Bitcoin Shop leverages its public company status, investing in Expresscoin
Bitcoin Shop CEO Charles Allen is intent on using his status as the only publicly traded bitcoin company to his advantage. With visions of a future industry roll-up in mind, Allen is making minority investments in a number of venture-stage bitcoin companies, promising future liquidity to founders and VCs alike.
Today, Bitcon Shop completed its second venture stage investment in his young company’s history, investing $150,000 into digital currency broker Expresscoin, with an option to invest an additional $1 million under the same terms at any time within the next three months. This comes after completing a similar investment in March into digital currency payment platform GoCoin, with Allen later joining the startup’s board of directors. Notably, both GoCoin and Expresscoin are co-founded by serial bitcoin entrepreneur, angel investor, and controversial Bitcoin Foundation board member Brock Pierce.
Bitcon Shop is more than just an investment vehicle, Allen tells Pando. His company is operating profitably as a virtual currency ecommerce marketplace. Describing it as “Kayak for ecommerce,” Allen explains that Bitcoin Shop allows consumers to conduct meta-searches across multiple traditional commerce marketplaces to identify the best price and access the widest selection of products. Unlike existing price-comparison solutions like Google Shopping, consumers never have to leave Bitcoin Shop to complete their transaction on a third-party site. The company has affiliate relationships with all of its partner retailers, and thus makes a small commission on each transaction.
Expresscoin and GoCoin represent more than just savvy financial investments -- each will be integrated into the Bitcoin Shop ecommerce operation. With the marketplace only accepting payment by digital currency, Expresscoin will give its customers a means of purchasing additional bitcoin or other altcoins without ever leaving the site. GoCoin, on the other hand, powers Bitcoin Shop’s payment processing.
“If you think of us like an early eBay, we’ve now set up a PayPal-like relationship,” Allen says. “We’re using our ecommerce business as an onramp of sorts to drive virtual currency adoption. But that said, we’re intent on building a business that makes sense and would survive on its own, even outside of virtual currencies. This is a real business, we have margins. We’re not making a lot, but we’re profitable.”
It’s almost unheard of today for such a young company, with just $1.6 million in 2013 revenue and $87,000 in net income, to list publicly. Bitcoin Shop went public through a reverse merger, rather than an IPO, but still has all of the reporting, compliance requirements, and expenses of a small-cap public company. Despite its relatively thin income statement and just $2 million in early funding, Allen, a former investment banker, views Bitcoin Shop’s public status as its biggest advantage.
“Being public, with a Top 15 auditor, we have more credibility and transparency than any one private company in the ecosystem,” Allen says. “As a consumer, you don’t know what Coinbase’s balance sheet or cash flow statement looks like when you do business with them.” Allen also believes Bitcoin Shop’s status as a public company will help him raise capital. “If you’re a public market investor, if you want exposure to bitcoin, where do you go? These guys don’t have access to VC deal flow.”
Bitcoin Shop isn’t buying any startups outright today. First, it doesn’t have the cash to do so, a fact that Allen readily admits. Hell, it doesn’t even have the cash to exercise its $1 million option into Expresscoin today. But an equally real issue is that these young startups lack the financial controls to public company financial audits, he says, and he can’t afford to do the accounting catch up. In the future, however, should Bitcoin Shop raise more capital and see its stock trade on the NASDAQ – currently it trades on the OTC Markets – completing such deals will be more realistic.
“I’m going to be the only path to liquidity for many of these young digital currency startups,” he says. “My stock trades $500,000 to $1 million per day, it’s liquid. That’s as good as cash.”
Allen doesn’t view fellow virtual currency startups like CoinBase, BitPay, and Circle as his competition. Rather, he’s more concerned about Facebook or Chase bank getting in on the virtual currency game.
“They could flip a switch and own the entire category tomorrow,” he says. “That’s why I’m looking at this like a race. My options are to grow organically, through acquisition, or via partnerships. Acquisition may not be a possibility today, but it will be soon. In the meantime, I’m focused on forging as many strategic partnerships as I can. And by investing, I’m forging deeper partnerships that I would be able to otherwise. If it turns out that one day I acquire a few of these companies – to be clear I don’t have any agreements in place – if it turns out that way, great. If they get acquired by someone else and I get a nice return, that’s great too.”
It’s an uncommon strategy to be sure. But nothing about the virtual currency space is “normal.” Allen has laid out a long-term vision for how Bitcoin Shop becomes a central figure in both the consumer and entrepreneurial virtual currency ecosystems. Bitcoin Shop’s stock is up 2.5 percent in early trading to $0.164 per share, but is down considerably from its all-time high in February of $4.57.
“Maybe it’s the right strategy, maybe it’s the wrong one. Time will tell,” Allen says