All posts in “Andreessen Horowitz”

Coinbase’s first investment, Compound, earns you interest on crypto

Compound wants to let you borrow cryptocurrency, or lend it and earn an interest rate. Most cryptocurrency is shoved in a wallet or metaphorically hidden under a mattress, failing to generate interest the way traditionally banked assets do. But Compound wants to create liquid money markets for cryptocurrency by algorithmically setting interest rates, and letting you gamble by borrowing and then short-selling coins you think will sink. It plans to launch its first five for Ether, a stable coin, and a few others, by October.

Today, Compound is announcing some ridiculously powerful allies for that quest. It’s just become the first-ever investment by crypto exchange juggernaut Coinbase’s new venture fund. It’s part of an $8.2 million seed round led by top-tier VC Andreessen Horowitz, crypto hedge fund Polychain Capital and Bain Capital Ventures — the startup arm of the big investment bank.

While right now Compound deals in cryptocurrency through the Ethereum blockchain, co-founder and CEO Robert Leshner says that eventually he wants to carry tokenized versions of real-world assets like the dollar, yen, euro or Google stock. That’s because Leshner tells me “My thesis is that almost every crypto asset is bullshit and not worth anything.”

How to get Compound interest on your crypto

Here’s how Compound tells me it’s going to work. It’s an “overnight” market that permits super-short-term lending. While it’s not a bank, it is centralized, so you loan to and borrow from it directly instead of through peers, alleviating you from negotiation. If you loan, you can earn interest. If you borrow, you have to put up 100 percent of the value of your borrow in an asset Compound supports. If prices fluctuate and your borrow becomes worth more than your collateral, some of your collateral is liquidated through a repo agreement so they’re equal.

To set the interest rate, Compound acts kind of like the Fed. It analyzes supply and demand for a particular crypto asset to set a fluctuating interest rate that adjusts as market conditions change. You’ll earn that on what you lend constantly, and can pull out your assets at any time with just a 15-second lag. You’ll pay that rate when you borrow. And Compound takes a 10 percent cut of what lenders earn in interest. For crypto-haters, it offers a way to short coins you’re convinced are doomed.

“Eventually our goal is to hand-off responsibility [for setting the interest rate] to the community. In the short-term we’re forced to be responsible. Long-term we want the community to elect the Fed,” says Leshner. If it gets the interest rate wrong, an influx of lenders or borrowers will drive it back to where it’s supposed to be. Compound already has a user interface prototyped internally, and it looked slick and solid to me.

“We think it’s a game changer. Ninety percent of assets are sitting in people’s cold storage, or wallets, or exchanges. They aren’t being used or traded,” says Leshner. Compound could let people interact with crypto in a whole new way.

The Compound creation story

Compound is actually the third company Leshner and his co-founder and CTO Geoff Hayes have started together. They’ve been teamed up for 11 years since going to college at UPenn. One of their last companies, Britches, created an index of CPG inventory at local stores and eventually got acquired by Postmates. But before that Leshner got into the banking and wealth management business, becoming a certified public accountant. A true economics nerd, he’s the chair of the SF bond oversight committee, and got into crypto five years ago.

Compound co-founder and CEO Robert Leshner

Sitting on coins, Leshner wondered, “Why can’t I realize the time value of the cryptocurrency I possess?” Compound was born in mid-2017, and came out of stealth in January.

Now with $8.2 million in funding that also came from Transmedia Capital, Compound Ventures, Abstract Ventures and Danhua Capital, Compound is pushing to build out its product and partnerships, and “hire like crazy” beyond its seven current team members based in San Francisco’s Mission District. Partners will be crucial to solve the chicken-and-egg problem of getting its first lenders and borrowers. “We are planning to launch with great partners — token projects, hedge funds and dedicated users,” says Leshner. Having hedge funds like Polychain should help.

“We shunned an ICO. We said, ‘let’s raise venture capital.’ I’m a very skeptical person and I think most ICOs are illegal,” Leshner notes. The round was just about to close when Coinbase announced Coinbase Ventures. So Leshner fired off an email asking if it wanted to join. “In 12 hours they researched us, met our team, diligenced it and evaluated it more than almost any investor had to date,” Leshner recalls. Asked if there’s any conflict of interest given Coinbase’s grand ambitions, he said, “They’re probably our favorite company in the world. I hope they survive for 100 years. It’s too early to tell they overlap.”

Conquering the money markets

There are other crypto lending platforms, but none quite like Compound. Centralized exchanges like Bitfinex and Poloniex let people trade on margin and speculate more aggressively. But they’re off-chain, while Leshner says Compound is on-chain, transparent and can be built on top of. That could make it a more critical piece of the blockchain finance stack. There’s also a risk of these exchanges getting hacked and your coins getting stolen.

Meanwhile, there are plenty of peer-to-peer crypto lending protocols on the Ethereum blockchain, like ETHLend and Dharma. But interest rates, no need for slow matching, flexibility for withdrawing money and dealing with a centralized party could attract users to Compound.

Still, the biggest looming threat for Compound is regulation. But to date, the SEC and regulators have focused on ICOs and how people fundraise, not on what people are building. People aren’t filing lawsuits against actual products. “All the operations have flown beneath the radar and I think that’s going to change in the next 12 months,” Leshner predicts. How exactly they’ll treat Compound is up in the air.

One source in the crypto hedge fund space told me about forthcoming regulation: “You’re either going to get annihilated and have to disgorge profits or dissolve. Or you pay a fine and you’re among the first legal funds in the space. This is the gamble you take before asset classes get baptized.” As Leshner confirmed, “That’s the number one risk, period.”

Money markets are just one piece of the financial infrastructure puzzle that still needs to emerge around blockchain. Custodians, auditors, administrators and banks are still largely missing. When those get hammered out to make the space safer, the big money hedge funds and investment banks could join in. For Compound, getting the logistics right will require some serious legal ballet.

Yet Leshner is happy to dream big despite all of the crypto world’s volatility. He concludes, “We want to be like Black Rock with a trillion under management, and we want to have 25 employees when we do that. They probably have [tens of thousands] of employees. Our goal is to be like them with a skeleton team.”

Bio-programming toolkit maker Asimov launches with $4.7M from Andreessen Horowitz

Biotech is one of today’s many hot frontiers of technology, but one thing holding it back is that it’s significantly less amenable to traditional computing techniques than other areas. A new startup called Asimov, spun off from research at MIT, is working on bridging the gap between the digital and the biological by creating, essentially, a set of computer-aided biology design tools. It’s a prescient enough idea that it has attracted $4.7 million in seed funding.

The problem that Asimov addresses is this. Say you’re a pharmaceutical company trying to make a tiny biocompatible machine that holds a certain amount of medication and releases it when it senses some other molecule.

In order to do so, you’d have to — well, among about a million other things — design what amounts to a logic gate and signal processor that works at the molecular scale. This is a daunting prospect, as creating molecular machinery is a labor-intensive process often involving creating thousands of variations of a given structure and testing them repeatedly to see which works.

Asimov’s innovation is to allow people to create biological circuitry like the above using familiar tools and techniques. In fact, they’d use the same tools as if they were going to build a similar circuit in silicon and copper.

The technique Asimov’s founders created — MIT’s Alec Nielsen, Raja Srinivas, Chris Voigt and Doug Densmore — translates the logic and structure of a traditional circuit into a DNA strand that can be introduced to an organism and replicated inside it, where it will perform the same type of calculation (XOR, for instance) inside the cell.

Built-in protections prevent errors at the molecular level, such as conformational problems resulting from this or that structure being too close to one another, and as a result, the creators claim the platform can tell you with 90 percent accuracy whether a circuit you’ve designed will work or not.

Some of the technical details can be found at this MIT news release from last year, or in this more recent blog post by Nielsen.

In another post, A16Z general partner Vijay Pande explains what he sees as adequate reason for investment:

With Asimov’s approach, high-accuracy simulation, and circuit building-blocks, we can greatly speed the development of biological circuits — decreasing their cost, and greatly increasing their sophistication and complexity.

We’re still in the “transistor phase” of things, so are not yet at the point where the full complexity of a modern microprocessor can be realized into the circuits of cells. But there are many initial applications where this technology can make major advances — much like how early microprocessors, as simple as they were, became a dramatically enabling technology.

The company says in a press release that the funding will allow them to “quickly scale and partner with customers in diverse areas.”

“We strive for Asimov to be the go-to resource for designing biological computation as biotechnology steadily becomes a fully-fledged engineering discipline,” wrote Nielsen. “I personally hope that this technology one day improves our ability to cure disease, empowers clean and sustainable manufacturing, and helps nourish a growing global population.”

Update: This article originally stated the amount raised was $4.5 million — it’s $4.7 million. Entirely my mistake.

For OpenGov, President Trump is proving a boon for business

OpenGov, a Redwood City, Ca., company whose software helps local governments keep transparent financial records, has been picking up speed in a variety of ways, and cofounder and CEO Zac Bookman traces some of that momentum to the election of Donald Trump as U.S. president.

“We had the best Q1 in company history. It’s typically a quiet quarter, and we blew the top off” our internal projections, says Bookman.

He adds that OpenGov has seen a 20 percent surge in job applicants, too.

It’s easy to see why Americans may be growing more focused transparency than in recent years. In just one small example of how things have changed under the new administration, the White House announced earlier this month that it will no longer disclose the logs of those who visit, a meaningful shift in stance compared with the Obama Administration, which disclosed more than 6 million related records.

White House communications director Michael Dubke told reporters that the decision owes to the “grave national security risks and privacy concerns of the hundreds of thousands of visitors annually.” (The previous administration also redacted some records on a case-by-case basis.)

The Trump Administration has also removed the  “Open Government” section from the White House website, and, more recently, Walter Shaub, director of the Office of Government Ethics, which advises federal agencies on how to ensure that employees comply with federal ethics laws, very publicly complained about the lack of transparency into potential conflicts of interest arising across the executive branch.

To hear Bookman tell it, local governments are largely moving in the opposite direction, partly in reaction to these White House moves, but also because it’s easier than ever to make public data seeable and searchable.

In fact, according to the five-year-old, 120-person company, there are now 1,400 public agencies across 47 states using OpenGov’s software, which helps governments create budgets, perform analytics, and allow residents to see what is being spent and where.

Bookman half-jokingly suggests that a third reason that city and state governments are embracing its services is peer pressure; when a neighboring city employs the technology and others “see them achieving so much more with so much less,” they feel more obliged to do something.

One of the biggest municipalities to embrace OpenGov’s technology to date is the city of Boston, which earlier this year created Analyze Boston, a open data portal built on OpenGov that enables it to publish sundry open data sets and make them available to residents.

Other local governments include Omaha, Neb.; Kenton County, K.Y.; and Ohio, where every local government in the state is using the platform.

OpenGov claims to be signing up a new customer every two days at this point. And it says that owes to its three offerings. One of these is budgeting software that aims to slice in half the time it typically takes to build a budget. Another is an operational performance management suite that helps local governments benchmark their performance against other cities. Meanwhile, a newer, open data service enables cities and states to turn their data into narratives for public and internal consumption, as well as connect their budget and performance data with Census data, FBI crime data, and financial data from thousands of other counties and cities.

The biggest governments are signing up first for its open data product, says Bookman, while smaller governments are signing up for management reporting and business intelligence.

He says in both cases, getting OpenGov’s customers up and running takes an average of just two days. (He credits a training program that OpenGov has designed for government administrators as the reason his own team can get in and out so quickly.)

Given the Trump “bump,” we ask Bookman — who has already raised $47 million for OpenGov and will announce a Series C round this year —  if he has observed whether governments in so-called blue states and red states are distinct in any way. We ask if they use different products or whether their attitude toward the company itself is discernibly different.

They are, admittedly, stupid questions. They’re also questions that Bookman, who calls OpenGov “apolitical,” has seemingly fielded in the past.

Volunteering that OpenGov’s customer base is “showing a near even split between red and blue,” he says he finds that “on a person gut level, conservatives are drawn to the message of efficiency and of cutting waste and fraud and abuse.”

As for liberals? “They’re drawn to [OpenGov’s] innovation and tech and progressive element,” says Bookman without missing a beat.

Propel raises $4M to make the social safety net more tech savvy and user friendly

Some big names are making an investment in food stamps — specifically in Propel, a startup that helps food stamp recipients manage their benefits.

Propel is announcing that it has raised $4 million in seed funding from Andreessen Horowitz, Omidyar Network, Kevin Durant’s The Durant Company and Max Levchin’s SciFi VC, as well as previous investors Jay Borenstein, WinWin and the Financial Solutions Lab at the Center for Financial Services Innovation.

“We’re excited to prove that venture-backed startups can responsibly address social issues, too,” founder and CEO Jimmy Chen told me via email. “In our business model, the best way to amplify our impact is to grow our business, by getting more users on the platform or by finding them more savings on groceries.”

Propel has created a free app called Fresh EBT — the EBT refers the Electronics Benefits Transfer card, which is how participants in the Supplemental Nutrition Assistance Program (the food stamp program) receive their benefits. Apparently using the EBT card normally requires people to call a hotline and save their grocery receipts. With Fresh EBT, on the other hand, people can check their card balance from their smartphone, browse nearby deals, see which stores accept SNAP and create a shopping list.

The startup says more than 250,000 people use Fresh EBT at least once a week. The ultimate goal is to help users access a variety of different services, not just food stamps/SNAP, and to create “a more user-friendly safety net.”

Asked whether future growth will depend on the broader political landscape and on government funding for these programs, Chen noted that SNAP hasn’t been significantly affected by the Trump administration — at least not yet.

“More broadly, if public sector service become less dependable during this administration, 20 million American families will still remain food insecure,” he said. “At Propel, our charter is to continue to help those Americans put food on the table. As a privately funded organization, we have the ability to persist despite political trends and to serve low-income Americans directly by combining the best public sector, private sector, and nonprofit sector programs to create a more effective safety net.”

Featured Image: Propel

Years after crashing on Travis Kalanick’s couch, this founder has raised $18M for his startup, Mashape

For Mashape CEO Augusto Marietti, the Silicon Valley dream is playing out as well as could be imagined.

In 2009, Marietti and his co-founder Marco Palladino — who’d formed a software company in Milan a year earlier — learned of and were accepted into TechCrunch50, a pitch competition that has evolved into today’s giant TechCrunch Disrupt events.

As the event approached, Uber CEO Travis Kalanick — then an active angel investor who was just beginning work on the ridesharing service — posted an ad on Craigslist, offering his home to founders coming in from out of town. Three teams responded; Kalanick chose Marietti and Palladino, providing them a bedroom for a few days and, more importantly, a lifeline to Silicon Valley after they returned home. Indeed, Marietti says he was back in California six months later, negotiating $100,000 in convertible notes with several early YouTube employees at Kalanick’s kitchen table.

At the time, Mashape had just $2,000 in the bank. Fast-forward, and today, San Francisco-based Mashape has raised $28 million in funding, including a fresh $18 million in Series B funding led by Andreessen Horowitz, with participation from earlier backers Index Ventures and  CRV.

It’s been a battle that has gotten easier to fight over time, as Marietti tells it.

New Enterprise Associates led a $1.5 million seed round in 2011, then the company “struggled and made it to the Series A,” a $6.5 million round that closed in 2013, including with a bit of capital from Eric Schmidt’s Innovation Endeavors and Amazon founder and CEO Jeff Bezos.

But Mashape’s newest round “happened quickly because we found a gold mine,” says Marietti of his 25-person company. How, exactly? The company had built for itself an internal technology to help navigate the API marketplace it began building years ago; at some point, it realized that its “air traffic controller-like” technology was the most valuable aspect of its business, and it began to make it available to enterprises.

It was a smart pivot. While early adopters like Uber understood the power of APIs early on — remember that Uber assembled its initial product with other companies’ mapping, payment and communications technologies — more traditional companies were slower to understand that APIs would become the center of modern application architecture.

They appreciate the power of APIs now. In fact, big companies are beginning to embrace these microservices in waves. Now they need tools that help their development teams build flexible new software systems out of them — which is where Mashape comes in.

It isn’t alone in tackling the challenge. Apigee and Tibco’s Mashery are among two companies competing for the same customers. Nevertheless, Mashape says that more than 30 companies are currently paying it a six-figure annual subscription for its core product, Kong. Meanwhile, Marietti says the startup turned cash-flow positive in December.