate investment vehicles spring up to support startups in the virtual currency ecosystem. A few months we revealed that Adam Draper’s Boost VC accelerator would be making a big bet on Bitcoin, dedicating half of its upcoming 15 company accelerator class to category.
Today, Draper announced that he has assembled a “Boost Bitcoin Fund” which will offer $50,000 of follow-on funding to the accelerator’s Bitcoin companies in the form of a capped convertible note – in addition to the $18,000 equity investment they receive the upon acceptance into the accelerator. The fund is backed by Lightspeed Venture Partners, Rothenberg Ventures, SecondMarket founder Barry Silbert’s The Bitcoin Opportunity Fund, and Beluga co-founder Ben Davenport. According to Draper, each of these investors have already invested in the Bitcoin ecosystem and “established themselves as thought leaders in the alternative currency space.”
“I think we’re at the beginning stages of the digital currency revolution,” Draper says. “Bitcoin may not be the be-all-end-all of digital currencies, but it has the best shot at being the first global currency. If the first chapter was infrastructure, including mining and exchanges – which made it possible to hold Bitcoin as an asset – the second chapter is now about mechanisms of transfer and security – which make Bitcoin more like a true currency. These are the areas we’re focused on investing in.”
Applications for Boost VC’s second class close on June 1 and the class will begin on June 24. Draper and company have only accepted two of a planned five to seven Bitcoin-related startups, which will participate alongside an additional eight non-bitcoin startups.
The idea of a follow-on fund was initially introduced by Y Combinator, when it partnered with Ron Conway and Yuri Milner to provide $150,000 to every graduating company through The Start Fund – which has since been replaced by an $80,000 commitment from YC VC. The concept has been emulated by others, including Los Angeles’ Launchpad LA which now offers companies a $50,000 follow-on from its own balance sheet. On the whole, the additional capital lengthens the runway for these young startups, and should theoretically allow them to focus on more company building rather than fundraising for much of their accelerator period.
The last half year has been a tumultuous one for the Bitcoin ecosystem. First, we watched as the currency’s value and its reach exploded. Quickly, the hackers and naysayers came out in full force, leading to several security breaches in critical ecosystem infrastructure, a few panicked post-speculative sell-offs, and a general uncertainty about the future of the digital currency.
If anything, the roller-coaster ride has injected a measure of realism into the discussion surrounding Bitcoin, but in no way has it extinguished the investor and entrepreneur interest in the ecosystem.
Last, Bitcoin wallet startup CoinBase raised $5 million from Union Square Ventures and others in the virtual currency ecosystem’s largest financing to date. This weekend, the San Jose Convention Center will host the second annual Bitcoin 2013: The Future of Payment conference. A quick glance at the Lightspeed Venture Partners blog shows six of the last eight articles posted (over a six week period) have been Bitcoin-related. And in addition to today’s launch of both Boost Bitcoin Fund and Liberty Village Ventures, the ecosystem already has multiple dedicated investment vehicles including today’s Bitcoin Venture Capital and Bitcoin denominated Ultima hedge fund, and others.
The verdict on Bitcoin won’t be written for some time, but if recent activity is any indication, the success or failure of the ecosystem will not be driven by a shortage of attention from the early stage investment committee. Whether that proves to be a good thing for investor returns is less easy to predict.