Look at the busiest U.S. investors in cryptocurrency startups this year, and in between investment firms like Digital Currency Group, Pantera Capital, Blockchain Capital and Andreessen Horowitz you’ll find Coinbase Ventures. The big difference between Coinbase Ventures and those firms? Coinbase Ventures isn’t a firm at all: It has no fixed fund size and zero full-time employees.
According to Coinbase president and COO Emilie Choi, that’s by design—and a testament to the decentralized future of finance that Coinbase is hoping to help realize.
Coinbase Ventures has backed more than 150 companies in its three years in existence, with notable companies in its portfolio from all over the crypto ecosystem like the well-funded but regulation-challenged BlockFi, non-fungible token (NFT) marketplace OpenSea, digital collectibles maker Dapper Labs, blockchain startup StarkWare and TaxBit, which recently raised funding for its crypto tax software at a $1.3 billion valuation.
Unlike some other corporate investors, Coinbase’s venture capital investments don’t come from a dedicated fund, but off its balance sheet. The company writes checks of $50,000 to $250,000 in seed rounds and larger, if necessary later on. And with its volume of deals and lack of dedicated staff, Coinbase Ventures prefers to join rounds led by other VC firms and not take board seats.
“I’ve got to imagine we’re the only ones doing it this way. It’s almost like our little hidden secret,” Choi says.
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Coinbase Ventures got its start in 2018, after Choi joined in March as head of corporate development after eight years spent in that function at LinkedIn. Meeting with cofounder and CEO Brian Armstrong, Choi says she took the job in part due to Coinbase’s willingness to aggressively consider acquisitions while still a private company. “I’m typically very skeptical of corp dev at late-stage startups,” Choi says. “Everybody says they want to do M&A, and they actually don’t—they just think they do.”
By April 2018, Choi had the idea that Coinbase should launch a program to invest in other crypto startups. Such a move wouldn’t necessarily come as a surprise considering that Armstrong’s cofounder, Fred Ehrsam, had left the previous year to cofound a crypto-focused venture capital firm, Paradigm; Coinbase also maintained close relationships with its own investors such as Union Square Ventures and Andreessen Horowitz. But the company didn’t have any venture professionals on staff; it also might face concerns, as a cryptocurrency exchange, of playing favorites with projects it backed.
Approached by Choi, Armstrong’s response was simple, she says: “Write the blog post.” Within 24 hours, Choi had drafted up a mission statement for Coinbase Ventures in such a public-facing format and published it. The company’s venture arm was now announced.
But that doesn’t mean Choi, later promoted to Coinbase’s COO and president, went on a hiring spree. Coinbase employees, many of them not only in corporate development (more mindful of acquisitions or big partnerships) but also in product and its coverage team, among others, communicate via a dedicated Slack channel. “We were, like, we’re just going to wing it with resources that exist today,” Choi says. “And it’s a labor of love. We just work on it nights and weekends.”
While Coinbase often co-invests alongside the VC firm specialists it knows, many of its potential deals come in from its employees’ activity in the broader crypto ecosystem; others are Coinbase employees striking out on their own.“There is some amazing machinery behind the traditional VC ecosystem. Ours is using Google Docs,” says Choi.
At Messari, a startup that provides data insights around crypto assets, aspiring to be something like the Bloomberg for crypto, CEO Ryan Selkis says Coinbase was already a key customer and partner before investing in his company. The company’s insights were critical to the design of its enterprise-level asset-monitoring service, now a multi-million dollar subscription business for Messari with more than 300 customers. Having Coinbase on the cap table—it invested in Messari’s seed round and again recently in its Series A—helped insure that the startup would always have a friendly point of contact at the bigger firm, its CEO says.
Coinbase Ventures makes no contractual promises about strategic help—“I’ve seen that fail over and over again,” says Choi. But Selkis says he’s confident such assistance will keep coming. “They’re like the 800-pound gorilla in U.S. crypto, and they have so many different moving pieces,” he says. “With our early bet on taking them on as partners, we know that there are probably going to be multiple ways that we can work with Coinbase in the future.”
Coinbase has gone on to acquire several of the startups in which it invests, notably Bison Trails, which it gobbled up in January. At Coinbase, Choi calls such developments a “nice benefit” but not the primary goal of investments. And at Messari, Selkis, who previously worked on such types of deals at Digital Currency Group and CoinDesk, says the possibility of Coinbase bringing a startup in shouldn’t deter founders, provided they know not to share full information or product road map details with any strategic investor, including Coinbase. “A good outcome for an entrepreneur is to have an exit. I don’t really understand that as something to be concerned about, so much as something to be aware of as one potential outcome,” he says.
That’s also backed up by Coinbase’s willingness to invest in startups that compete with one of its products, says Choi, who argues that the company sees the expanding category as more of a rising-tide-lifts-all-boats scenario than a winner-take-all. “Brian is always, like, good for them, and shame on us if we don’t build the best product,” she says.
Coinbase, which announced earnings last week, declined to provide data on its financial return from startup investments so far; Choi said the company does track performance as one factor, and that early returns look “incredible.”
Such claims should be taken cautiously without the numbers to back them up. But Choi’s willing to throw out one bigger number: “Coinbase Ventures could be a trillion-dollar market cap opportunity.”