All posts in “coinbase”

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.”

Coinbase CEO Brian Armstrong to talk the future of cryptocurrency at Disrupt SF

Coinbase has come a long way since its launch in 2012. The company has raised more than $225 million and paved the way for cryptocurrencies to enter the mainstream by providing a digital currency exchange. Which is why we’re absolutely thrilled to have Coinbase co-founder and CEO Brian Armstrong join us on the main stage at TechCrunch Disrupt SF in September.

Armstrong worked as a developer for IBM and consultant at Deloitte before joining Airbnb as a software engineer in 2011. At Airbnb, Armstrong focused on fraud prevention, giving him the opportunity to learn about payment systems across the 190 countries Airbnb serves.

In 2012, Armstrong co-founded Coinbase and gave a budding demographic of cryptocurrency enthusiasts the opportunity to trade in their USD for bitcoins, and later the digital currency of their choice. Coinbase currently serves over 10 million customers across 32 countries, providing custody for more than $10 billion in digital assets.

In fact, Coinbase was valued at $1.6 billion following a $100 million funding round in August 2017.

In April, the company unveiled an early-stage fund for cryptocurrency startups, and acquired Earn.com for $100 million. As part of the acquisition, the company brought on Balaji Srinivasan as its first CTO.

There were also reports that Coinbase approached the SEC to become a licensed brokerage firm and electronic trading venue, which would allow the company to expand beyond the four coins (Bitcoin, Bitcoin Cash, Ethereum, Litecoin) that trade on the platform now.

Just yesterday, Coinbase announced that it would offer a new suite of services aimed at institutional investors, who are beginning to warm up to cryptocurrencies.

There is plenty to discuss with Armstrong come September, and we’re absolutely thrilled to have him join the stellar Disrupt SF agenda. You can head over here to buy yourself tickets. See you there!

Hip hop finds its beat in the startup scene

Hip hop stars are taking their reputations to Wall Street and Sand Hill road.

Unlike their rock star brethren, who’ve historically been disinterested in dabbling with startups, quite a few hip hop artists have amassed good-sized portfolios. They’ve seen a few big hits too, most recently including a massive up round for zero-commission stock trading platform Robinhood, which counted Jay-Z, Nas and Snoop Dogg among its earlier backers.

But just how deep does the hip hop-startup relationship go and where is it headed? To shed some light on that question, we put together a review of Crunchbase data on the startup investment activity of famous musicians. We looked at both hip hop and pop stars, culling a list of 21 artists who are either active investors or have joined one or more rounds in recent years.

The general conclusion: Artists are doing more deals, raising more funds and backing more companies that graduate to up rounds and exits. Here are a few examples:

  • Besides getting a slice of Robinhood, Jay-Z and his entertainment company, Roc Nation, also saw an early portfolio company, flight club startup JetSmarter, go on to raise financing a year ago at a reported valuation more than $1.5 billion. Roc Nation also made headlines this week for investing in Promise, a startup providing alternatives to incarceration for people who can’t afford bail.
  • QueensBridge Venture Partners, the investment fund co-founded by Nas, was an early-stage investor in video doorbell maker Ring, which Amazon just bought for $1.1 billion. The firm could also see some paper gains this week in the much-anticipated market debut of Dropbox, which it backed in a 2014 Series C round. In addition, QueensBridge participated in a $25 million Series B round for cryptocurrency trading platform Coinbase back in 2013. Coinbase’s last reported valuation was around $1.6 billion.
  • Casa Verde Capital, a cannabis-focused venture fund co-founded by Snoop Dogg, has closed its debut fund with $45 million. Just this week it backed a $3.5 million round for vape manufacturer Green Tank.

That’s not to say everything a star touches turns multi-platinum. We found quite a few flops in their portfolios and assembled a list here of 10 startups now shuttered that counted a hip hop or pop star among their backers.

Becoming and remaining famous requires many of the same skills and qualities as running an entrepreneurial venture, including an exceptional degree of tenacity.

Of course, flops are part of life for early-stage investors, so there’s no reason we’d expect celebrities to be an exception. Moreover, most of the now-shuttered companies were not heavily capitalized by venture standards.

However, there are some higher-profile or more heavily funded companies on the flop list. One is Washio, a laundry delivery service, which raised $17 million from Nas and 20 other investors before hanging itself out to dry in 2016. Another is Viddy, an app for shooting and sharing video clips backed by Roc Nation.

Why the rich, hip and famous like startups

A number of venture pundits and pop culture mavens have previously pontificated why celebrities, and hip hop stars in particular, are drawn to startups.

One possibility is that rap music and startups resemble each other at the earliest stages, postulates Cam Houser, CEO of the 3 Day Startup Program. Rap music starts with a rapper and a producer. This duality, he says, is similar to the beginning stages of a startup, which commonly also brings together two people, a business and a technical co-founder.

Rap and startup entrepreneurship are also both longshot career tracks that celebrate raw ambition and unabashed self-promotion. To make it, however, both require an excellent grasp of what sells in the real world.

Branding is perhaps the most common rationale provided for the celebrity-startup connection. With their massive fan bases, swooning coverage and millions of social media followers, celebrities can certainly help get the word out about a new product or app. That said, the attention usually works only if said product also has compelling attributes of its own.

One of the less controversial explanations is that becoming and remaining famous requires many of the same skills and qualities as running an entrepreneurial venture, including an exceptional degree of tenacity.

It’s also true that in venture capital and the music business, it’s the hits that matter. It helps that we’re seeing plenty of those. 

Stock trade app Robinhood raising at $5B+, up 4X in a year

By adding a cryptocurrency exchange, a web version, and stock option trading, Robinhood has managed to quadruple its valuation in a year, according to a source familiar with a new round the startup is raising. Robinhood is closing in on around $350 million in Series D funding led by Russian firm DST Global, the source says. That’s just 11 months after Robinhood confirmed TechCrunch’s scoop that the zero-fee stock trading app had raised an $110 million Series C at a $1.3 billion valuation. The new raise would bring Robinhood to $526 million in funding.

Details of the Series D were first reported by the Wall Street Journal.

The astronomical value growth shows that investors see Robinhood as a core part of the mobile finance tools the next generation will rely upon. The startup also just proved its ability to nimbly adapt to trends by building its cryptocurrency trading feature in less than two months to make sure it wouldn’t miss the next big economic shift. One million users waitlisted for access in just the five days after Robinhood Crypto was announced.

The launch completed a trio of product debuts. The mobile app finally launched a website version for tracking and trading stocks without a commission in November. In December it opened options trading, making it a more robust alternative to brokers like E*Trade and Scottrade. They often charge $7 or more per stock trade compared to zero with Robinhood, but also give away features that are reserved for Robinhood’s premium Gold subscription tier.

Robinhood won’t say how many people have signed up for its $6 to $200 per month Gold service that lets people trade on margin, with higher prices netting them more borrowing power. That and earning interest on money stored in Robinhood accounts are the startup’s primary revenue sources.

Rapid product iteration and skyrocketing value surely helped recruit Josh Elman, who Robinhood announced yesterday has joined as VP of product as he transitions to a part-time roll at Greylock Partners. He could help the company build a platform business as a backbone for other fintech apps, they way he helped Facebook build its identity platform.

In effect, Robinhood has figured out how to make stock trading freemium. Rather than charge per trade with bonus features included, Robinhood gives away the bare-bones trades and charges for everything else. That could give it a steady, scalable business model akin to Dropbox, which grew by offering small amounts of free storage and then charging for extras and enterprise accounts. From a start with free trades, Robinhood could blossom into a hub for your mobile finance life.

Robinhood hires Josh Elman as VP of product, who’ll stay at Greylock

Zero-fee stock trading app Robinhood is getting some product firepower as it dives into cryptocurrency and weighs platform aspirations. Investor Josh Elman will join Robinhood as its VP of product while remaining a partner at Greylock, though in a reduced capacity.

With 4 million registered users, $176 million raised and a $1.3 billion valuation, the five-year-old fintech startup is shifting from a period of finding product-market fit to building a serious business. Elman’s experience with rapidly rising companies like Facebook, Twitter and LinkedIn could help guide Robinhood toward maturity.

“In January, I started talking with a few of my partners about how I want to spend the next decade of my professional life. What gets me the most energized is when I can dig in on product with a hyper-growth company. To that end, I’m joining Robinhood to lead product, where we will continue building powerful tools to give everyone broader access to our financial system,” Elman tells TechCrunch. “I am going to continue my role at Greylock as a venture partner, and will continue to represent Greylock on the boards in my portfolio. I am grateful to my partners for their support, and excited for what is next.”

Greylock has always been known as a fund run by veteran operators like Reid Hoffman, who joined as a partner while still the CEO of LinkedIn . A Greylock spokesperson tells me, “Josh is a sharp product-thinker who has backed excellent entrepreneurs and innovative companies that we are proud to have as part of the Greylock portfolio. We are supportive of Josh as he takes on this new operating role, and look forward to continuing our work with him as a venture partner.”

That term ‘venture partner’ typically means someone who won’t lead investments and/or isn’t a full-time permanent member of the firm like a “partner” as Elman previously listed himself. Some might view the shift as a demotion, or the start of a transition out of the firm.

The new role could create some conflicts, though. Greylock recently invested in cryptocurrency exchange Coinbase’s August Series D. But Robinhood just launched its own cryptocurrency trading platform in December, undercutting Coinbase’s 1.5 percent to 4 percent fee on trades in the U.S. by charging zero commission. Coinbase might worry that plans it shares with Greylock could make it back to Robinhood.

Read our post on the roll-out of Robinhood Crypto

Elman has dealt with this before, having hyped text fiction app Hooked whose seed round Greylock funded before it backed competing app Yarn’s parent company Mammoth Media with Elman joining its board. Elman declined to comment about the matter.

Josh Elman at TechCrunch Disrupt SF

An eye for interfaces

Elman began his career after a bachelor’s degree in symbolic systems with a focus on human computer interaction at Stanford in 1997. Elman worked on product for music company RealNetworks, and growth and job boards for LinkedIn before joining custom merchandise startup Zazzle . His big break came working on the launch of the Facebook Connect platform. He was then a PM at Twitter until joining Greylock as a partner in 2011.

In my experience, Elman is one of the best investors at spotting emerging social trends and helping companies find winning product strategies. Despite being in his 40s, he’s quick to dive into teen-focused social apps, understanding and funding them before they blow up. He was on the boards of Musically (sold to Toutiao) and SmartThings (sold to Samsung), plus was one of the few investors in honest feedback app tbh, which sold to Facebook. He’s currently on the boards of Medium, Houseparty and Discord — which are redefining blogging, video chat and video game communities.

Robinhood’s Bay Area HQ

Robinhood could use Elman’s skills as it tries to unite the traditional stock and cryptocurrency worlds using free trades up front while monetizing with subscription bonus features. The way Facebook and Twitter turned friends and thought leaders into a feeds of content to consume, Elman could assist as Robinhood does the same to financial markets.

Robinhood founders Baiju Bhatt (left) and Vladamir Tenev (right)

“I’ve known Josh for a couple years now and he’s always struck me as one of the most thoughtful product builders,” says Robinhood co-founder and co-CEO Baiju Bhatt. (Disclosure: I know Bhatt and his co-founder Vlad Tenev from

college). “We’re lucky to have him lead our product initiatives and join our leadership team as we take Robinhood to the next level.” Robinhood now has 170 team members across the Bay Area and Orlando, Florida. It’s planning to hire a VP for engineering and for customer support while scaling those teams, as well as legal and biz dev.

Having jumped the regulatory and engineering hurdles to offer cost-efficient stock trading, Robinhood has a huge opportunity to become the backbone of a new generation of fintech apps. The company declined to comment, but the startup could one day build APIs so other products could interact with your Robinhood balance and bank account. Elman worked with Facebook to let partners piggyback on your identity, and he might have ideas for turning Robinhood into a fintech platform.